1.

Introduction
1.1 Research in Motion (RIM) and the BlackBerry messaging device When Research in Motion Limited (RIM), a Canadian developer and producer of wireless communication systems, entered the market for mobile corporate messaging in 1999 with the BlackBerry wireless email solution, it not only delivered a fascinating and easy-to-use device which proved to be wildly successful as of today. RIM also redefined the boundaries of the market for mobile corporate messaging by integrating previously separated modes of communication into a new, seamless end-to-end solution. While RIMs BlackBerry device and the underlying communication service includes most features of existing substitute products and services such as PDAs, mobile phones and pagers, it was the first to integrate stationary corporate email with a wireless handheld device. In this, RIM managed to provide a new communication solution that took over functions of existing channels while offering new conveniences. 1.2 The scope of this paper Now, in 2002, RIM is still a niche player. However, 320K devices have been sold in North America, mainly to corporate customers in specific vertical markets, such as financial services1. While the market for mobile corporate messaging has not been revolutionized, it has been at least expanded by RIMs technology. This paper will discuss mobile corporate messaging and shed light on RIMs decision to enter the market with its specific, proprietary technology in the late 1990s. At first, we will provide a description of the company and of the launch of BlackBerry (Chapter 2 and 3), followed by an analysis of the market for mobile corporate messaging as such (Chapter 4). We will then examine the approach RIM chose to enter the market for mobile corporate messaging (Chapter 5) and how it managed the risks inherent to this venture. Finally, we will provide an analysis of new challenges facing RIM and on likely perspective of future
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developments (Chapter 6). Excepted for chapter 6, all the analysis will be done as of 1999, when RIM entered the market with BlackBerry. Since RIMs star product was facing in 1999 various competitors that were providing part or all of the value delivered by BlackBerry, we will compare

2. Research in Motion
Corporate History: from software development to mobile messaging Research in Motion (RIM) is a designer, manufacturer and marketer of wireless solutions for mobile communication. Through development and integration of hardware, software and services, RIM delivers mobile end-to-end access to time-sensitive information such as email and other internet and corporate intranet-based applications. RIMs most known products are the RIM Wireless Handheld product line and the BlackBerry wireless email solution. It also makes wireless PC cards for laptops and handheld computers and radio-based modems that other OEMs incorporate into portable devices. RIM sells to corporations, resellers, and wireless carriers. The company was founded in 1984 by Mike Lazardis, who is still today CEO of the company. Corporate headquarters are located in Waterloo, Ontario/Canada with offices throughout North America and recently also in Europe. The company underwent an IPO in October 1997 and is listed on the NASDAQ stock market (NASDAQ: RIMM) as well as the Toronto stock exchange (TSE: RIM). RIMs employee base has grown rapidly from approximately 200 people in 1998 to over 1400 in mid-20012. Recent revenues amounted to $ 221M as of February 2001; BlackBerry and RIM3 handheld devices generated 91% of them. RIM has a history of working in the field of wireless email solutions since 1991 (see Appendix 7.1), including early work in areas such as wireless gateways, wireless modems, mobile credit card approval and taxi fleet management. In 1998 RIM launched its Inter@ctive 950 pager,
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which allowed the user to send and receive email and faxes. It accounted for 65% of product sales within one month. In 1999 BlackBerry followed, adding encryption technology and connection to corporate email. The crux of our analysis will be focused on the successful product launch of this groundbreaking innovation.

3. The Introduction of BlackBerry in 1999

And now the time had come, it was January 1999, BlackBerry was launched. The first solution to address remote access corporate messaging needs as a one stop-shop solution arrived to the market, breaking out market boundaries to become a new category definer. One stop-shop means that RIM offered a full-blown package that included: Wireless handheld with embedded wireless modem and integrated email/organizer software.
Single mailbox

integration with MS Exchange.

Nationwide coverage on Canada and USA through BellSouth and Cantel networks including

flat-rate airtime.
BlackBerry

Enterprise Server software to provide centralized administration

Consequently, RIMs business model as a hardware provider changed to start becoming a wireless solution provider. As observed in the below exhibit, leveraging on the existing core radio technology, the BlackBerry Solution configures a powerful service to the market and represented a win-win movement. The user got all the features of the RIM handheld with a single point of contact for servicing and billing, while RIM created a very appealing recurring revenue model.

Technology wise, BlackBerry hinged on several core technological components: An Intel386TM processor, Microsoft Outlook and Exchange email software, Puma software (PIM and synchronization functionalities) and RIMs core radio technology. The choice of these reliable, best of breed technologies with strong market presence was one of the fundamental cornerstones of the posterior success of the BlackBerry (We will further examine this central fact in chapter 5). This innovative all in one idea was incredibly successful if we take a look to the financial result obtained back in fiscal year 2000, only 14 months after the commercial launch of BlackBerry. Revenue figure almost doubled to $85.0 million from $47.34 million in the last fiscal year 1999 (see exhibits below). Although this increase was primarily due to sales of the RIM 950 Wireless Handheld and the RIM 850 Wireless Handheld to BellSouth Wireless Data accounted approximately 56% of the Companys revenues. BlackBerry meant for approximately 19% of revenues (although by the fourth quarter of fiscal 2000, BlackBerry revenues skyrocketed to represent 41% of RIMs revenue). The remaining 25% of revenue was comprised of OEM radio modems, software license revenue, non-recurring engineering charges and wireless PC cards.
4

Taking a step back in fiscal year 1999, RIM 950 Wireless Handheld accounted for 80% of revenue, with OEM radio modems and wireless PC cards accounting for the balance. This change in revenue mix supposed a gross margin increase to 43% from fiscal year 1999, which was 39%.

