RIM: Growth Rules the Day

The BlackBerry maker is enrolling subscribers at an accelerating rate, but are service outages a sign Research In Motion is growing too fast?

by Arik Hesseldahl

If you were among those expecting the economic downturn and post-holiday blahs to punish BlackBerry maker Research In Motion like it has so many other technology companies, then think again.

The pace of BlackBerry subscriber growth is not only not slowing with the pace of most everything else—it's accelerating. RIM (RIMM) announced on Feb. 21 it expects to have 14 million subscribers by the close of the quarter ending Mar. 1. That would mark a gain of more than 2 million subscribers since early December and beat the company's previous forecast of 1.8 million by more than 20%.

Growing Pains?

But along with that growth comes a reasonable question: Is RIM growing too fast? The company's beloved wireless e-mail service has suffered at least three disruptions this year—on Jan. 31, Feb. 10, and Feb 20—though none as widespread and lengthy as the outage suffered in April, 2007 (BusinessWeek.com, 4/19/07).

RIM has generally dismissed the idea that surging subscriber numbers have anything to do with the string of outages, and a source close to the company tells BusinessWeek.com that the problem had nothing to do with higher-than-expected growth. But as RIM's stock price—it surged nearly 9% to 106.69 on the subscriber update—grows alongside its subscriber numbers, it's fair to ask whether the company can handle the growth.

The company acknowledges the question in its regulatory filings. One recent filing cautioned, "As the Company's subscriber base continues to grow, and the mission-critical nature of its products increases, additional strain will be placed on the technology systems and networks, thereby increasing the relative risk of a network disruption." The "mission-critical" part of that quote relates, of course, to the angst BlackBerry users endure if the service goes down, preventing them from incessantly checking their e-mail.

Service Questions

Rivals were quick to jump on RIM's recent service misfortunes. Palm (PALM), maker of the Treo line of handhelds, took out newspaper ads in mid-February emphasizing the phrases "uptime" and "no nationwide blackouts."

Analysts aren't ready to blame RIM's sudden growth for the problems, but they're not completely dismissing it either. "There are many examples of hugely successful businesses that experience growing pains," says Rob Sanderson, analyst with American Technology Research in San Francisco. "These outages certainly seem like they're self-inflicted. The one nine months ago was supposedly about testing a backup system. Adding all these new subscribers has got to be a network challenge."

Ken Dulaney, an analyst with market research firm Gartner (IT), says despite the huge success of BlackBerry and the overall reliability of the service, RIM is going to face some tough questions from corporate customers. "I think RIM's technology is designed to scale very well over time, but I think you have to admit that the company never thought it would get this big," he says. "These outages have occurred when they've gone into their network to make changes, and an ability to manage change is the sort of thing that big companies ask about all the time when they're considering a vendor like RIM."

Still the outages have been few and far between, and so long as they don't last too long or take place too often, customers have tended to be rather forgiving. "People get in an uproar when it stops working, but as soon as it starts working again, they're willing to move on," says American Technology's Sanderson.

Still the Last Word in Mobile E-Mail

Naturally, with the company's growth showing no signs of abating, every service interruption RIM experiences will affect more people, raising the stakes ever higher for investors and customers both. "It's now a certainty that RIM will get to 30 million subscribers," Sanderson says. "Then you have to ask how far out is 50 million, and then 100 million? I can see earnings power of $13 to $14 a share at 100 million subscribers. The question is how much do you want to pay for it today?"

And how willing are you to trust must-work e-mail to a system prone to occasional outages? "What's happening is the world is starting to look at their phones as a mission-critical device and seeing occasional hiccups," says Gartner's Dulaney. "For now we're advising our clients not to entrust to any wireless device any transaction that requires a turnaround time of less than 24 hours."

The good news for RIM? There still aren't many trusted alternatives for business-class mobile e-mail. "This company could be one of the world's biggest handset manufacturers one day," Dulaney says. "Its hard for me to believe there won't be e-mail on every phone in the world. RIM is going to be a major force in this market."

Hesseldahl is a reporter for BusinessWeek.com.