Blackberry's biggest rival may be itself

Research in Motion (RIM) officials do their best not to laugh when asked if they fear the rise of a Blackberry-killer, some theoretical device that does everything its coveted e-mail phone does, only better.

But Blackberry's biggest threat may come from itself. As the company's latest quarterly results suggest, there is a gulf between its pricey corporate phones and price-sensitive consumer models that are cutting into margins.

When a loyal Research in Motion customer such as a corporate IT manager discovers he's paying more than twice the price at work that his 16-year-old daughter is paying at retail, he feels ripped off. That in a nutshell is the crisis RIM faces.

Of course, RIM's crown jewel remain its corporate business. Its franchise there stems from the thousands of company network managers who rely exclusively on RIM's e-mail management software to ensure corporate communications are securely delivered to their intended recipients. Companies pay a premium for this reliability. Those investments lock customers into Blackberry services and prevent other competitors from breaking in. However, this is changing.

After years of failures, Microsoft and Nokia now have secure e-mail systems that offer credible alternatives. The success RIM has achieved in consumer markets has defied all analyst predictions. But consumer success has come dearly in terms of profit margins and falling average selling prices. The key difference between corporate and consumer markets is that RIM lacks the customer control over consumers it has had in offices.

Ben Wood, an expert on the worldwide handset market at UK-based market research firm CCS Insight, says Blackberry has made huge inroads with teens and young adults by working with operators to market affordable, prepaid phones.

One secret of the success of the Blackberry in consumer markets is the familiarity of its standard layout keyboard compared to typical mobile phone alphanumeric keypads but copycats are rampant. The introduction of touchscreens and other consumer-friendly features have helped propel RIM stock up 89 per cent to $76.55 since the start of 2009. But that is only half the story: Its Nasdaq-listed stock remains 42 per cent below year-ago levels as the economy has taken its toll and debate over its consumer ambitions has played out.

Rosy-looking year-over-year comparisons disguise a quarterly sales decline, as revenue fell 1 per cent from its quarter ended in February. The bigger disappointment was RIM's outlook, which fell short of Wall Street hopes.

The company faces a flood of competitors this year. "RIM now has to decide what business it is in," Wood says. "Will the consumer business hurt the corporate one?"

Soon the business world will question why it is paying so much and will want to renegotiate. That's creating an opening for Blackberry-killers to emerge.