3.1 Addressed customer needs In 1999 mobile workers needed a fast, easy remote access to their email but no company had been able to entirely meet this need. It was RIMs BlackBerry that found a way to provide this service overcoming of the hurdles to satisfy both users and corporate IT departments. The need was known by the whole industry since market research on mobile email revealed common user complaints about dial-in solutions: the inconvenience of lugging a laptop just for email, the difficulty of finding a connection and dialing out of hotels, and the difficulty negotiating the corporate dial-in security. IT managers also voiced displeasure with the existing solutions: managing modem banks to provide remote access and the risk associated for the corporate info ranked their list of concerns. Supporting dial-up PDAs was seen by many as too risky because of the lack of security software available for the PDA end of the connection at that moment in time. Bearing this in mind, RIM created BlackBerry the first complete solution for accessing corporate email from a single handheld. Apart from simplifying remote email access, it targeted
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must have corporate requirements regarding performance, reliability, security, functionality and support. Thus, combining users and IT departments needs into a simple and easy-to-support but complete solution.

3.2 Product characteristics

Advanced

wireless handheld: Intel386 processor, 2 MB Intel Flash memory, embedded

wireless modem, 2 watt transmitter, optimized keyboard, thumb-operated trackwheel, easy-toread backlit screen and integrated email/organizer software.
Always

On, Always Connected: "push model" of email delivery; no dialing in; no initiating

connections; email finds the user; no effort required.

MailBox

integration: Seamless integration with Microsoft mail Software so all messages sent

and received are stored in users existing mailboxes.

Portability:

Included wireless modem and integrated email/organizer software. Longlife AA

battery and Puma Technologys Intellisync software for easy-to-use PC synchronization, so users can carry their email and organizer in a single wearable device.

Security:

Triple DES encryption technology in all wireless communication for remote email

access. All wireless email messages are compressed and encrypted using Triple DES, ensuring the integrity and security of the data at all points between the BlackBerry Handheld and server.
Nationwide

Coverage: BlackBerry operates over nationwide wireless networks in the

United States and Canada. Nationwide networks offer broad coverage, nationwide roaming and fast messaging.
Flat

Rate Pricing: Affordable monthly fee that includes flat-rate airtime provided by both

supporting network operators across North America.

BlackBerry

Enterprise Server: optional add-on server software provides centralized

administration, increased scalability, enhanced performance and improved support for laptop users.

3.3 Distribution Channels During that first year, 1999, BlackBerry service began its distribution using Microsoft valueadded resellers (VARs) only across the United States and Canada. VARs were consultants that assist companies with their corporate computing requirements. These VARs marketed BlackBerry to their corporate customers with the value proposition of having their employees always connected to their desktop, saving valuable time that is otherwise spent sorting through email at the end of the day. But RIM did not stop there and benefited from partnerships with other players to spread their distribution network. Key milestones were6:
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Sep 99: RIM and PageNet Canada Form Strategic Alliance To Expand Distribution and

Services for BlackBerry Wireless Email Solution

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Sep 99: Research In Motion Signs Agreement With Espernet.com to Supply BlackBerry

Wireless Email Solution To Subscribers

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Nov 99: Dell to Resell RIM's BlackBerry Wireless Email Solution

More than 450 companies ended up using BlackBerry in 1999 with names such as Credit Suisse First Boston and Merrill Lynch among them. These corporations provided a definitive endorsement of BlackBerry value proposition.

3.4 Resource commitment RIM demonstrated from its foundation a heavy commitment to the internal innovation projects by investing up 15% of their annual sales into R&D, supposing almost half of their cash resources. Their long-term strategy was to maintain market leadership banking on their R&D initiatives. During fiscal year 2000, roughly 200 new employees were added, with up to 41% dedicated to R&D7. In the first year after the launch of BlackBerry, gross research and development expenditures reached $12.2 million, which represented an increase of 54% (see exhibit in next page). Additionally, a new R&D center was opened in Kanata, Ontario in fiscal 2000, which focused on the development of next generation radio technologies. R&D expenditures were also augmented through product development partnerships with industry leaders such as Intel, universities such as University of Waterloo, MacMaster University and University of Toronto, and government agencies such as Technology Partnerships Canada, Canarie Inc., and the Ministry of Energy, Science and Technology8. To fund this heavy spending RIM received several million dollars in government assistance since almost the start of the firm, which primarily consisted of funding received from the Technology Partnerships Canada

program and investment tax credits. This financing strategy has been a distinctive characteristic from RIM to promote development of future generation concepts and designs. On top of this R&D and HR expenses, RIM faced a strong increase in selling, marketing and administrative expenses up to $13.9 million for the fiscal year 2000, compared to $6.5 million for fiscal year 1999. Sales, marketing and administrative expenditures increased to 16% of total revenue versus 14% in the previous year, as RIM increased expenditures to support the BlackBerry sales and distribution channels.

