BlackBerry faces dogfight as firm returns to its corporate roots

Share

Chris Farrer is preparing to place a big order for smartphones. That used to be a simple task for the manager of telecommunications at Ritchie Bros. Auctioneers: buy more BlackBerrys to run on the firm's BlackBerry server. This time it's different.

Like other organizations around the world, the Vancouver-based company has embraced a more flexible approach to putting mobile devices in the hands of employees. It recently dropped BlackBerry Ltd. in favour of U.S. mobile communications firm Fiberlink Communications to manage the auction company's devices. Employees can now pick any smartphone they like.

For most, that means no more BlackBerry handsets. About 60 per cent of Ritchie's 800 employees are expected to trade in their BlackBerrys in the next two years to go with Apple iPhones, while 30 per cent plan to go with Android devices. The few remaining will stick with their BlackBerrys.

"We find there's more value in allowing our employees choice," Mr. Farrer says. "I think it's more positive that there's competition."

With revenues in freefall and suitors circling the company, BlackBerry is pulling back from the consumer smartphone market and refocusing on its roots in wireless communications for companies and other organizations. Fairfax Financial chief Prem Watsa, leading the investment firm's plan to acquire BlackBerry for $4.7-billion (U.S.), says the company has clear advantages in the business market.

In returning to its corporate base, BlackBerry has pinned its hopes on people like Mr. Farrer – information technology decision makers in business and government that have long relied on BlackBerry for secure mobile communications.

But BlackBerry faces huge challenges as it tries to reassert its dominance in the business world. Interviews with more than two dozen IT executives, competitors, analysts and BlackBerry insiders reveal a fast-changing market where competitors are rapidly eating into the company's core customer base. BlackBerry acknowledged the threat this month, disclosing in a regulatory filing that it is struggling to convince customers to upgrade to its latest software platform.

According to technology research firm IDC, BlackBerry's share of mobile devices shipped to enterprise customers globally has collapsed to just 9.7 per cent so far this year from 41.5 per cent in 2010, while the combined share of Apple and Samsung has more than tripled to 67.2 per cent. Even some of its most stalwart customers – governments, banks and pension funds – are letting employees use devices other than BlackBerrys. Many customers are ordering fewer BlackBerrys than in the past. Some are abandoning the platform outright.

"It's the hottest topic in the country," says Brian Blumenthal, director of IT with H&R Real Estate Investment Trust. "Everybody is telling a different story" about their plans for mobile devices. "That's a significant change from three years ago, when it was 'BlackBerry, BlackBerry, BlackBerry.' "

The enterprise market is the heart of BlackBerry's business. The company generates revenue in this area in a number of ways: corporate and government customers purchase handsets, sometimes by the thousands; big clients pay for technical support, fees to enable extra levels of security and a per-device licence fee. At the centre of this is the BlackBerry Enterprise Server (BES), which allows IT departments to manage devices connected to their corporate networks.

But rivals in the "mobile device management" industry are increasingly picking away at BlackBerry's long-standing advantages in security and reliability.

"Almost all of our customers have said … 'I don't want to manage three different platforms. I'll consolidate down to one, and take BlackBerry out of the mix,'" said Alan Dabbiere, chairman of AirWatch LLC. The company has about 9,000 enterprise customers, a small fraction of BlackBerry's roughly 250,000 customers, but it's growing fast. Others are waiting to upgrade their BES until BlackBerry is in better shape. Research firm Gartner has advised its enterprise customers to make contingency plans.

For its part, BlackBerry says it has a solid plan to prosper in the enterprise market.

"It's a very exciting moment for us," Stephen Bates, the new head of BlackBerry's enterprise business, says during an interview this week. Mr. Bates, who previously led the firm's European unit, is at least the fourth executive to head the enterprise unit in the past two years – a period of stagnation and erosion for what was once the bedrock of the BlackBerry franchise.

BlackBerry's new offering for enterprise customers is simple, secure and elegant, he says. In addition to BlackBerrys, the enterprise servers running on its secure network can now manage an array of Apple and Android-operated phones for large customers, and BlackBerry will soon offer an Internet-based device management system for smaller firms.

"This game is not over," Mr. Bates says. "We're just at the start."

The BYOD trend

During the 2000s, BlackBerry devices became ubiquitous in white-collar workplaces. "It was the corporate mobile standard," said IDC analyst Kevin Restivo. Co-CEO Mike Lazaridis took to calling the BlackBerry a "mission critical" tool for its big customers, and he wasn't far off.

The iPhone's arrival in 2007 shook up the smartphone market and spurred BlackBerry executives to respond with more consumer-oriented devices. Apple seemed at first to pose little threat to the enterprise business.

