Will Xobni Help BlackBerry Take On the iPhone?

RIM's $3.2 million investment should give the BlackBerry a smart app for managing e-mail in its war with Apple

In an effort to make the BlackBerry (RIMM) stand out further from the pack, Research In Motion's investment arm announced plans to invest in startup Xobni, which makes an e-mail search tool.

The BlackBerry Partners Fund, a $150 million venture capital fund aimed at encouraging development of software for RIM's popular handheld devices, is investing $3.2 million in a round of funding for Xobni that's being led by Cisco Systems (CSCO), which invested about $7 million.

The move marks the fifth investment so far for BlackBerry Partners, a joint venture of RIM, Royal Bank of Canada (RY), and Thomson Reuters (TRI), and reflects the rising stakes in a game of smartphone one-upmanship. RIM, like other smartphone makers, including Palm (PALM) and Nokia (NOK), are trying harder than ever to infuse their devices with compelling tools, games, and other applications after Apple (AAPL) roiled the smartphone market with its iPhone.

The Xobni investment comes the same day Nokia said it will invest in Obopay, a Redwood City (Calif.) startup that makes mobile payment software. Terms were not disclosed.

Mastering Your Inbox

The biggest investment so far for BlackBerry Partners was an $8 million stake in Worldmate, which makes a travel-assistant application for the BlackBerry. Its other investments include $5 million in Digby as well as stakes in buzzd and Neuralitic Systems.

Xobni—inbox spelled backward—creates a tool that works with Microsoft's (MSFT) Outlook and lets users quickly search the contents of e-mail messages, extract contact information, and track down attachments. Microsoft founder Bill Gates is said to be a fan of the application and praised it in a speech last year. The software has been downloaded some 2 million times, Xobni says.

The investment comes as RIM prepares to launch an online applications store, BlackBerry App World. Apple's App Store on iTunes now boasts some 25,000 titles and 800 million downloads. Apple encourages the development of software for the iPhone by sharing 70% of revenue generated by an app with its developer. Other wireless companies have said they will embrace the application-store approach as well. Palm will distribute software via what it calls the App Catalog. Google (GOOG) has embraced the application-store concept with its Android Market.

Investing in Xobni makes sense in light of features Apple plans for its forthcoming iPhone operating system upgrade, says Michael Gartenberg, an analyst at market research firm Interpret. The new OS will let users search content on the device as well as mail servers running Microsoft's Exchange. "If you're looking for an e-mail you sent and you can't find it on the phone, you'll be able to search the mail server," Gartenberg says.

Platform War

Xobni, which so far runs only on Windows desktops, might do something similar once it's adapted to mobile devices. Kevin Talbot, managing director at BlackBerry Partners, said a mobile version is in the offing, though no time frame has been given. "A mobile version is the most requested feature among the user base," he says. "Our view is to bring Xobni's features to the palm of your hand."

As Apple morphs the iPhone into a device that is as useful at the office as it is entertaining for consumers, RIM will find itself increasingly on the defensive, Gartenberg says. "There is certainly a platform war going on, and the one trick RIM used to do best is one that all the other ponies have learned, too," he says. "It's getting harder for RIM to differentiate itself."

Apple is adding the features software developers can offer in their applications and adding new ways they can make money, such as subscriptions and in-application purchases, which will only increase its appeal to developers, Gartenberg says. So far, Apple has had 50,000 developers join its paid software-development program and has clocked 800,000 downloads of its free development kit.

As aggressive as Apple is becoming, RIM still leads the market, based on device sales. On Feb. 11 it told investors it expects to add 20% more subscribers in the fiscal third quarter than the 2.9 million it previously forecast. That would put RIM's total subscriber base at close to 25 million, ahead of the 17.4 million iPhones Apple sold by the end of 2008. RIM's surge was due in large part to the release of the BlackBerry Storm, a touchscreen device seen as a competitive response to the iPhone, released with Verizon Wireless in the U.S. in late 2008.

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