With BlackBerry announcing that it would be evaluating strategic options to “enhance value and increase scale in order to accelerate BlackBerry 10 deployment”, including a possible sale of the company. This announcement highlights that BlackBerry has not successfully articulated its strategy beyond devices, and especially how that strategy will fill the gap left by declining device revenues.
The board has hinted at several key opportunities: turning the company’s BlackBerry Messenger (BBM) product into a broader social platform, expanding the company’s mobile device management (MDM) capabilities, and pursuing the broader M2M space.
However, none of these seems likely to deliver the kind of revenue growth needed to offset declining device revenues. In addition, it is unclear whether a joint venture or even a change of ownership will solve this fundamental problem.
It's crowded out there
One of BlackBerry’s two key investment areas is BBM, which started life as a simple messaging service but has now become a hub for social activity of other kinds. Although BBM Music was relatively short-lived, the company has recently added more enterprise-centric features such as screen-sharing, video and voice calling, and its Channels product for brands. These seem to be a better fit for the core audience of BlackBerry devices than the consumer-centric Music service.
However, they highlight a key issue for BBM’s future: does the company want to create a Facebook-style, broad, consumer-centric social network or a LinkedIn-like business-centric platform? Either avenue is fraught with risk.
The challenge is that both these spaces are occupied by powerful incumbents. Facebook has almost become synonymous with social networking in the consumer space, accounting for over 15 per cent of the time that US consumers spend online. LinkedIn is the main brand in the business networking space, though others occupy specific positions in the broader enterprise social networking market, including the Microsoft-owned Yammer and Salesforce.com’s Chatter for internal collaboration. Regardless of which of these opportunities BBM goes after, it will face an uphill battle.
The 90 minutes that 51 million BBM users reportedly spend on the service each day is a good start. However, they are exclusively on BlackBerry devices, meaning that this number is likely to decline as the number of people owning a BlackBerry falls, even as BBM goes cross-platform. It is not clear why non-BlackBerry owners would switch to using BBM services once they’re available on iOS and Android when there are so many other options already available. While there may be some interest from former BlackBerry users, that won’t be enough to generate mass-market adoption.
The bigger question is how BlackBerry can monetise such a base of customers, even if it was able to grow it. BBM has always been free on BlackBerry devices and will be free on iOS and Android too. Whereas Facebook is fundamentally an advertising company, BlackBerry has no such history, meaning that an ad-funded future seems unlikely. What then is the plan for generating revenue from the BBM platform? If the company has one, it needs to start telling investors what it is.
No monopoly in a multi-platform world
In the MDM space, BlackBerry has long acknowledged (though much later than it should have) the realities of the BYOD trend, and it acquired Ubitexx to help it provide a multi-platform management solution. The problem is that, whereas BlackBerry had a monopoly on solutions for managing its own devices, the multi-platform MDM space is much more competitive, and its offerings lag significantly behind those of others with much longer histories of managing iOS and Android devices. Through BlackBerry Enterprise Service 10 (BES 10), the company is finally starting to check some key boxes for a multi-platform MDM service, including the launch of a container-based solution on iOS and Android, but it is a long way from matching its competitors’ offerings.
BES 10 seems to be a good upgrade for companies that feel the need to keep a significant base of BlackBerry devices alongside a BYOD fleet, but it is not a likely choice for a company looking to move away from BlackBerry devices altogether. Though some have postulated that BlackBerry could be successful purely as an enterprise solutions provider, the only reason to choose a BlackBerry server solution today is an installed base of BlackBerry devices. Without the devices, the rationale for choosing BES 10 largely disappears.
BlackBerry’s M2M play
BlackBerry’s other area of investment is the embedded software space, which is centred on the QNX software platform that it purchased from Harman Kardon in 2010. QNX is the software installed on many embedded systems; not just in the automotive space, which it dominates, but also in a number of other vertical industries. However, revenue from this software business only makes up a tiny proportion of BlackBerry’s overall revenues. In the quarter ended June 1, 2013, BlackBerry generated more than $US2 billion in revenues from devices and almost $US800 million from services. In comparison, it made less than $US100 million from software. Annual QNX revenues at Harman were approximately $US35-40 million at the time of the acquisition, and it is unlikely that they have grown significantly from there (BlackBerry doesn’t report them separately).
BlackBerry needs to communicate a vision for this business unit too if it wants investors to believe that it can be a source of future growth. The broader M2M market is a hot area, but much of the revenues will come from connectivity and solutions rather than software.
If BlackBerry is to be a significant player in this market, it will need to expand significantly beyond embedded software and in-car systems. Otherwise, it is unclear how it can ever offset the revenue losses from hardware and services. Again, BlackBerry would benefit from better articulating its longer-term strategy and expectations in this area.
Jan Dawson is Ovum’s chief telecoms analyst.
