This has certainly been a tough couple of weeks for Blackberry. They reported rather dismal numbers for the last quarter, losing nearly $1 billion dollars. They are left scrambling after Garnter suggested that companies basically abandon the handset. One of their manufacturing partners is bowing out. T-Mobile won’t sell Blackberries in store, and will only sell them on-line. Now we find out that the plan to take them private may be on shaky ground. All this, coupled with the suggestion that Blackberry can retrench and survive in a niche doesn’t bode well for what was once a great Canadian brand. Seriously, can it get worse?
Still Plenty Of “Down” Left
The problem here is that there is still plenty of altitude left to cover in this controlled descent into terrain. While their share has dwindled to a tiny fraction of the market, Blackberry still sells a few million units a quarter. They still hold a healthy share of the smartphone market in Canada. And while they aren’t the preferred platform for enterprises, their presence can’t be completely ignored.
If the Fairfax deal does go through, that isn’t the end of Blackberry’s problems. Sure, it takes a lot of what they do out of the glare of the of the public spotlight. The industry will still focus on units sold and market share, but the daily grumblings about their financials will go behind closed doors. They won’t be completely removed from the light of day, however, information that we now get publicly (financials, layoffs, etc) will now have to come via rumour, innuendo and insiders leaking information.
Whether Fairfax buys the company, or the deal falls through and Blackberry stays public, the options remain the same. One is that the company is cut apart, and the more valuable pieces are sold off in some form of auction. Blackberry’s patent portfolio is probably the most valuable part of the business, but their enterprise integration technology may also have some interest. Their infrastructure may be intriguing, but I’m not sure that it would be worth all that much in the end. It might be cheaper to simply try to replicate it. While the “break-up-and-sell” approach may be the underlying goal for Fairfax right now, this will probably be the biggest push from shareholders if the company remains publicly traded.
The alternative is to try to rebuild the company into a viable business. Depending on who Fairfax gets to participate in the deal, that could be a political necessity. Rumour is that Canadian groups looking to get into the deal will expect there to be an operating Blackberry business. There will likely be pressure from the federal government, as well as the Ontario government, to try to rebuild the company.
Can They Rebuild?
There is essentially no future for Blackberry as a retail smartphone. Blackberry’s CEO said as much prior the most recent earnings announcement. Basically, Android and iOS now own the consumer market, and there are no other meaningful competitors in this space. But what about enterprise, Blackberry’s supposed “strength”? Part of the problem here is that, from a marketshare perspective, Blackberry has lost this as well. Back in 2012, iOS took the crown of having the biggest share of the enterprise. With the iPad, Apple continues to grow their presence in enterprise, despite not really having any real focus on the segment. Android has been slowly gaining ground, but security concerns continue to impact Android’s presence in this space.
Could Blackberry retrench, and become a niche focusing on the enterprise and government markets? Possibly, but it comes with many, many challenges. A few of them may be insurmountable.
The Challenges Of The Enterprise
The first challenge is the Bring Your Own Device (BYOD) phenomenon that is captivating the industry. More and more companies are allowing people to use their personal smartphones, tablets and even laptops at work, rather than requiring them to use a device provided by the company. With Blackberry no longer trying to be a consumer device, this leaves them those organizations that either won’t or can’t allow people to use a personal smartphone. Certainly, that is still a lot of potential sales, but it makes their share of the overall pie smaller.
But, even for those companies that aren’t going BYOD, they are still looking at iPhone and Android more often than they look at Blackberry. Why? For a second significant challenge: support for apps and a vibrant community of app developers. As companies continue to embrace mobile technology, one piece of the puzzle necessary to make mobile useful is mobile apps. When it comes to app availability, iOS and Android win that war hands-down. It isn’t even close when compared to Blackberry. The app catalog for Blackberry is measured in tens of thousands. The catalog for iOS and Android are nearing 1 million apps. Each. Individually, each platform’s app catalog is two orders of magnitude bigger.
Limited Developer Resources
But it isn’t just the app catalogs, it is the community of developers available. The number of people who can build software on Android and/or iOS are measured in the tens or even hundreds of thousands. There are many freelance developers, as well as contract development shops, available to build apps for companies. There are individuals looking for full-time employment as app developers. Certainly, there are more jobs than people, judging by the various contract and employment agencies out there. But that simply means more people will likely be interested in entering the field.
Few developers will want to spend the time and effort it takes to learn a platform that presents limited future possibilities for them. Learning new things is always good, but you have to balance that with the limits on time and attention. The desire to learn BB10 may be there, but the willingness is likely lower, and comes more from curiosity rather than the belief you can build a meaningful career out of it. Companies wanting to hire or contract people to build apps for Blackberry will find a very small community available, and few developers interested in learning the platform.
Who Would Want Blackberries?
This isn’t meant as a rhetorical question, but who would want to use Blackberries as their enterprise smartphone? There will certainly be markets where a Blackberry might make sense. The main draw with Blackberry is their security, and security which extends back into their enterprise integration. There are a number of organizations that may not care about apps, and have an overriding requirement for device security. Several government agencies, and some small parts of larger corporations, may be willing to forego apps in favour of a device that provides security for e-mail, messaging, contacts and calendars. When it comes to security, Blackberry is still the leader.