3.5 Partners and Alliances Commercial Alliances A key component of RIM's success with BlackBerry is attributable to the strategic alliances, and partnerships it had put in place over the years with technology innovators, network operators, software developers and distributors. During 1999, on the network operator front, RIM enjoyed or established relationships with BellSouth, Cantel, PageMart Canada and PageNet. On the distribution side, partners included Microsoft VARs in the first state, and not much later after using OEMS, carriers and ISP to broaden the distribution network, names such as: Espernet.com and Dell. Additionally, technology partners assisted RIM in product design, configuration, and production include Analog Devices (ICs), Intel (microprocessors). On the software side, key allies were Microsoft (mail systems) and Sun (Javas technology), also PUMA (PIM software), Sybase (databases), and ADEMCO (security software). Other big names to appear onto the scene would be Nortel Networks, AOL and Compaq at the beginning of 2000. Perhaps the most known deal until 1999 was RIMs strategic alliance program with Bellsouth Wireless Data, Sybase to form the Strategic Alliance to Enable Wireless Platform for Business Information in September 1998. But even so, the most important initiative taken by RIM was to have an Open

Programming Environment meaning that the RIM handheld was designed as an open platform with the purpose of making it easy and accessible for other software developers to create applications. This resulted in companies like Fidelity Brokerage, Wynd Communications Corp. of California, Sybase, GoAmerica and WolfeTech creating applications for RIMs platforms. In total, more than 300 other companies had obtained RIMs Software Developer Kit to assist them in writing programs for the Inter@ctive Pager platform which was BlackBerrys core platform in May 19999.

Government and University Partnerships Another pillar of their partners strategy was to sign with the Canadian government an agreement that provided RIM with financial assistance equal to 50% of current and capital research and development expenditures with respect to the Ontario Technology Fund and 30% with respect to Technology Partnerships Canada. This assistance from the Ontario Technology Fund was repayable in the form of royalties based on future sales related to the technology funded. Last but not least was the cooperation program that RIM developed with the most important, technologically wise, Canadian universities such as University of Waterloo, MacMaster University or University of Toronto (The rationale behind this network of alliances constructed by RIM throughout the years will be fully addressed and analyzed in chapter 5.1.

4. Mobile Corporate Messaging

4.1 Definition of the market for mobile corporate messaging During the 1990s, email had become the most commonly used standard for fixed corporate messaging. The landscape was quite different for the mobile corporate messaging market, which

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had been addressed by a broad range of solutions such as one-way and two-way pagers, SMS, corporate voice mail, synchronized PDA and mobile phones10. 4.2 Customer needs and expectations User Needs In the market of mobile corporate messaging, customers need immediate, convenient, mobile bidirectional communication allowing for a maximum degree of richness, security and simplicity at minimum cost and disruptiveness. The most important end users need is a convenient access to their corporate email accounts. Corporate Needs Corporate customers are concerned about the integration and technical issues of the system. Hence, a corporate buyer of a mobile corporate messaging system will look for an economic, stable solution that performs the functionalities of mobile messaging in a secure (encryption) and fast mode, at a reasonable cost.

4.3 The Value Chain The Value Chain of mobile corporate messaging The value chain of delivering a corporate mobile messaging solution to the end-user comprises a large number of intermediaries. The value chain in its complexity is depicted below11. We differentiate between three separate value chains for the handheld device itself, connectivity, distribution & services. Value Chain of mobile corporate messaging

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The value chain for corporate mobile messaging starts with the device design (including hardware, operating system and software) and manufacturing, followed by the wireless service supplier, the architect and developer of the email service. On the corporate side (including wireless gateway, access proxy and email server) and ending with the relation to distribution and services (comprised of system integration, maintenance and support), the IT corporate buyer and the end-user. The below exhibit also shows how RIM dealt with each of those bricks that comprised its initial solution, and in particular, how it decided to develop and integrate internally the major parts of the handset design and manufacturing, and the development of the gateway on the corporate side. RIMs product, consisting of a device (the handheld BlackBerry), software (server-side and device-side), and a service (wireless information transmission and integration with the existing corporate system), thrives on its capability to provide an end-to-end solution. It was therefore essential to RIM, to find and establish alliances with complement partners to cover the entire value chain. As a result, a number of elements were outsourced or co developed through alliances. The way RIM handled these alliances and partnerships to develop expertise in all critical domains will be analyzed further together with its entry strategy.

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4.4 Required Complements For RIM system of mobile corporate messaging to work, a number of complements are essential12: wireless connectivity, provision of data access, availability of client applications and data services, and system integrators. Wireless connectivity RIM rely on existing packet data wireless network providers and support different protocols. The success of the products depends on the ability of these providers to provide these technologies, on the quality of their networks and on the affordability of the commercial terms they propose to RIM. For example, the initial BlackBerry supported two wireless standard (Mobitex and DataTac), and was used on BellSouth and Cantel wireless networks. The importance of this technological choice will be analyzed and emphasized further in the chapter describing RIM wireless alliances management (See chapter 5.1.).
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Data access All the corporate application providers can be considered as required complements to RIMs solution. This includes corporate messaging systems (such as Microsoft Exchange, Lotus Domino), software vendors (ERP, CRM, SCM). RIM needed to extend the connectivity of its server side solution in order to facilitate the access to this information, the key objective of the partnerships/alliances that RIM undertook. Client applications In order to display and edit the data accessible through the BlackBerry device, RIM needs also to provide client applications (such as word processors, spreadsheet editors, HTML browsers, instant messengers). Data services Online services such as online banking or online stockbrokers can also be considered as complements of corporate data. Some of these services are already customized for access through various wireless devices. They involve a direct connectivity of the wireless device to the Internet and not only to the corporate network. A wider array of such online services has potential to drastically increase BlackBerrys value to the user by widening its base of applications. It is thus a vital complement for further usage and penetration of the system. System integrators System integrators are required to implement such an architecture and provide maintenance and support for the solution. For instance, Microsoft`s VARs to distribute and support BlackberryTM in first place. Sales and Distribution Specifically for a small market entrant such as RIM, sales and distribution network was a vital required complements. In order to reach critical mass in their sales volume, alliances and

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partnerships with established distributors are necessary to address the corporate customer and manage growth. 4.5 Technological issues skills and capabilities Technological capabilities were among the strongest key success factors (see below). Two issues are essential to understanding this aspect of mobile corporate messaging: the technological sides of data delivery and system architecture. Data delivery We can qualify the issue of data delivery by the following attributes. The different solution for corporate data can be interpreted along these lines:
Connection

type: Always on (the device is always online) or Session-oriented (need to set-up

a connection before accessing to the data).