That changed in 2010, when Apple released both its iPad tablet and the fourth version of the iPhone operating system. The tablet became popular as a workplace tool, enabling employees to carry binders worth of documents in a handy medium. And the new iPhone "was the first mobile operating system outside BlackBerry" that could be run smoothly from a company's server, said AirWatch's Mr. Dabbiere. Enterprises could provide separate corporate and personal e-mail on devices, allow for remote access into corporate networks, and have IT departments set pass codes and link to corporate applications via the devices. They still lagged BlackBerry for security, but the gap closed enough for many. Employees began asking to use their iPhones for work. At first, chief information officers were aghast at the potential loss of control, but they soon relented.

By 2010, many enterprise customers were asking BlackBerry if it could adapt the BlackBerry enterprise server to also manage Apple and Android devices. Upstart firms were offering to manage fleets of Android and Apple phones, and the new trend was BYOD – bring your own device. "It's like company cars – your employer used to give them to you, now they only pay you for mileage," said Alexander Trewby, chief operating officer of Enterproid Inc., a mobile device management firm. "The same is happening in mobile."

Within BlackBerry, executives generally agreed that to remain dominant in the enterprise market, the firm should allow competing devices to operate on the BlackBerry enterprise server. But it was a big step for a company that in 2010 was choking on priorities, including developing a new smartphone platform and a tablet. "There were too many competing agendas," one former executive says.

"There was full agreement internally that we needed the BES to help manage and secure Apple and Android phones," the executive says. "It was not a case of not recognizing the problem, it was a matter of not executing on it. Now it will be a tough battle, and it would be a battle back."

BlackBerry earlier this year finally made the BES platform capable of accommodating competing devices. Asked why it took the company three years to allow that, Mr. Bates acknowledged: "Yes, it's taken a long time." But he added that BlackBerry was dedicated to "maintaining a gold standard of our solution" and wanted to stick to a co-ordinated launch with the BlackBerry 10. "The challenge is, that's a lot to do."

By launching its multiplatform device offering so late, however, BlackBerry left the door open for rivals such as AirWatch to gain a foothold and redefine BlackBerry's market. Employees no longer had to carry two phones. They could access corporate e-mail and other work applications securely on their personal iPhones – and IT departments could isolate and manage sensitive company data without affecting the employee's personal files. "It's about no compromise," says Enterproid's Mr. Trewby. "The IT department doesn't compromise corporate data and just manages that. And end users don't compromise personal freedom and privacy."

Now BlackBerry faces a fight to win the business to manage corporate iPhone and Android devices. In a survey of Fortune 1000 IT executives earlier this year, Jefferies analyst Peter Misek found 18 per cent planned to use BlackBerry's BES to manage non-BlackBerry phones in their enterprises, tying the company with AirWatch. Two others garnered 10 per cent or more. "Now there are several companies vying to go public who do nothing but effectively what a BES does for devices," says one former BlackBerry executive. "None of them would have had the oxygen to do that if BlackBerry had executed on time."

An increase in flexibility

There are still diehard BlackBerry fans. Andy Ambrozic is one. He has managed Ricoh Canada Inc.'s technology needs for 30 years and fondly recalls the arrival of the first BlackBerrys more than a decade ago. "It was dynamite," he says. Ricoh Canada deploys more than 1,000 BlackBerrys to employees and was an early adopter of its new BES 10 servers; its top executives all use the new Z10 and Q10 devices and Mr. Ambrozic may roll them out firm-wide. "It's a rock-solid product that does everything we want," he says. "We're committed to stand by them." At the same time, BES10 enables him to manage iPhone and Android smartphones, which several employees now bring from home.

But even BlackBerry's most loyal customers are letting non-BlackBerry devices into their operations as they embrace the growing bring-your-own-device trend. Loblaw Cos Ltd. is rolling out a full BYOD plan for employees. Bank of Montreal has run a BYOD pilot program, and pension giant OMERS is exploring whether to allow employees to bring their own devices.

Such a sea change is partly inspired by more flexibility from BlackBerry, which recently rolled out what is known as its "secured work space" for Apple's iOS operating system and Android. The software ensures that companies that rely on high security get the same protection regardless of the device. BMO is one of the companies testing this software.

But as they open their networks to other phones, some large, security-conscious firms that previously only used BlackBerrys have begun to allow employees to swap in iPhone and Android devices on separate, non-BlackBerry servers, such as Royal Bank of Canada and Toronto's Hospital for Sick Children.

Sick Kids remains a BlackBerry customer and has upgraded to the BES10 server, ordering Z10 and Q10 devices. But to manage its non-BlackBerry devices, it turned to Silicon Valley-based MobileIron and now deploys more Apple devices than BlackBerrys, says chief information officer Daniela Crivianu Gaita. The reason: Software firms that made the specialized applications the hospital used to manage patient files and X-rays on desktops created mobile app versions – but not for BlackBerry. And while BlackBerry now offers the capability to manage all of Sick Kids' mobile devices, Ms. Gaita says its solution came too late. "Based on what I know from my peers, most people have a similar strategy – they still have the BES but have either implemented, or are in the process of implementing, another mobile device management solution. Being Canadians, we'd love BlackBerry to do well. I think that's why they're keeping the BES."