The problem Blackberry faces here, though, is that their lead is temporary. The security available in iOS has continued to improve with every release, and Apple isn’t sitting still. Some Android manufacturers have taken upon themselves to augment and improve Android security. Samsung has made moves in this direction, clearly targeting the enterprise with their Galaxy devices.
Resources To Move Forward
All this ultimately impacts an important number: the money available to continue to advance and improve the platform. As mentioned above, the lead Blackberry has in security is temporary. To maintain the lead, and to continue to raise the bar, requires developers and researchers constantly improving what is there. That takes money. Without continued work by Blackberry, at some point iOS and Android will catch and ultimately surpass Blackberry, calling into question why people would want a Blackberry over other devices.
But it isn’t just security that needs work. There is always more to do on the infrastructure that Blackberry runs as part of that security. Right now, it is scaled for a substantially larger user base and a larger base of revenue. Blackberry will have to scale their infrastructure back to bring it in line with a more realistic level of revenue. But will that level of service provide the scalability and availability needed to keep Blackberry attractive? The company seems to suffer from some kind of outage on an annual basis now. So far, their systems have remained free from successful attacks. But it will be harder to provide better uptime, and stronger security, if staff and equipment are stretched to the limit.
Not to pile on, but Blackberry also has to keep working on the rest of the operating system, as well as the hardware. Standards don’t sit still, and people want newer or contemporary features. They want better screens, better keyboards and better battery life. New standards for the mobile phone radios and signalling protocols, Wi-fi, Bluetooth and NFC are coming out all the time. Where Bluetooth 2.0 + ADR, 3G and 802.11n were considered state of the art, now we have 4G/LTE, Bluetooth 4.0 and 802.11ac. At some point, all of these will evolve and change again, and new technologies will appear.
That means work on the underlying hardware, the operating system that runs on it, as well as the built-in apps like the browser, e-mail, BBM and other components. That takes people, and again, it costs money. Trying to keep up with the deeper pockets at places like Apple, Google and Samsung will be very, very difficult if the company is restricted to a tiny revenue stream.
There will be a new expense that Blackberry doesn’t really have right now: a sales staff to sell their product. Up until recently, other companies would sell Blackberries and supporting technologies like BES for them. But the carriers are likely going to get out of that business. Some independent consultants might still be around, but Blackberry will have to take up the work. That means building a global sales team, along with technical pre-sales support, that doesn’t really exist today. Selling to, and supporting, the carriers isn’t the same as having to deal one-on-one with businesses. Sure, Blackberry already does some of that. Now, they will have to carry that ball almost by themselves.
Future Looks Shaky
All this makes for a very unstable and unpredictable future for Blackberry. Trying to maintain the hardware and software for a couple models of phone, plus the infrastructure beneath it, on a small and shrinking revenue base, while trying to compete with companies with strong (and stronger) product, better brands and more available money, is a dodgy proposition. They won’t be like a duck: placid on the surface while churning away under the water. This will be the image of someone trying to tread water in a fast-moving river while dodging logs, boats and other swimmers. And while wearing clothes that soak up more and more water as time goes by.
I just don’t see a long-term future for Blackberry as a niche provider to enterprise and government clients. Certainly, it may look attractive short-term. But the security advantage of the Blackberry is temporary, while the app shortage and the dearth of developers is more-or-less permanent. At some point, Apple and the Androids will catch Blackberry on security, and may even surpass them. And all the while, hardware and required features will continue to move forward. Blackberry hardware and software cannot stand still.
To maintain the team of hardware engineers, software developers, testers, system operations and security staff and sales teams (plus all the hardware, network connectivity and other infrastructure behind all of this) can mean a lot of money to remain competitive. That money could be hard to come by as their markets shrink, and sales opportunities dry up because their competition catches up and even passes them.
In this light, the suggestion that Blackberry can thrive as a niche smartphone manufacturer would appear to be optimistic, and possibly even naive. Over time, the niches simply won’t be big enough, or lucrative enough, to support the team and infrastructure needed just to keep up.
So Yes, I Can Get Worse
Unfortunately, the Blackberry story hasn’t hit rock bottom yet, and there is every chance that once they get to the bottom, they’ll start digging. I am waiting to hear that the federal and Ontario governments have decided to step in to try to save the company (a sure recipe for disaster in my mind). It would be a laudable goal, but one doomed to failure. The industry has moved on. Blackberry had its day. Now is the time to give support to Blackberry alumni as they go out and start new ventures. Small companies represent the backbone of the economy anyways. Propping up a failed larger company won’t make sense. But it buys political points, so expect there to be noise on that front.
The value in Blackberry now is to sell of what can be sold. It won’t be fun for the people still left at the company (been there, done that). A lot of good people are now looking for work, and I expect more to join them. It would be nice if this wasn’t the case, but it is what it is. Unfortunately, we probably have a year of further bumbling and stumbling before the sad tale comes to an end.