Content: Delay

Email, intranet data, access to corporate applications, voice

to access the data: Queued (stored and delivered) or Not Queued (real time), measured

by the latency of the system.

Origin

of the communication: Push (the servers push the data to the client) or Pull (the client is

requesting the data)

Location

of the data: Download (data is stored on the client device) or Browse (Data is viewed

from the server) System architecture The below exhibit13 shows the technical architecture required to deliver corporate mobile messaging. Within the corporate network, the Access Proxy links to internal services such as email servers, ERP or CRM databases. Data is transmitted over the internet to a internet to wireless gateway. Using a wireless protocol (Mobitex, DataTac, Reflex, GSM, CDMA ), data is then conveyed to the wireless device.

15

However, a specific solution may provide only a subset of these components. While some existing systems (such as BlackBerry) make use of the entire architecture, several less sophisticated solutions avoid the Access Proxy needed (such as Palm VII). For corporate data, the confidentiality and integrity of the communication is critical. The wireless networks usually do not provide an adequate level of security and some solutions may be required to protect the data from interception and to authenticate the user of the connection. The variety of data accessible through the client device is also a key element of the value proposition. It depends on the flexibility of the Access Proxy to connect to the legacy applications of the company and on the availability of client applications to display and edit the data retrieved (PDF viewer, web browser, spreadsheet, word processor). 4.6 Key Success Factors To succeed in competing along the value chain of mobile corporate messaging, a number of key success factors on both the technological and the organizational side are crucial (see also exhibit below14).

16

Technological

edge: the technological capability to perform the functions required to deliver

the seamless end-to-end solution to an end user, i.e. technical know-how to develop and manufacture hardware and software in the field of wireless-modems, PDA devices, enterprise server technology and cryptography.
System

integration skills: the organizational and technological capability to integrate and adapt

the own system (hardware and software) with existing structures at a corporate client, i.e. to interconnect with existing network nodes and corporate email servers.
Marketing

focus: the ability to understand and serve the key customer needs, to build

awareness and create pull from the potential end user while reassuring the corporate level with an acceptable return on investment through increased efficiency.
Distribution

capabilities: the ability to manage B2B distribution to corporate clients (device)

and to manage the relationship with wireless carriers (service). These capabilities can be either developed in one single company by vertical integration or brought by different players of the industry contributing to the final solution. As described in the below exhibit, RIM chose to engage in a network of alliances with several key players in order to assure delivery along the entire value chain, addressing all key success factors.

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4.7 Existing Substitutes - Differentiation While BlackBerry provides a unique end-to-end solution to mobile corporate messaging, a number of existing systems and combinations of products and services fulfill the needs it addressed to a certain degree15 (See exhibit below; for the framework used to compare, see Chapter 4.2). Since there is, in 1999, no direct competitor in the market yet, who offers a fully integrated corporate email solution, these were the substitutes to BlackBerry.

18

Pager The traditional pager has been widely in use in the US for many years. Similar to BlackBerry, it offers immediate, written, mobile messaging with low disruptiveness. Some pagers offer twoway communication, and few offers included interconnection to existing email accounts. But as of 1999, no connection to corporate email account was possible. Compared to two-way pagers, BlackBerry is capable of transmitting far more complex messages and integrates additional services, its most differentiating feature being the possible interconnection to Microsoft Exchange corporate email server. Corporate voice mail Corporate voice mail is widely used for corporate messaging. It offers a comparable degree of mobility, transmittable complexity and simplicity at a similar cost structure, but lacks the written form of email. Lastly, it does not work bi-directionally.

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Synchronized PDA In its overall profile, a synchronized PDA linked to a traditional email system resembles the closest substitute to BlackBerry. It delivers the same or a comparable degree of mobility, comfort, complexity of messages and bi-directionality. PDAs main pitfall being the lack of immediacy in the access to email. Mobile phone The most popular system for mobile corporate messaging is without doubt the mobile phone. Using widely established networks and a large installed base of users and available services, it delivers most needs of mobile communication. Compared to BlackBerry, the mobile phone lacks the written form of messages and it does not use the same account, as it is necessary to call someone and use oral communication to convey a message. Also, mobile phones stand out by their high disruptiveness. Using the installed base of standard mobile phones, SMS evolved recently as being a simple but very effective mean of mobile communication. As compared to SMS, BlackBerry offers enhanced comfort of usage, much higher possible complexity of transmittable messages and the connectivity to email accounts.

4.8 Market size and growth expectations Number of users and total market size Only taking into consideration licensed MS Outlook and Lotus Notes seats, the market size in 1999 was estimated to be 130 million users16. With RIM setting up alliances with several US and European distributors (mainly network carriers), this could expand significantly. The investment bank Dresdner Kleinwort Wasserstein views RIMs total addressable current market of licensed Outlook and Notes users, ISP subscribers, and GSM carrier subscribers as 163.8 million people, growing to 339 million people by 200516. Compared to the total market size, investment banks

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estimate the installed base of BlackBerry users to grow to approximately between 600,000 and 700,000 users by the end of 2003, and between 1,200,000 and 1,500,000 users by the end of 2004. RIM Revenue Assuming an increase in penetration from 0.1% of the addressable market in 2001 to 0.8% in 2005, RIM can expect a growth of annual revenue from BlackBerry from $117 million in 2001 to $914 million in 2005.

