Blackberry: Bring It On!

Mike Lazaridis knows all about the "BlackBerry Prayer"--the supplicating position one assumes when grasping the popular six-ounce wireless combination e-mailer/phone known as the BlackBerry between your palms and thumb-tapping messages on its QWERTY keyboard. His wife complained so often about his assuming the posture at home that he was forced to respond: he gave her a BlackBerry of her own. Then he gave BlackBerrys to both their kids, ages 8 and 10. During a recent family dinner, Lazaridis recalls, he looked up after pecking a reply to a colleague and discovered the whole family was engaged in the Prayer. They were even forwarding e-mails to each other while they sat in silence. "At least it's better than all of us talking on the phone," he says, but frankly, the 45-year-old Lazaridis has no one to blame but himself. Besides supplying his family with the device, he's also leader of the sect--the founder and co-CEO of the Waterloo, Canada-based Research in Motion (RIM), the firm that makes the BlackBerry.

The BlackBerry isn't really an object of religious devotion, but neither is it merely another silicon-powered, antenna-equipped mobile gadget. During the past three years the BlackBerry has spawned a full-blown business and cultural revolution, turning wireless e-mail into a virtual requirement for mobile professionals and business travelers in the 24/7 global economy. The devices have been adopted by governments for their employees and embraced by Hollywood actors, Wall Street bankers and every lawyer worth his or her weight in pin-striped suits. Karl Rove uses one around the White House. So does Tom Cruise in Hollywood, Oprah around the TV studio and Bill Clinton everywhere. For many, the BlackBerry has become a must-have device. It's even cracked the business lexicon, turning BlackBerry into a verb: blackberry. trans. v. To e-mail from a mobile phone. The verb seems to apply even when users are sending messages on a competing device, such as its chief rival, the Palm Treo. "I used to count BlackBerrys when I traveled," says Jeff Bradley, a VP at Cingular Wireless, which distributes various mobile messaging devices and phones. "I don't bother anymore. In the front of the plane, everyone has one out before the door closes."

But in its moment of triumph, with its stock up 600 percent since 2002, the two-decade-old RIM faces its greatest challenge. Despite RIM's waves of hype and its muscular stock price, there are only about 6 million wireless e-mail accounts in use today (a majority of them with BlackBerrys and Treos). Yet there is 100 times that figure in corporate e-mail accounts--650 million users. And many of those users will soon demand the ability to read and answer work e-mails on their mobile phones. In short, the market for wireless e-mail devices is set to explode--and that's drawing waves of eager competitors.

RIM's rivals are a diverse bunch, and they all hope to crack its formidable bond with both wireless carriers and customers. In the next few months, deep-pocketed mobile-phone and PDA makers, such as HP, Nokia, Samsung and Motorola, will release their own keyboard-enabled phones in the United States; each looks startlingly like a BlackBerry. While RIM enjoys a robust head start in selling the software that allows mobile e-mail users to send and receive messages, a group of software start-ups--as well as giants Microsoft and Nokia--are targeting that part of its business. "Every new day it seems like RIM is threatened by a number of things that are happening in this market," says Monica Basso, a researcher at Gartner Group.

RIM's wireless e-mail story began nearly a decade ago, when Mike Lazaridis was having a difficult time convincing anyone that mobile e-mail was worthy of attention. Born of Greek parents in Istanbul and raised in Canada, Lazaridis dropped out of the University of Waterloo months before graduation to set up shop as an engineer for hire. In RIM's early years, the company did contract work for firms like GM and produced wireless modems for computers, cash registers and vending machines (so they could automatically call in when running low). In 1995, Lazaridis--who has sported a shock of stark white hair since his early 30s--started thinking about ways to combine Internet e-mail, which he had learned to use in college, with the wireless data networks being used at the time for pagers. With his first mobile device, dubbed the Inter@ctive Pager, in 1997, Lazaridis opted not to use the touchscreens in fashion with Palm Pilots at the time; he thought those weren't really suited for inputting text. Instead, he developed a small QWERTY keyboard, seemingly optimized for the fingers of Hobbits.

Cell-phone operators--concentrating on earning money from voice calls on their analog networks--were so skeptical about mobile e-mail that RIM had to buy air time on pager networks and run the service itself. It advertised, sent out bills each month and provided customer support. The firm aimed its service at investment bankers and venture capitalists who were desperate to stay connected and informed in a rapidly changing economy. It turned out to be a smart move. The financiers rushed to buy the device and incalculably boosted its profile with each e-mail they banged out in hallways and public bathrooms at industry conferences.

