Large businesses are in love with Blackberry and its wireless email capabilities. Research in Motion, the Canadian firm who sells the devices, shipped a record 1.5 million units in 2005, snatching up nearly 8 percent of the worldwide smartphone market. The success however, makes RIM a prime target for competitors, who are scrambling to get a piece of the pie.

Last Thursday, Palm Inc. made its first move. Forming strategic partnerships with Microsoft and Vodafone, the Sunnyvale, Calif., company plans to roll new mobile phones into markets currently dominated by RIM.

Blackberry and Palm's new Treo will be competing on the Vodafone wireless network in Western Europe, setting up a battle to see who can best cater to the needs of large businesses.

With mobile device growth in Western Europe increasing 25 percent this year, and over 3.2 million mobile devices sold since May alone, Palm wants to ride the trend, aiming to accelerate geographic expansion and serve more European customers – expanding into RIM territory.

This collaboration, according to John Hartnett, Palm senior VP of worldwide sales, will provide a powerful tool for enterprise customers, the core of Blackberry business.

But this isn’t the first time RIM has been challenged. Last year mobile heavy weights Nokia and HP contended for their own share of the lucrative mobile enterprise market but RIM still managed record shipments, enjoying 85 percent growth. Can it manage to defend itself against Palm's new triple alliance?

Trio for Treo

Palm is calling upon the expertise of Microsoft to provide the software infrastructure necessary to go head to head with RIM.

The newly formed relationship calls upon the Redmond Giant to power not only the back-end infrastructure that will deliver the mail, but also power the device itself using a mobile flavor of the Windows operating system.

Palm hopes that the Microsoft software will free the company from the problems that plagued its own code and stymied adoption of its previous Treo offerings.

Using the Windows Mobile platform as the foundation, Palm and Microsoft feel they’ve reached a winning formula for business, according to Suzan DelBene a corporate vice president of marketing for the Mobile and Embedded Devices Division at Microsoft.

The combination Harnett says, will provide a powerful tool for enterprise customers.

Behind all this, Vodafone will be providing the medium that the voice and email will travel over. The Treo will be the first to ride on the UMTS (Universal Mobile Telecommunications System network) promising speeds of up op to 3mega-bits - about twice as fast as standard residential DSL.

New OS

The new relationship with Microsoft means that Palm is essentially cutting ties between its Treo smartphone and the device’s long time partner, Palm OS.

Though the Palm OS has proved adequate for PDA's and similar products, it has been unable to adapt to emerging trends and has been plagued by mismanagement. The latest iteration, Palm OS 6, included licensing problems and poor security, among other drawbacks.

Left with an aging operating system, customers moved on and Palm OS's market share went down from 65 percent to about 7 percent, according to Todd Kort of Gartner Research. In fact, sales of Palm OS smartphones, other that the Treo, have fallen to negligible levels.

It may have been hard to say goodbye, but experts feel it is a step in the right direction. The limitations of the PalmOS hindered Treos from being serious competition in the enterprise market. Kort contends, however, that the Windows Mobile OS in its smartphones should improve [Palm's] enterprise market position.

The new Treos offer Windows Mobile sport multitasking, protected memory, and better security than Palm OS's. This translates into getting more work done, with more peace of mind. Palm even remembers what made the PalmOS successful and enriched the interface with tweaks making things faster.

The most notable outcome of this partnership, however, is the development tools associated with Windows Mobile that Palm will be able to integrate. The new software will enable enterprises to build applications beyond basic wireless e-mail, and integrate those applications with back-end systems that will in turn work with their Treo's.

This infrastructure also finally opens up the door to Push email systems, a feature that enterprise level customers demand from the wireless. The new Treo will enable Palm to compete more effectively against RIM's BlackBerry Kort says bluntly.

Comparatively, RIM uses its own proprietary software and services. Their Blackberry Enterprise Servers were the first to utilize push-mail technology and experts rave about its efficiency and security. The proprietary operating system, though, has been characterized as a no-frills product, although it gets the job done.