4.9 BlackBerry - Value Proposition Upon introduction of the BlackBerry device, RIM offered a very unique value proposition to its potential end users, corporate customers and carriers/distribution partners. As already discussed, the RIM approach to mobile corporate messaging fulfilled all relevant needs already addressed by existing substitutes, while being the only system to integrate software, hardware and communication service in a ready-made, easy to use and fail-safe way. To the user, the systems value consisted in a simple way to access corporate email while out of the office and thus better use personal time and reactivity to important messages. Simplicity as well as a promise of increased employee productivity made the system attractive to corporate buyers. Value proposition to complements, and in particular BellSouth, Cantel networks and Microsoft VARs, who first distributed the solution, is essentially based on revenue sharing and potential differentiation from competitors, as described in exhibit below.

21

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5. Entry Strategy Analysis

This chapter analyses how RIM, a small company with $12 million revenues in 1997, managed to build an integrated solution requiring expertise in very different domains and make it successful in a marketplace, where more experienced and financially powerful companies such as Motorola, 3Com or Nokia failed to address all the challenges and experienced disappointing sales. 5.1 Network of alliances To understand the relatively rapid success of BlackBerry in the corporate marketplace, one must understand the key technological components that enabled the product to strive. We have identified radio-modems, device integration and development, middleware development and network infrastructure as the key variables that should be in place for a successful launch of a wireless messaging device. Additionally, we must stress that the distribution strategy followed by RIM was decisive to achieve the successful launch (see description of the value chain in 4.3). The history and rationales of the partnerships conducted by RIM can help us understand how this company managed to put together different players and technological ideas to come up with an integrated product/service that, although considered innovative, was comprised of several not precisely brand new technological pieces. In short, RIM came up with an innovative, one stopshop, and standardized solution for corporations, gathering various pieces of existing technologies and developing few others pieces and by doing so, it gained an competitive edge in the wireless messaging market. In this analysis, we tried to reconstruct the logic behind the most relevant alliances. We looked at the technological components that RIM integrated to develop BlackBerry and how it later decided to commercialize the product.

Wireless Messaging Device - Processor

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The alliance with Intel in 1998 can be understood as critical for both companies. For RIM, Intel redesigned the architecture of the existing Intel386 processor to achieve lower power consumption for wireless applications. This specific development was critical for the wireless device development, giving its capacity to run attractive applications. For Intel, it was a critical step to learn how to develop a chip suitable for the wireless environment, a low power consumption chip with enough processing power. By using a reliable partner that was deeply committed with the wireless industry, Intel had the opportunity to develop a product that could also be extended to other wireless products such as cellular phones and PDAs, creating an attractive opportunity to enter the booming wireless market. Wireless Messaging device Radio Modem RIM developed its wireless expertise mainly in developing wireless modems for Mobitex and DataTac pager networks. To gradually extend its knowledge, RIM participated to different alliances: 1991: First contact with wireless technology through an alliance with Ericsson, GE and Anterior Technology. The goal of the alliance is to develop a wireless email gateway. RIM enters the alliance as SW developer. 1995: Motorola opens the specifications of DataTac standard, RIM forge an alliance with Motorola to develop wireless modem compatible with DataTac standard. Motorola was wishing to partner with companies willing to develop devices compatible with DataTac standard in order to make this technology more attractive to wireless network operators. Subsequently, RIM adapts its modems to also work on the open standard developed by Ericsson, Mobitex. Focus has been primarily kept on packet-switched technologies and a succession of alliances with major wireless players (Ericsson, Motorola) and enabled RIM to build a strong expertise in designing and

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manufacturing light and low consumption wireless modem for the main pager networks. In 1999, RIM manufactured the lightest wireless modem of the market. Network Infrastructure Alliance with BellSouth18 that covered in 1999, 93% of urban areas in the US and allowed RIM to offer monthly subscription of US$39.99 for customers to access the MS exchange or ISP email. Concisely, messages received in the users desktop were copied, compressed, encrypted and continuously sent via the BellSouth national mobile packet switched data network (over Mobitex standard). This represented a value-added service to the client. The BlackBerry solution provided airtime included in the product for a flat monthly fee. This agreement provided traffic for BellSouth pager network, which was beginning to suffer from mobile network competition in 1998. This alliance made sense for both partners and RIM was able to negotiate a favorable revenue sharing. Although no public data is available on this point, analysts estimate that RIM earns $30 out of the $39.99 monthly fee paid by subscribers19. Commercial strategy and market focus: By 1999, RIM offered BlackBerry at a price of US$399 plus a flat monthly fee of US$39.99 plus an activation fee of US$49. According to analyst reports, the average monthly ISP e-mail bill in 1999 was around US$20, putting the BlackBerry price well above the reach of the mass market. RIM decided to focus on the corporate market despite the huge unrealized potential of wireless e-mail for masses. Distribution RIM established a first agreement to distribute BlackBerry through Microsoft VARs. The key benefit was to be able to bank on Microsofts VARs customer base of Exchange e-mail users. In exchange, VARs would extract additional revenues from existing clients by making a $50 commission per device sold, plus half the license of the software server; VARs were responsible

