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Big, Bold Moves

Research in Motion is learning the hard way about the high cost of competing with Apple.
Blackberry Bold
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On the evening of October 28, the BlackBerry Bold had its big debut in a $13 million triplex in Manhattan's trendy Tribeca neighborhood. Attendees who viewed Research in Motion's smartphone offerings as the buttoned-up, all-work counterparts to Apple's all-play iPhone might have been surprised to see an atmosphere closer to nightclub than corporate mixer, complete with music, mood lighting, and no shortage of cocktails. The event was put on by publicity firm Harrison & Shriftman, an agency that counts W Hotels, Veuve Cliquot, and Cartier as clients. They're now on retainer for the BlackBerry brand.

The fête marking BlackBerry's new handset is just one example of many steps that R.I.M. is taking in an effort to hold its ground against Apple. A year and a half ago, Research in Motion still ruled the smartphone roost, with Palm as its only real competitor; now, they're scrambling to stay ahead of one of the world's deadliest branding machines.

For the quarter ending in May, before the iPhone 3G launched, R.I.M. spent a total of $326.6 million on sales, marketing, and administrative expenses; that number will shoot up to $420 million for the quarter ending in November, according to Pacific Crest Securities analyst James Faucette, who says a large majority of that increase will be directly attributable to increased marketing and promotional spending.

That sort of spending has been necessary to try to keep consumers engaged with the BlackBerry brand, especially since the launch of the BlackBerry Bold handset has been plagued by a series of delays. Meanwhile, Apple's iPhone 3G became the top-selling smartphone in the third quarter of 2008, relegating BlackBerry's Curve to the No. 2 spot.

Although the issues impeding the release of the Bold are ostensibly software issues, Apple may have had some role in keeping the Bold off the U.S. market until November 4.

The official reason R.I.M. and AT&T have given for the Bold delay was an extended testing period at AT&T labs due to issues with the device. According to Faucette, the network issues AT&T had to resolve for the iPhone this summer probably impacted the carrier's ability to get the Bold to market as quickly as they could have otherwise.

More cynically, there is also speculation that AT&T saw Bold as the weaker product, and dragged its feet on the testing to give the iPhone a full window before cycling in R.I.M.'s latest model.

Competing with Apple has also meant a hit to R.I.M.'s historically high gross-product margins, which have been an integral part of R.I.M.'s business model. Unlike Apple, R.I.M. has negotiated revenue-sharing agreements with service providers like AT&T, meaning less generous subsidies for R.I.M.'s pricey handsets. When Apple's $199 iPhone came around, that model needed changing.

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