July 2005

The Willing Partner

Continued from page 4

By Alex Frankel

Growing in a Growing Market
Today, more than 42,000 BlackBerry Enterprise Servers have been installed worldwide, and almost three million people subscribe to the BlackBerry service in some form. That's up from a million in January 2004, thanks largely to RIM's recent success in Europe. By this summer, Nokia, HTC, T-Mobile, and Sony Ericsson will all have products featuring BlackBerry Connect. Siemens is offering a device with BlackBerry Built-In, an additional form of licensing that uses RIM's Java-based applications as well as the push-based wireless services of BlackBerry Connect. This spring, RIM settled a patent dispute with NTP, an intellectual-property holding company, for $450 million; in doing so, it successfully resolved concerns about its future expansion in the United States. According to Ken Dulaney, an analyst for IT research company Gartner, RIM shipped more than 700,000 PDAs globally in the first quarter of 2005, a 75 percent increase from a year earlier.

Still, RIM has its skeptics. When the company announced in April that during the fourth quarter of fiscal 2005, it received 66 percent of its revenue from handhelds and 14 percent from software, some contended that it did not have its heart in licensing deals. But that 14 percent represented $57 million -- a nice bump up from the $5 million that software licensing contributed in the fourth quarter of 2003. Dulaney predicts that RIM's hardware business will not survive long term against competition from Asian manufacturers. But he also points out that RIM's revenues are boosted by individual user fees of about $10 per month, and he projects that the company will have five million users by year's end. "Today, RIM is measured by its BlackBerry devices," he says. "To survive, RIM has to be measured by seats installed." Balsillie, for his part, says it is not clear -- or important -- whether future revenues will come mostly from licensing or from sales of handheld devices.

Of course, Balsillie's actions indicate that he does care where future revenues come from: RIM, through its partnerships, is tying its fate to that of the wireless e-mail industry as a whole, an industry that has grown and is projected to keep growing exponentially. Between 2002 and 2005, the number of users more than doubled -- from 14.6 million to 30.8 million. Most of this growth has been in the corporate sector, but future growth is projected to include consumer markets as well. "It's a rapidly, dramatically expanding market, so I am hardly fretting," says Balsillie. "If the market is going to 3X, and our market shrinks somewhat, who cares? It's all about enabling the market and driving it forward. It's all about that. Oh yeah, for sure. Without a doubt."