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RIM, Microsoft ally in smartphone wars

The handset maker and the software giant tap Microsoft's Bing as they join forces to combat competition in the smartphone market from Google and Apple.

Microsoft CEO Steve Ballmer took the stage Tuesday morning at Research In Motion's Blackberry World conference in Orlando, Fla. to announce a new partnership between the computing giant and RIM, several reports indicate.

Starting today, Microsoft's Bing search and maps applications will be integrated into BlackBerry phones at the operating system level, said Gartner analyst Michael Gartenberg via his Twitter feed from the event. The search and mapping technology will include location-based services. Microsoft demonstrated the new Bing application running on a BlackBerry Torch 9800.

NPD Group analyst Ross Rubin, who is also attending the show, tweeted that Ballmer mentioned his love for his own Windows Phone platform, but acknowledged that Microsoft has had a strong working relationship and partnership with RIM. Ballmer also said Microsoft plans to "invest uniquely" in BlackBerry services.

But Rubin noted during the demonstration, "Bing on BlackBerry tastes more like Windows Phone 7 than BlackBerry."

Although on the surface it seems to make little sense for Microsoft to work closely with RIM, which is a direct competitor in the smartphone market, it is an indication of how stiff the competition is. RIM, which has been a dominant maker of smartphones, is slipping. Microsoft, meanwhile, is retrenching with a new OS platform called Windows Phone 7.

In February, Microsoft entered into a significant partnership with Nokia, under which handset maker Nokia is adopting the Windows Phone operating system.

The companies face enormous competition from Google with its Android operating system and Apple with its iconic iPhone.

Related links
• BlackBerry World reveals new devices, apps
• Verizon iPhone boosts Apple's smartphone share
• Nielsen: Desire for iPhone slips as Android gains

The smartphone category of cell phones is growing as overall handset sales are slipping. During the first quarter of 2011, NPD said that unit sales of smartphones went up 8 percent from the previous quarter, amid a 1 percent drop of total handset sales. This was the first quarter that majority of handsets sold were smartphones, making up 54 percent of total sales.

But it looks like RIM is missing out on the growth, as consumers flock to Google Android and Apple iPhone devices. In the first quarter of 2011, Google's Android OS phones made up half of the phones sold, according to NPD. Meanwhile, RIM's BlackBerry OS continued to slip, dropping to 14 percent of sales during the quarter. In the fourth quarter, RIM sold 19 percent of smartphones.

Apple ate into RIM's sales and to a smaller extent into Android sales, which dipped from 53 percent of sales in the fourth quarter to 50 percent in the first quarter of 2011. Apple's iOS jumped to 28 percent of sales during the quarter, fueled in large part by the iPhone coming to Verizon Wireless.

Microsoft, which announced new Windows Phone devices in the fall of last year, is still a relatively small player. But it's banking on its partnership with Nokia to eventually kick-start sales worldwide.

But what's troubling for RIM and Microsoft is that U.S. consumers don't seem to even have them on their radar. A recent report from research firm Nielsen found that 31 percent of consumers surveyed said they plan to buy an Android-based smartphone in the next year. And another 30 percent say they plan to buy an Apple iPhone. Only 11 percent said they expected to buy a BlackBerry. And only 7 percent said they're planning to buy a Microsoft Windows Phone 7 device.

At this week's BlackBerry World, RIM has taken the wraps off several new handsets and the BlackBerry 7 OS that the company hopes will help it compete with Google and Apple. But analysts have given the new devices and the strategy a lukewarm reception.

Stephen Patel, an analyst with the equities firm Gleacher & Co., said in a research note that "newly announced OS7 products appear mostly evolutionary in our view and we prefer to take a wait and see approach as RIMM faces several tough transition quarters ahead and significant execution risk."

Specifically, Patel said he was impressed with some aspects of the new BlackBerry Bold, such as the thin form factor, faster browsing speed, improved graphics performance, and universal search. But he said he sees the new features as narrowing the gap with competition rather than leapfrogging them.

As for Microsoft, it's clear that the company is looking to compete aggressively in the smartphone market. But it's unclear if these partnerships will be effective in helping the company get back into the smartphone game.

To follow more of what is happening at BlackBerry World, check out the Twitter feed: #bbwc11.

Updated 8:15 a.m. PT: This story was updated with an analyst comment and market research figures.