Playing to its strengths, and acknowledging its weaknesses once more, this week the company signed a licensing deal that will bring Amazon’s mobile app store – and some 240,000 apps – to BlackBerry smartphones this fall.
The infusion is vital in large part because, historically, BlackBerry has lagged well behind its competitors in the app arms race. Not only does the company’s app store contain far fewer options than the stores run by Apple and Google, it also lacks BlackBerry-specific versions of many of the big-name apps and services, such as Instagram. With the licensing agreement, BlackBerry will shut down some of its own consumer-focused content stores, and instead dedicate itself to developing more high-end, business-focused apps.
“I love [the Amazon deal] because I don’t have to spend the money on the consumer side,” Mr. Chen said on Thursday. “I could focus on my enterprise side.”
That focus is necessary because BlackBerry faces a looming dilemma. In the short term, the company’s hardware business has dropped off sharply, as consumers opt for competing devices from Apple, Samsung and others (research firm International Data Corporation pegs BlackBerry’s worldwide handset market share in 2013 at 1.9 per cent, and expects that will drop to 0.8 per cent in 2014). In the long term, BlackBerry has an audacious plan to build a platform for the so-called Internet of Things, designing software that will allow connected devices such as refrigerators, thermostats and cars to connect to the Web and to one another.
But that future is still potentially years away, and in the meantime, to stem losses and maintain new-found investor confidence, BlackBerry needs to fill the gap between current hardware sales declines and its future ambitions as the central platform in connected devices. That means retaining and winning over as many enterprise clients as possible.
“You can introduce new low-end devices, but selling devices at near break-even does not create value for shareholders,” said Frost & Sullivan telecom analyst Ronald Gruia.
“When you have to retrench, you go back to your roots and to what you’re good at.”
And it is in the enterprise world where the BlackBerry name still carries weight. Despite losing market share, the company is still recognized as having perhaps the best mass-market security and network reliability in the mobile industry. Indeed, a report this week from research firm Canaccord Genuity valued BlackBerry’s enterprise subscriber base and network infrastructure at $1.25-billion – and deemed the company’s hardware division essentially worthless.
“You only have so many arrows – focus in on the things that matter the most,” said BGC Financial analyst Colin Gillis. “I love the app store deal, I like the Foxconn deal.”
Sense of anticipation
After a string of letdowns, including multiple delays in getting the company’s new BlackBerry 10 phones on the shelves, for the first time in a long time a sense of anticipation surrounds BlackBerry. The company has scheduled a deluge of product and service launches for the second half of the year. On deck are two new smartphones, a string of BBM-related services, the launch of the Amazon app store on BlackBerry smartphones, a cloud-computing platform and a new iteration of the company’s enterprise server.
More than anything, it is the customer response to these launches that will determine whether BlackBerry returns to its former glory, treads water or fails completely.
Mr. Chen has set some lofty goals for the next year, including returning the company to profitability, selling the 10 million smartphones a year he estimates are needed to break even in the hardware business, and taking BBM revenue from essentially nothing at present to $100-million. Even if this week’s positive earnings results are the start of an upward trend and not an anomaly, analysts remain skeptical.
“I don’t want to necessarily rain on their parade, they certainly have some things to be happy about,” said Frost & Sullivan’s Mr. Gruia. “It’s still a very tough environment though.
“[Mr. Chen] wants to generate $100-million from BBM ... I’m not saying it’s impossible, but it’ll be interesting to see how he does that.”
But at the very least, Mr. Chen has managed to buy BlackBerry some time and, at least temporarily, cast off the ominous shadow that has hung over the company for the past few years – a sort of default expectation of bad news. Should BlackBerry manage to pull off another positive set of results in its next quarterly earnings, it will enter the pivotal product launch season riding on a wave of optimism – something that hasn’t happened in a very long time.
“I think [Mr. Chen] has done well in terms of stopping the freefall,” said Mr. Compeau of the Ivey School of Business.
“He’s thrown up some parachutes.”