Will Blackberry come back?

What is to make of Blackberry's current strategy? Its share price went like a rocket from 2003 to 2007 (up 5,300%) and like a meteor from 2008 to 2012 (down 96% from peak to bottom). During the last couple of months it is up more than 100%.

The rise and fall has been well documented. A user-friendly smartphone that made messaging/push email very easy and cheap that was left in the backwaters by Apple and Google, which developed smartphones with an array of applications, not just messaging. This blog post will attempt to provide a forward looking view of the company.

Mobile phone market. The mobile phone market is currently being transformed by the smartphone. In 2007 the smartphone represented 11% of shipments and in the beginning of 2012 37% of shipments (data from www.asymco.com). The migration is occurring at a faster rate and, naturally, constitutes a great opportunity for gaining market share. Theoretically (but unlikely in practice), all smartphone platforms can gain market share in the mobile phone market.


Smartphone market. The following charts shows the market shares of the various smartphone platforms (i.e. excluding sales of non-smartphones). Two different data sources have been used to triangulate.

Source: www.asymco.com/hire-me/platforms-data (no data from 2012-2013)

Source: Euromonitor. The 2013 data is likely to be a forecast

Competitors. Apple and Google are both having a strong offering; Apple has a very loyal base of users, Android phones comes in many packages appealing to different kinds of users, both companies have thousands of independent applications available, and both companies have a healthy cash flow to support future growth. Is is very unlikely that Blackberry would be able to unseat any of these companies. Samsung's Bada is still very small and currently not a threat.

Blackberry's key problem is Microsoft. Microsoft has not been successful in phones and it remains to be seen whether its new Windows 8, mainly supported by Nokia (and HTC) will be a success. Nokia has ditched the Symbian platform and is now totally dependent on Microsoft's Windows 8. This is one platform with deep pockets. Nokia will be very aggressive in trying to convert its current non-smartphone and Symbian customers to Windows. Microsoft will very aggressively integrate Windows phones with the overall requirements of the corporate segment, e.g. encrypted email, push email convenience, Office suit applications. Microsoft announced in November that sales increased fourfold, but it is unclear from what base. Even if Windows eventually will fail in smartphones, enough headache for Blackberry would have been created in the meantime.


Blackberry's revenue mix. Blackberry sells phones and by subscription push email services . The latter is a service that pushes emails to the smartphone in real time. Competitors have not offered the real time functionality. The email push service generated 35% of revenue in 2011, but with a gross margin of 82%. To succeed Blackberry has to sell  phones as well as convince buyers to sign up for an email push subscription. Compare the situation to mobile phone operators' very profitable SMS business, which is being eroded by almost free smartphone applications. In Singapore Blackberry's corporate email push subscription is SGD 63 per month (consumer version SGD 11). Compare with whatsapp smartphone application; SDG 1.25 per year. Probably a good candidate for a disruptive technology.

Blackberry's self-image. I think the company's top management has failed to understand that the company does not have a solid strategic positioning in the marketplace anymore. Five years ago they seemed to pursue an industry-wide differentiation strategy (e.g. strong on corporate email, but high school students loved the low-price messaging too, they were strong in Canada, but also some foreign markets). I believe because the company has grown in absolute sales, the top management has failed to understand how weak their current strategic positioning actually is. The new operating system Blackberry 10 is still being marketed as a product with an industry-wide target. This positioning makes the company compete with Microsoft for the third position. Instead, I believe the top management should realise that the only viable strategy going forward is a focused strategy. Only top management can determine the details of such a strategy but here are a few ideas: The company is very strong in Indonesia, Nigeria, and Canada. Maybe the worldwide launch party should have been held in Jakarta and Lagos (6% of world population). Maybe they can focus on the corporate segment exclusively. Maybe they can capitalise on not being a US company when dealing with government markets in India or Russia. A focused strategy would maximise the company's survival chances.

What will happen? The Blackberry 10 operating system has received good reviews. However, that is just an hygiene factor (i.e. a necessity to stay in business); nothing more. In terms of strategy my assessment is not positive. It is likely that the loyal customer base will replace their old handsets in 2013 resulting in quite good financial performance for 2-3 quarters (until end of 2013). Once the market realises the ephemeral nature of the sales, the share price will once again fall. This might happen earlier. (Current share price 14.15, 15/2/2013)