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Microsoft purchase of BlackBerry maker possible but hard to swallow

Amid rumors that Windows Mobile 7 is being pushed back to 2010, new rumors are swirling that Microsoft is looking to buy Research In Motion, maker of the BlackBerry. Experts are divided on whether such a deal makes strategic sense.

Amid reports that the release of Windows Mobile 7 will be delayed, new rumors are swirling that Microsoft is eyeing a takeover of BlackBerry maker Research In Motion (RIM).

Regardless of whether the rumors are well-founded, experts are debating whether such an acquisition would make sense for Microsoft.

"It makes no sense to me whatsoever," said Jack Gold, president and founder of consultancy J. Gold Associates. "Here is the problem. Research In Motion is a hardware provider. They make a lot of revenue on that hardware, and their hardware does not run on Windows Mobile. It runs a completely different operating system. Is a company going to buy a device manufacturer that doesn't run their operating system?"

Bill Hughes, principal analyst with In-Stat, took a slightly more positive view of the possibility.

"The whole question to me in a merger is: Can either company do more than they could as an independent organization?" Hughes said. "And the answer in the case of Microsoft and BlackBerry is a qualified yes."

Financial analysts have been buzzing this week about a rumor that Microsoft has a standing order with its brokers to start buying shares of RIM as soon as they fall to $50 or $40. RIM was trading at around $58 today, down from a 52-week high of $148.13. Much of RIM's recent loss in stock value is attributable to the current bear market, but the company took a serious beating late last month when it forecast lower profit margins for its third quarter. RIM's stock fell $26.77 that day.

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These rumors are making the rounds in the same week that the New York Times published a column titled "Why Windows Mobile Is in Trouble." That article cited reports that the release of Windows Mobile 7 could be pushed as far back as late 2010, while the platform's market share remains somewhat stagnant in comparison with RIM and Apple. Meanwhile, T-Mobile claims it has 1.5 million pre-orders for HTC's G-1, the first phone to feature Android, Google's mobile operating system based on Linux.

When asked Microsoft a couple of weeks ago about the status of Windows Mobile 7, we received this response from Scott Rockfeld, group product manager: "We're always working on future versions of the Windows Mobile platform. However, we're not publicly sharing our roadmap at this point."

Given these circumstances, it's reasonable to think there is at least a glimmer of truth behind these rumors.

"Right now, Microsoft with Windows Mobile is really making some headway with carriers and consumers, but they haven't quite hit on the recipe to work with the enterprise just yet," Hughes said. "Now they have all the elements that they need to do that. They control the server and they have ActiveSync. But the net of it is, were you able to wave a magic wand and acquire Research In Motion, an all-Microsoft solution would dominate the enterprise."

Hughes said merging the development stream within Microsoft with the BlackBerry operating system would be a huge challenge in such a merger. He said there might not be anything Microsoft could do in the near term other than maintain two separate operating systems.

There would also be a cultural clash between the two companies, Hughes said. RIM's employees are used to working in a startup culture -- a culture that hasn't existed in Microsoft for a long time.

"[A Microsoft-RIM deal] would have some big pluses, but it's also got some well-known potential roadblocks," he said. "But at the right price, it could be the right thing to do."

Hughes said that many enterprises might be rather relieved if Microsoft bought RIM.

"Because it ultimately means that instead of having to support multiple platforms, there will at least be a roadmap to bring these [two platforms] together," he said. "In terms of end users, I don't think they would even have to know."

Gold took a more negative view of a possible deal. He said there is simply no strategic fit for Microsoft to buy RIM.

He doubts that Microsoft would want to buy a company that makes hardware that doesn't run Windows Mobile. He pointed out that BlackBerry's OS is built on Java, while Microsoft has been "pushing .NET like crazy." He also noted that RIM mobilizes other email systems besides Exchange.

"Does Microsoft want to be in the business of enabling wireless email connectivity for Lotus Notes?" he said.

Gold added that Microsoft is improving the push email capabilities of ActiveSync and breaking some new ground with its newest version of Exchange. The timing, he said, is no longer right for such a deal.

"So, price aside, this just doesn't make any sense to me," he said. "I don't think there's any truth to the rumor. Look, anything is possible, but I think it would be a mistake for Microsoft to do this at this juncture. Three or four years ago, it might have made more sense, when they were less involved in Windows Mobile and RIM was smaller and they could have moved [RIM] in a different direction. I don't see any strategic advantage other than acquiring their install base."

An acquisition of RIM isn't completely impossible, Gold said. It might make sense for another company.

"I don't want to spread a rumor, but it would make sense for IBM to buy them. They have a close relationship, and IBM doesn't have a mobile story," he said. "But IBM got out of the mobile business 10 years ago because they couldn't make any money in it."

Let us know what you think about the story; email: Shamus McGillicuddy, News Editor

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