Two guys and a dilemma
canbus.com
A key distribution deal with Dell could give RIM's co-CEOs a new headache: keeping up with demand.
By Ian Austen | Dec, 31, 1999
When Mike Urlocker, a technology hardware analyst with Scotia Capital Inc., had some questions for computer titan Michael Dell this past summer, they predictably exchanged thoughts by e-mail. The twist in their communication, however, was that the chairman and CEO of Dell Computer Corp. of Round Rock, Tex., didn't peck out his replies on a Dell machine, but a pager-sized BlackBerry wireless e-mail gadget made in Waterloo, Ont., by Research In Motion Ltd. (RIM).
At the time, Dell's choice struck Urlocker as interesting. In late November, its true significance became clear when Dell Computer announced that its mighty marketing machine would begin selling RIM's device to business users. Urlocker, like many, was immediately impressed. "Dell is one hell of a sales and marketing company. It knows its customers."
Investors liked the news, too. In the week prior to its announcement, speculation about the deal pushed RIM's stock (TSE: RIM) up more than $10, topping $80?almost double its Nov. 1 close of $46.20. The prevailing sentiment: it's about time. The BlackBerry pager, with its compact size and tiny-but-very-usable keyboard, has won praise over competing gadgets made by US giants Motorola Inc. and Palm Computing. But sales of the device since it was first introduced last January have not yet matched the potential. And while RIM already had US distributors?its biggest, before Dell, was Atlanta-based BellSouth?chairman and co-CEO Jim Balsillie (who shares the title with Mike Lazaridis) is now happy to suggest that the Dell deal might mark the real starting point for the BlackBerry. "Our product really leverages off what Dell now supplies," he says. "And Dell's executives have already had a positive experience with it as users. It went a long way to doing the selling itself to Dell."
New stages bring new obstacles, however. Should the Dell deal lead to the sort of high-volume sales that everyone hopes for, RIM will quickly have to prove itself in the one critical area where companies such as Dell already excel: manufacturing and logistics. It's a situation that's especially critical in RIM's case because, unlike most electronic gadget companies, RIM doesn't outsource production.
There's a reason for this. The BlackBerry pager isn't simply a collection of mass-produced electronic components stuck together in a stylish plastic case. The laws of physics mean it has some unique manufacturing challenges. Extremely thin radios?the heart of both the BlackBerry and RIM's wireless modem business generally?push technology to its limits. So far, RIM is one of the few companies in the world with a production system that consistently spits out a large number of slim radios that work without costly and time-consuming fine-tuning.
But it's hardly a given that RIM can both crank up production and maintain that track record, as even Balsillie admits. "We've always been planning for success. But scaling aggressively brings up nontrivial issues. I don't say that we have every answer right now." What he does have to help find those solutions is a $215-million war chest the company raised with a five-million-share offering that closed in October. Dell is being equally cautious. After inspecting RIM's plant, it decided not to list the BlackBerry on its Web site. Instead, Dell salespeople will offer the unit only to commercial clients, partly to avoid potentially overloading RIM. "We're kind of putting our toes in the water and seeing how this will go. This is not something we have to be committed to forever," says Dell spokesperson Rob Crawley. While that may sound as if Dell isn't all that keen, Crawley is quick to add that after looking at all the options, Dell concluded the BlackBerry was by far the best wireless e-mail device available. "It works very well and integrates with Microsoft Exchange, which is what most of our clients use."
While RIM strives to manage this transition, it faces another hurdle: the ever-fickle consumer electronics market and its ceaseless demand for product changes. Like production, it's a tricky task. Much of the BlackBerry's success as a product is its simplicity?it doesn't try to be much more than an e-mail device. Once a company sets up its corporate e-mail servers with special RIM software (a service Dell hopes to sell along with the gizmos and monthly airtime), BlackBerry users have the option of picking up their electronic communications either through their office computer or via the tiny handheld device. As a bonus, the ultraminiature keyboard means that BlackBerry messages can be composed without learning the weird written shorthand the Palm series demands.
Add too much to the BlackBerry and it loses that attractive simplicity. Take stuff away to create a down-market model and you're left with, well, almost nothing. "We have kind of a sweet spot with the existing unit," says Balsillie. Most likely, he suggests, are incremental improvements such as a bigger display and more memory.
Of course, there's one big improvement RIM might offer: drop the price to the point where the BlackBerry becomes a mass-market consumer product (Dell sells the pager for US$399 and charges US$39.99 a month for service). Balsillie doesn't reject that idea outright. But he knows that if and when that happens, the challenges spawned by the expected growth from the Dell deal may seem modest by comparison. |