Palm's Push

The partnership with Microsoft enables Palm to open up a war-chest of features to blast at RIM. The most important is real-time push e-mail using Microsoft's Messaging and Direct Push Technology.

The technology makes sense. As soon as email comes to your corporate server, that message is immediately forwarded to your mobile device. In a Pull system (say, your favorite ISP), your device needs to manually poll the server to see if there is any mail. Think of it as continuously getting up from your desk checking the mail-room, when that message could just come straight to your desk.

Experts, such as Vivek Arya of Merrill Lynch’s Vivek, say push email is required for enterprise, and the reasons are numerous. The most apparent is an issue of time. If you need to poll every so often, there is chance you can get your messages late. It would be a short delay, but in business, time is money. The not so obvious issue is, if you are polling all the time, even if there is no email there, you are paying for that air-time to check.

Given that RIM was the first to market with such technology, they have had time to refine and perfect it. RIM’s push email architecture, Arya states, is superior to Microsoft’s in the critical aspects of security, bandwidth optimization (better battery life), device management and others.

Because of this, companies have grown comfortable with RIM. It is unlikely they will jump on to the Palm/Ms bandwagon immediately, as corporate IT departments are largely still evaluating the Windows-based Treos, JP Morgan's Coster noted in his report.

Arya backs up this claim saying a recent CIO survey indicated that the market remains robust and CIOs continue to rely on RIM.

So Palm is pushing, but it will be hard to dislodge a company with so much weight. In our opinion, Lynches Arya said, RIM’s vast deployed base of [about] 60,000 enterprise servers is a formidable barrier to entry for new competitors.

We remain skeptical that the current configuration of Microsoft push e-mail will map well to corporate IT requirements (when compared to BlackBerry/GoodLink benchmarks), he wrote. However, the solution is likely to appeal to the SMB (small to medium business) market.

Too Little, Too Late

Perhaps the biggest challenge to Palm is not RIM itself, but the market which it is entering.

Vodafone UK already offers 25 business phones, of which 5 have qwerty keyboards – and this excludes Vodafone's Blackberry offering which continues to benefit from distinct marketing by the carrier in the UK. Vodafone in Germany already offers twelve business devices (RIM, Nokia and own-brand handsets) with Blackberry email client software, six with Microsoft client software. So, the field is crowded.

Although Palm may be going in the right direction in adopting Windows Mobile, the operating system and the device overall is still not up to par, analyst Rob Sanderson of American Technology Research states in research released July 17.

Microsoft may be a stronger competitor in the future, but we do not see its current offering as a compelling alternative to BlackBerry, he says.

The latest devices are still not easy to use and are power hogs, he adds.

For Better or For Worse

Palm’s new Treo is a step up from its previous offerings. But their goal of serving the enterprise market maybe too ambitious given the deficiencies in the Microsoft backend. The Windows Mobile OS opens the door for potential enterprise use, but thus far has had limited traction with push email (required for enterprise use), Arya says.

As such, the Treo’s initial appeal could be more to the high-end consumer segment, which is different from RIM’s core base of high-end enterprise users. But this may not be a bad thing for Palm.

Ryan Reith, IDC analyst, said that in 2005 businesses accounted for 60 percent of the 57 million smartphones purchased worldwide, but only 13 percent were for enterprise deployments. So even if it doesn't pose a threat to RIM and succeed in its targeted market of enterprise use, it still stands to make a healthy profit.

Analysts say Treos are attractive for small to midsized enterprises because of their rich feature set and growing integration with Microsoft applications and networks. For enterprise use, they say Palm Treo’s offering may not be ready for that market, with the company needing more catching up to do.

The deciding factor for larger organizations in choosing a RIM solution remains the BlackBerry Enterprise Solution, providing better security and efficiency.

However just because Palm can't enter the enterprise market, doesn’t mean the competition is over between both companies. Look for RIM to enter the consumer market this fall with a new consumer-oriented multimedia handset, featuring thin form factor, GPS, and instant messaging capability.