-- Eric Auchard is a Reuters columnist. The opinions expressed are his own --
By Eric Auchard
LONDON, June 19 (Reuters) - Research in Motion 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 (RIM) customer such as a corporate IT manager discovers he's paying more than twice the price at work that his the 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. They give these away to corporate clients, putting longer-term pressure on Blackberry's corporate franchise.
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. Eighty percent of its new users in the quarter ended in May were non-enterprise, retail customers rather than mainstay corporate clients. 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 U.K.-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, making them great for texting, e-mailing or instant messaging. But, then again, copycats are rampant. U.S. carrier AT&T offers 20 different phones with standard QWERTY-keyboards, not just from RIM, but from Samsung and other makers.
The introduction of touchscreens and other consumer-friendly features have helped propel RIM stock up 89 percent to $76.55 since the start of 2009. But that is only half the story: Its Nasdaq-listed stock remains 42 percent below year-ago levels as the economy has taken its toll and debate over its consumer ambitions has played out.
Results for its first-quarter ended in May showed a 53 percent jump in sales from the year-earlier quarter as net profit rose 24 percent. Rosy-looking year-over-year comparisons disguise a quarterly sales decline, as revenue fell 1 percent from its quarter ended in February.
Gross margins recovered somewhat during the quarter to 44 percent, but are well off lofty levels of 55 percent three years ago and are stuck there. The bigger disappointment was the company's outlook, which fell short of Wall Street hopes.
The company faces a flood of competitors this year. At the high-end of the market, Apple Inc starts releasing its new model iPhone on Friday. Palm is introducing its comeback phone, the Pre, while a variety of Asian and U.S. phone makers are gearing up to release low-priced Google Android phones.
While making inroads may be hard in corporate markets where Blackberry is king, for individual consumers, these rival phones boast better Web browsing.
"RIM now has to decide what business it is in," Wood says. "Will the consumer business hurt the corporate one?"
The Blackberry market for kids is calling into question the lucrative corporate franchise RIM has built over the past decade. It's only a matter of time before the business world questions why it is paying so much and looks to renegotiate. That's creating an opening for Blackberry killers to emerge.
-- At the time of publication Eric Auchard did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. For previous columns, Reuters' customers can click on -- (Editing by David Evans)