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for the distribution, installation and configuration of the product. The after sales support subscriptions were maintained by a help desk support service provided by an outsourced company. RIM leveraging on credible and well established channel, Microsoft VARs, without incurring in additional fixed costs Microsoft VARs choice as distribution partners can be understood as an natural election for RIM because Microsoft was already the dominant player in e-mail corporate market with Outlook. In addition, RIM, as a member supporter of an JV called Wireless Knowledge between Microsoft and Qualcomm to bridge mobile workers with corporate information as one the press releases defines. RIM, in line with this efforts had developed a software for the Microsoft e-mail server that works behind the firewall and links the wireless customers with corporate Microsoft e-mails server. Other important alliances Encryption RIM understood that one of the key potential resistances to develop the mobile communications market and strongly emphasized by corporate customers was corporate data security in mobile communications. RIM addressed this potential market obstacle by making a partnership with Certicom and ADEMCO to offer the required security demanded by corporate customers. Alliance with application providers Companies like GoAmerica for the offering of web clipping and Sybase for server software (allowing IT to control one single point for multiple BlackBerry wireless users) developed applications for BlackBerry as a result of RIM strategy of opening for download software kit developments, allowing the development of applications that could run over BlackBerrys operating system. The Open Programming Environment strategy conducted by RIM, first with the handhelds and later with BlackBerry was basic to allow software developers to boost the number and variety of applications supported by the platform. The availability of third party

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applications on RIM Wireless Handhelds continued to be an important selling feature over the next few years as more people turn to wireless devices as complete solutions for their mobile communication needs. On late 1999, existing applications included wireless web access, dispatching services, auto location notification and law enforcement applications. The final 1999 year achievement in this intent was to strike a deal with Sun Microsystems to implement their Java 2 Micro Edition (J2ME) technology in all RIM handhelds. J2ME opened up a new, crossplatform development environment for solution providers and would help RIM to drive demand for wireless technology beyond the pure email market.

5.2 KSF during the launch of the product A safe, simple, stable solution: IT managers are never willing to risk the security of their networks with unproved solutions BlackBerry wisely devised a stable, simple solution not adding too many product features, focusing mainly in the real customers needs: basic wireless email access, some basic PDA features and high security via encryption. One point of contact for a complete solution Related to the management of the partnerships, BlackBerry basically represented an relatively easy choice to consider as the whole wireless communication solution was embedded in the product, not requiring contact with multiple suppliers to provide various pieces of a wireless solution. Right expectations setting: to overcome the adoption cycle IT investments plus natural corporate resistance to a new technological solution RIM management never promised explosive growth or skyrocketing profits.

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5.3 Competitive analysis When RIM launched BlackBerry in 1999, it faced direct competition of three categories of products, all three targeting corporate Email users as their sole or main target: BlackBerry like evolutions of two-way pagers integrating email and PIM functionality o Motorola PageWriter 2000 o Glenayre Accesslink II Connected PDA o Palm VII with built-in wireless GSM modem o Add-on wireless modem from Novatel for Palm V Evolved phones o Nokia 9000i Communicator Those products are displayed in the Exhibit below.

BlackBerry, Palm VII, Motorola PageMaker, Nokia 9000i

Three different worlds were trying to impose their solution of mobile messaging as an evolution of their existing products: pager, PDA and mobile phone, and the three category leaders
28

Motorola, Palm and Nokia were ready for an early fight. But BlackBerry enjoyed a great commercial success and is still leading the market of mobile corporate messaging with a superior product with one to three year lead, according to analysts22.

Strengths and weakness of the different products are described in Exhibit above23. Here is an analysis of the major reasons for the relative failure of BlackBerrys competitors and the description of how BlackBerry overcome the potential pitfalls: Motorola and Glenayre Motorola and Glenayre had very similar products to BlackBerry, directly adapted from their previous two-way pagers, offering PIM and corporate email. Both used ReFlex network implemented by SkyTel. As described in 7.2, this technology enables packet switching communication, but it does not support high volume of data transmission. Cost for an unlimited
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volume offer would be prohibitive, and StyTel had to propose a very high price point. The estimation of the price for a typical email user would be more than 1800$ per month24. Moreover, message latency is much higher on SkyTel satellite network. This led the solutions proposed by Motorola and Glenayre never to take off. Skytel was a very cheap and efficient way to provide basic pager services, because very little terrestrial infrastructure is needed. Therefore it was certainly tempting to develop devices suited for this network. However, BlackBerry focused from 1991 only on solutions that had the potential to deliver wireless email and developed technologies on networks with higher bandwidth, such as Mobitex and DataTac. Here is an example of how a clear focus enabled RIM to make the appropriate technological choices. Nokia Nokias handset used the same modem for the phone and for data transmission. Therefore, it had to rely on GSM circuit switched technology, which appeared to be inappropriate for datatransmission. The user has to connect each time he wishes to check his email account, and is paying according to the duration of the connection. This very inconvenient use and inappropriate pricing led to a disappointing adoption. A few years later WAP, in which operators and telecom equipment and handset suppliers had heavily invested, failed for the exact same reason. Nokias solution relied on the underlying assumption that a circuit switched solution would satisfy corporate customers needs for mobile email. In incrementally adapting an existing ergonomic messaging platform and keeping the existing pricing structure, BlackBerry managed its market risks much more efficiently and overcome this adoption problem. Palm VII Palm VII, although it used the same transmission network BellSouth, was not well suited for permanent connection. An external antenna had to be opened in order to receive or send message

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and the major shortcoming was the low battery life in case of permanent use. When used for data emission and reception, the processor and the emitter significantly lowered the usual lifetime of the battery, making the solution inappropriate. Moreover, Palm did not provide initially the connectivity to the corporate email server, and a separate email address was needed. This prevented the IT managers to consider Palm VII as a convenient solution and harmed the brand for its future conquest of the corporate market. Palm, in its attempt to enter the market, suffered from its low expertise of wireless technologies and its lack of understanding of customer needs. BlackBerry managed its market and technology risks in a far more efficient market by gradually acquiring and testing the needed technologies and by leveraging on its pager product for the corporate segment.