Some enterprise customers say they don't want to invest tens or even hundreds of thousands of dollars in new BES10 servers until there is more clarity about BlackBerry's future. But there are other strategic minefields.

For competitive reasons, BlackBerry has refused to give competing mobile device management firms the ability to properly manage BlackBerrys (it does this by withholding access to its application programming interface, or APIs). That means most rivals can fully support only Apple or Android devices, while their customers who want to deploy BlackBerrys only get basic e-mail, contacts and calendar functions – unless they install BlackBerry's server.

"We don't want to risk the value of our security credentials by allowing companies that don't have a security heritage to manage a BlackBerry," Mr. Bates said. "People that use a BlackBerry expect a BlackBerry experience. We will not compromise on that."

But it can cost BlackBerry potential sales. While employees at Ritchie Bros., for example, can choose whatever device they want, there are 200 salespeople who can access the company's sales tools through protected mobile portals only on Apple or Android devices. That won't be possible if they choose BlackBerrys because BlackBerry won't let Fiberlink offer that expanded functionality. Even if they want a BlackBerry Z10 or Q10, it would make little sense for any of Ritchie Bros. salespeople to get one.

BlackBerry says it is the only device manager that can offer full support for all manufacturers' devices. But Samsung, the world's biggest seller of smartphones, won't give BlackBerry access to APIs for two of its key enterprise-oriented software programs, which are designed to offer BlackBerry-level security on its phones. BlackBerry says it can still provide the same level of management abilities and security on Samsung devices as other Android devices, and Jefferies analyst Peter Misek dismissed the slight as only a "mild impairment."

But a former senior BlackBerry executive with knowledge of the situation said Samsung's withholding "is enormously costly to BES10 adoption in the U.S." as it enables BlackBerry's rivals to offer an increased level of security, cutting into a long-standing competitive advantage and improving Samsung's already formidable position in the smartphone market.

New server gains support

While BlackBerry appears to be struggling to fortify its position in the enterprise market, it would be unwise to dismiss the Waterloo, Ont., firm. It still has a large installed base of customers and many notable clients have upgraded to the latest version of the BES server, including Air Canada, MetLife, Citigroup, PwC Canada and Torys LLP.

Meanwhile, BlackBerry offers an array of levels of security offerings – including the industry's "gold standard," still favoured by secretive government agencies.

Meanwhile, despite BlackBerry's fallen state, it may be in better shape to survive a collapse in pricing and a shakeout of the industry's increasingly numerous device management players, which John Girard, an analyst at Gartner, recently warned may be in store.

"Mobile device management is in chaos ... and I think this market is going to die," he said in June.

Those are hardly encouraging words for a fallen tech giant looking to rebuild in the market it once dominated, but BlackBerry is keeping a brave face.

"Transformations are hard," Mr. Bates says. "But I can see the light at the end of the tunnel, I can see where we're going, I have a clear view of the problem we're trying to solve."

------------------------------------------------------------

BLACKBERRY'S CONNECTION TO BUSINESS

What's BlackBerry's history

with business customers?

BlackBerry has been the device of choice for most business people – at big banks, government departments and other companies, both large and small – since the company's early models liberated people from their desks with mobile e-mail.

Why are business customers

so important to BlackBerry?

Corporate customers, for years, formed the cornerstone of BlackBerry's user base. They bought more devices – by the hundreds or thousands – and often bought more expensive models.

What happened next?

The smartphone industry became more competitive. Apple's iPhone and devices running Google's Android software changed users' expectations of what phones could do. Those preferences migrated into the workplace, where people started demanding and using iPhones and Android phones.

But I thought businesses

needed BlackBerry?

They used to. People stopped wanting to carry two devices, and many employees preferred Apple's iPad. This helped kick-start the "bring your own device" trend and the "mobile device management" industry.

What's BYOD and MDM?

Bring your own device means exactly that: Employees bringing their own phones to work, and having work e-mail and business apps enabled. That saves IT managers money. Mobile device management is a service that allows businesses to handle – securely – all the iPhones, iPads and Android phones their employees are now using instead of BlackBerrys.

So what happens

to BlackBerry now?

BlackBerry – its business battered by rivals and its employees suffering through layoffs – has said it will cut costs and refocus on business customers, rather than end consumers. But BlackBerry admitted in its latest financial disclosures that those core business customers have been slow to upgrade to the company's new BlackBerry 10 system. Iain Marlow