RIM Bets on BlackBerry Without Keyboard to Challenge Apple

When Research In Motion Ltd. (RIMM) Chief Executive Officer Thorsten Heins unveiled a prototype of the new BlackBerry 10 phone yesterday, it lacked a feature that has kept legions of users loyal to the platform: a physical keyboard.

At the BlackBerry World expo in Orlando, Florida, he showed off a sleek touch-screen device that more closely resembled an iPhone or Android smartphone than the keypad-equipped BlackBerrys of old. While RIM still plans to produce models with keyboards, the demonstration was the biggest signal yet that the company was shifting to a touch-screen world.

RIM, which is counting on its redesigned BlackBerry 10 lineup to reverse a sales slump, faces a quandary. Smartphone users have embraced virtual keyboards, evidenced by Apple Inc. (AAPL) and Google Inc. (GOOG) accounting for more than 80 percent of the market. Even so, taking away RIM’s physical keypad removes a feature that distinguishes it from the competition.

“Some will lament it, but others will embrace it,” said Nigel Hughes, a vice president in charge of sales at Ashburn, Virginia-based SteelCloud Inc., which builds BlackBerry- compatible security software and hardware for customers such as the Department of Defense. “It’s a recognition that the future is without a keyboard.”

Shares Fall

Investors didn’t have a warm response. RIM shares declined 5 percent to $12.80 today, following a 5.7 percent drop yesterday. The stock has lost almost three-quarters of its value over the past year.

Heins said that RIM faces real challenges, especially in the U.S., where the company is being squeezed by Apple and Android. Everyone at RIM “gets it that we have an uphill battle in the U.S.,” he told reporters. Heins said he’s confident that BlackBerry will regain market share in the country.

RIM’s marketing has to improve, and the company is very close to picking a new chief marketing officer, a position that has been vacant for more than a year, Heins said. The German- born CEO, who took over from RIM co-founders Mike Lazaridis and Jim Balsillie in January, said he’s also close to choosing a chief operating officer.

The company’s expansion from 6,000 employees when he joined RIM from Siemens AG in 2007 to about 20,000 at its peak caused it to lose some of its focus, Heins said.

‘Fat on the Hips’

“We have had a little fat on the hips,” he said. RIM has to become a “lean, mean hunting machine” focused on BlackBerry 10, Heins said.

Sales at the Waterloo, Ontario-based company tumbled 25 percent last quarter, with U.S. revenue plummeting more than 50 percent. And RIM’s share of the smartphone subscribers shrank to 12 percent in the period, making it a distant third in the industry, according to ComScore Inc. Google’s Android operating system accounted for 51 percent of the market, while Apple’s iPhone had 31 percent.

Before Heins took over as CEO in January, the company had talked with private-equity firm Silver Lake about going private, according to a person familiar with the matter. The discussions were preliminary and the two sides weren’t able to agree on a potential valuation, said the person, who asked to remain anonymous because the talks were private.

The iPhone’s debut in 2007, followed by Android devices a year later, showed that users were willing to embrace phones without a keyboard. While RIM made a foray into the touch-screen market in 2008 with the BlackBerry Storm, most of its lineup kept the keypads. The Storm was criticized for buggy software and was outsold by the BlackBerry Curve and Bold models, which both feature keyboards.

‘Risky’ Endeavor

For Mousser Jerbi, a longtime BlackBerry fan, the new prototype’s lack of a keyboard is a deal killer.

Jerbi plans to keep his current BlackBerry Bold rather than upgrade to the touch-screen phone. The keyboard makes it easy to tap out e-mails -- something that sets the old BlackBerry apart from a sea of iPhones and Android devices.

Jerbi, who runs corporate sales for Groupe Tunisie Telecom, Tunisia’s biggest wireless carrier, is skeptical the new model will catch on with loyalists. Even the name “BlackBerry” evokes the device’s black keys, which resemble seeds.

“Getting rid of the keyboard is risky,” said Jerbi, who once tried switching to an iPhone, only to switch back. “Especially for the e-mail user, the BlackBerry experience is very good.”

Easing the Transition

RIM began releasing the prototype to developers yesterday, saying it would be representative of the device’s hardware -- even if the final design is different. Features, such as word prediction, will make it easy for BlackBerry fans to adjust to a touch screen, Heins said.

Scrapping the physical keyboard from the initial BlackBerry 10 device will put it in closer competition with the iPhone and Android models, such as the Samsung Galaxy S. That could be tough for RIM, said Stephen Beck, a managing partner at the technology consulting firm CG42 LLC in Wilton, Connecticut.

“If you’re forcing a migration to non-keyboard, you’re going to get people asking, ‘What’s the best of breed of those devices?’” Beck said. “Given the momentum of iPhone and Android, that’s going to be a tough argument for RIM to win.”

Michael Clewley, director of handheld software product management at RIM, reassured BlackBerry World attendees that the company will eventually offer something for everyone with the BlackBerry 10 operating system. That may include slide-out keyboards, as well as traditional keypads.

“RIM has always had a wide range of devices,” he said yesterday. “We’re dedicated to having a form factor that fits your needs.”

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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