As a result, although BlackBerry had strong awareness disadvantage and could at first sight appear as a rather low tech solution compared to Palm VII or Nokia 9000i, it succeeded in the very demanding corporate market in bringing the first efficient integrated mobile email solution.

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6. Evolution since 1999 and perspectives

6.1 Introduction RIMs success story is best described by the extraordinary growth of its revenues. In 1997 RIMs revenues were $10M and by 2001 its earnings were approximately $300M. BlackBerry accounts for 65% of RIMs sales. The goal of this part is to understand the challenges RIM is facing today and interpret the recent strategic decisions in the light of the analysis of their market entry. 6.2 Present Situation

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RIMs reaction to the current threats/opportunities. The following exhibit presents the evolution of RIMs strategy and its possible outcome

The initial core competencies of Research In Motion were their technical knowledge in wireless modem technologies and corporate email connectivity. To develop the market they built and distributed an integrated solution. Adoption Since 1999, RIM has developed the adoption of their solution through a new set of alliances with wireless carriers. RIM has signed carrier agreements both domestically (VoiceStream, NextTel Communications, AT&T wireless, Rogers ATT for Canada, Earthlink and AOL Mobile Communicator) and internationally (mmO2 in the UK, the Netherlands, Ireland and Germany, Telecom Italia and Hutchinson Telecom in Asia). Most of these agreements will be activated in 2002 greatly expanding their distribution network. These alliances coincide with the deployment

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of large GPRS networks in North America and Europe, which should encourage the adoption of the latest BlackBerry devices. Pushing a standard However, developing PDA is not part of RIM core competencies, and they have a hard time matching the standard demanded by the market. Their device is relatively low tech compared to other PDA available and the competition involves huge actors (Palm, Microsoft, Nokia). Compaq and RIM have recently developed an alliance to sell co-branded wireless devices as the Ipaq BlackBerry. Although Compaq has its own pocket Pc Compaq actually advertises the Ipaq BlackBerryin its website as The number one mobile messaging solution used by Compaq mobile workers is the BlackBerry. This alliance may be the sign of RIMs desertion of the PDA market in order to refocus on their core competencies: a platform for corporate wireless data. In this perspective, RIMs alliances in distribution and international expansion will push their platform as a de facto standard for corporate wireless data access. The licensing model Parallel to the creation of a standard, RIM needs to capture value on its core technologies. RIM is currently developing a licensing model26. On April 4, 2002, RIM announced that it could offer a BlackBerry reference design platform for third party manufacturers to build their own wireless communication devices. RIM could also license their software solutions that will use BlackBerry functionalities and service and run on the BlackBerrys backend architecture. This licensing policy, even if it introduces new competitors for the BlackBerry devices, should help validate and develop the market. It would also help pushing RIMs architecture as a device independent platform.

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Technology development These moves back to core competencies can also explain its latest partnerships. In order to preserve its competitive advantage, RIM needs to provide a wide access not only to email but also to a wide range of corporate data and software applications. RIM has been working with independent software vendors across various functional areas to connect their solution to RIMs platform: Business Objects, PeopleSoft, Siebel, Informatica, BEA, AvantGo27, Motient and Yahoo, Information Builders, Inc, Brience inc. Oracle mobile inc. , E*TRADE, Itrezzo Agent, Instep group. This will strengthen RIMs position as an integrated solution for the corporate data access. RIM now provides a more open operating system able to run Java applications developed for small devices (following SUNs J2ME standard). This move, designed to catch up on the weakness of the device software, bets on the success of this open standard. However, few signs show that this technology is taking off.

6.3 The future ahead After having developed the market for wireless corporate email access through its integrated solution BlackBerry, RIM will soon be forced to concentrate back to its core competencies. However RIM has the opportunity to grow its components into a standard for wireless corporate messaging that can be licensed to any wireless PDA designer. He can therefore leverage its major assets: - Unique technical expertise in wireless modems - Expertise in wireless connectivity to corporate software (email system, ERP..) - Brand image for reliable, simple, and affordable corporate solution