By 2002, RIM had signed up half a million BlackBerry subscribers, and the wireless carriers woke up to the opportunity to boost their income from voice calls with revenues from e-mail. At the time only two carriers, T-Mobile and Cingular, took the gamble to offer BlackBerrys, but that was enough to get the ball rolling--they signed the 1 millionth subscriber to the BlackBerry service in February 2004. By the end of this year RIM will have agreements with 200 carriers--nearly every significant mobile operator in the world--and an estimated 4.5 million subscribers.

From outside RIM's 12 office buildings in the sleepy university town of Waterloo, Ontario, visitors can hardly tell that the company booked $1.35 billion in sales last year and remains Canada's best-known technology firm. But inside, the mood is intense. Most of the firm's 3,500 employees wear BlackBerrys on their belts like six-shooters, which allow them to stay constantly connected at nights and on weekends. The hard-driving pace is set by the co-CEOs, particularly Jim Balsillie, an accomplished triathlete who joined Lazaridis in the early '90s. On the day of his interview with NEWSWEEK, Balsillie had fresh wounds on his elbows from a bike accident and was bleeding visibly through a pants leg when he said, "It feels like we're still at the beginning and haven't gotten anything done."

Analysts say the BlackBerry is leading the pack in both brand recognition and subscriber growth. But its hegemony has already fractured. At the end of 2003, the Silicon Valley-based Palm released the Treo 600, its first e-mail and phone device to catch on after several attempts. Most BlackBerrys, with their wide screens and keyboards, are e-mail devices first and phones second, but with the 600, Palm designers managed to cram a keyboard onto a narrower handset, which looked and felt more like a regular cell phone. Palm CEO Ed Colligan says he recognized right away that "this would not be a winner-take-all industry." (Challenged, RIM last fall came out with its own narrower 7100 series BlackBerry, which groups two letters per button and uses software to predict the words users type.)

It took two more years for other hardware vendors to agree with Colligan. Local wireless stores will soon be flooded with competing devices like Motorola's Razr-thin Q (sidebar), which will offer an array of styles and phones with various add-ons, such as digital cameras and music players. The Q and other forthcoming devices will run on the Windows Mobile operating system, which means businesses can transfer their Windows software applications to these devices (RIM uses its own operating system that runs only Java applications). With so many experienced, deep-pocketed handset manufacturers cranking out alternatives tailored for customers with specific needs, analysts say that RIM will be hard-pressed to keep up its hardware advantage over the long term.

To stay in the game, most observers think, RIM must become more focused on allowing customers to use its e-mail service on any of the proliferating array of mobile devices. RIM agrees it's a priority, and touts BlackBerry Connect--a version of its e-mail network that works on mobile handsets other than its own. RIM has agreements so far with 12 non-BlackBerry devices, most of them available abroad. But analysts say a raging intellectual-property lawsuit between RIM and patent-holding firm NTP has scared some companies from adopting RIM's software. Balsillie dismisses the threat, and notes that a version of BlackBerry Connect for the Treo will be available this fall.

But RIM clearly doesn't want to give up on its signature BlackBerry hardware, which currently brings in nearly two thirds of its revenue. RIM executives also admit that BlackBerry's software works best on a BlackBerry--a fact that alienates rival hardware makers who have a handful of alternative partners they can turn to, such as Good Technology, Visto, Seven and Intellisync. These firms have slightly different business models, but they're all attacking RIM with lower prices and technology they claim will work with any device. Last week, Nokia entered the software fray too, announcing its own e-mail service that it will ship with all its own keyboard-equipped handsets.

The greatest long-term threat to RIM and all the other software players, though, may be Microsoft. Beginning last month, the Redmond tech giant has offered mobile e-mail as a free add-on to Microsoft Exchange, the server software used by nearly half of all large American businesses. Rivals and analysts say Microsoft's mobile e-mail freebie isn't as full-featured or secure as what's available from other companies. "But if Microsoft really cooks up the magic sauce and delivers it a year from now," says Larry Quinlan, the chief information officer of consulting firm Deloitte & Touche, "that is a strategic problem" for all the firms trying to sell wireless e-mail.

Balsillie and Lazaridis acknowledge that, but remain confident they can continue to profitably ride a booming industry. Why? One reason is the lock the company has on the minds of business professionals, who typically pick what device they want and then ask their IT departments to synchronize it with their office e-mail. "Our sales reps come in and say, 'We want BlackBerrys'," says Tim Oligmueller, who coordinates mobile e-mail for Adidas. As long as customers keep asking for BlackBerrys, carriers will keep stocking them.

Another factor comforting RIM's leaders is the devotion its customers show. It's not uncommon these days, for example, for users to assume the Blackberry Prayer at stoplights, on the jetway into planes and in restaurants. BlackBerry users routinely say they can't live without the device. Which could actually be RIM's greatest blind spot as the strategic storm approaches. After all, when you're selling a device that's viewed so reverently, it's clearly difficult to take seriously all the rivals that, for now at least, look so glaringly mortal.