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7. Appendix
7.1 History of Research in Motion (RIM) 1984 Mike Lazardis founded RIM two months before graduation to develop software for General Motors Canada.(17/6/1995 Micromedia limited Canadian Business and Current affairs). 1991 RIM formed an alliance with Ericson GE, Anterior Technology and Research in Motion to jointly develop and market a wireless email gateway for HP95LX palmtop computer. Anterior Technology will connect the RAM Mobile Data Mobitex network to public e-mail. RIM will develop an e-mail software application that will enable Ericson GEs radio modems access the Radio Mail gateway. The HP95LX palmtop computer is the first portable computer for which wireless email is being developed28. 1993 Mobile computers using Ericson GEs wireless modem can connect via the RAM mobile network to host computers and enterprises local networks equipped with x.25 connectors. RAM is incorporating gateway technology from RIM29. 1994 RIM introduces a wireless financial transaction terminal that allows retailers to do online credit card approvals. 1995 Motorola opens access to RD- LAP (radio data link access) technologies so that other manufacturers can produce DataTAC compatible systems. RIM will join Motorola to improve RIMs products. 1996
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Warrant financing of $34 M. Two way paging introduced called inter@ctive designed by RIM and Intel. Light weight pager uses QWERTY keyboard. RIM is a leading manufacturer of inter@ctive pager, PCMCIA II network adaptors (branded US Robotics), OEM radio modems and software connectivity tools30. Connect US Wireless announces will launch two way pager using inter@ctive31. 1998 RIMs modems used for GMSI taxi fleet management and communication systems. Boston Coach, transportation provider, used Bell South and Dynamic Mobile Data networks with RIMs wireless type II PC card modems. Inter@ctive 950 pager launched in July 1998. After one month accounts for 65% of product sales $359. Used to send and receive email and faxes, full keyboard, uses AA battery that lasts 3 weeks , storage up to 1MB, 1,000 entries, can handle 16,000 character long messages and can handle text to voice service. American Mobile Corp. signs a deal to buy $50 M of two way pagers. Bell South signs a $90 M deal. 1999 Go America signs a deal to be able to receive and send MSM Hotmail and retrieve data with MSN MoneyCentral, and other MSN services to and from Windows CE based device or RIM device. Introduction of BlackBerry. Incorporates a 32 - bit Intel 386 processor, 2Mb Intel flash memory, integrated wireless modem, full keyboard, triple DES encryption technology and email organizer single AA alkaline battery., LCD display with a PC docking cradle. Merrill Lynch provides 1500 blackberries to employees. Diversinet to provide Digital Signature Trust to users of RIMs

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Certicom provides encryption technology to RIM using BellSouth Wireless Datas Mobitex. CSFB buy over 300 devices

7.2 Note on wireless networks technologies Two different types of wireless communications, circuit-switched and packet-switched, can be or not supported by different wireless networks. Circuit-Switched: Analogous to land-based telephone systems or dial-up Internet connections, circuit-switched communications require the establishment of a dedicated connection to be made between two parties prior to any data transfer. Once this connection has been made, the circuit (or frequency in the case of wireless communication) is tied up for the duration of the session. Circuit-switched communication is ideal for large data transfer, since users typically pay for the connection time. Packet-Switched: Analogous to land-based Ethernet connections, a packetswitched wireless network involves the sharing of a single frequency between many users. Only one user may transmit or receive at any one given instant. Since only small packets of data are typically being transmitted however, this scheme is ideal for many applications. Unlike circuitswitched systems, the packet-switched technique also allows all devices on the network to remain continuously connected, making instantaneous access and two-way paging possible. This platform is ideal for applications requiring occasional, short transfers of data such as email, database queries, occasional information updates, etc. Large file transfers are not suited to packet-switched networks since such a transfer might tie up a significant portion of the available bandwidth in a given area for a sustained period of time.32 Set-up time is eliminated and network connection is instantaneous. As a result, packet-switching makes far more efficient use of channel capacity, typically allowing 10 to 50 times more users over a radio channel than a circuit switched network.

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Pagers use packet-switched networks, whereas mobile phones use circuit-switched networks. GSM Mobile phone networks also dedicate a thin slice of their frequency spectrum to a packet switched network used for transmission of information about the system (signaling network) and SMS. Major standards for pager networks are Mobitex, developed by Ericsson , DataTac developed by Motorola, and ReFlex. Mobitex and DataTac use terrestrial base stations to transmit data, whereas ReFlex uses satellite communication. Due to the limited bandwidth of ReFlex, data rate and number of users are much more limited on ReFlex than on Mobitex and DataTac. BellSouth supports Mobitex standard, Skytel supports ReFlex. Major standards for mobile phone networks are CDMA and GSM.

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8. References:
1 The Economist, May 11th-17th 2002, p. 66: Sending a message 2 Press Release: BEA systems and Research in Motion mobilize web sevices, www.rim.net/news/press/pr- 01_05_2002-01.shtml 3 Hoovers Online, http://www.hoovers.com/premium/comp_data/1/0,2151,59141,00.html 4 Source: RIMs annual report, fiscal year 2000 5 All features for BlackBerry product and RIM 850 have been obtained from RIMs website and official press releases from 1999 6 Source: RIMs Official press releases from 1999 7 Source: RIMs annual report, fiscal year 2000 8 Source: RIMs annual report, fiscal year 1999 9 Data extracted from RIMs annual report, fiscal year 1999 10 Within the scope of this paper, we will focus on the market for mobile corporate messaging. Hence, we will look at RIM and its competitors and substitutes as providers of integrated product/service offerings aimed to fulfill the demand for mobile messaging within a corporate framework. 12 Sources: Broker Report, Lehman Brothers, January 2002; Broker Report, Yankee Group, August 2001; Broker Report, UBS Warburg, February 2002 16 Source: Broker Report Dresdner Kleinwort Wasserstein, Research in Motion, August 2001 17 Source: Broker Report UBS Warburg LLC, Research in Motion, February 2002 and Broker Report Dresdner Kleinwort Wasserstein, Research in Motion, August 2001 18 Strategic Alliance To Enable Wireless Platform For Business Information, September 1998 19 Source: Needham, Investment Analysis, April 16 2002
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20 Source: CSFB, Equity Research, February 2, 1999 21 Source: SG Cowen, November 10, 1999 22 Source: UBS Warburg, Global Equity Research, Research in Motion, February 13, 2002 24 Source: SG Cowen, November 10, 1999 26 Source: National Bank Financial, May 7 2002, p.10-11 27 Source: Goldman Sachs Global Equity Research from February 1, 2002 28 Source: Business Wire Inc, November 1991. 29 Source: Business Wire Inc, June 1993. 30 Source: Newswire Association, September 1996. 31 Source: Response Database Services, November 1996. 32 Source: RIM Web Site

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