78 GlobeAsia March 2013

Technology

esearch in Motion (now known simply as BlackBerry) last month released two new handsets, the Z10 and

the Q10, both running the brand new BlackBerry 10 operating system (OS). The latest offerings are BlackBerry’s first new hardware products in several years and reflect what many believe is the company’s last-ditch attempt to stay relevant in a market increasingly more demanding of its gadgets.

Clearly, the company has a tough road ahead. BlackBerry’s market cap has plummeted from $80 billion in 2008 to $5.2 billion today. By any measure, this is a staggering free-fall, but the new OS, coupled with very capable devices, could really turn things around.

The company’s latest offerings are both strong contenders. Judging from their features and specifications, they certainly compare favorably with their peers. The new Z10, featuring a full touchscreen, is a sop to Cerberus – the growing market for all touch-based smartphones such as the iPhone and Galaxy S3. The Q10, on the other hand, features the traditional QWERTY physical keyboard that is so prized by BlackBerry fans.

The question of course, remains whether BlackBerry will be able to sustain these early gains over the next several weeks. One early indication is BlackBerry World. BlackBerry 10’s app store was offering over 70,000 apps at launch time, which is a fairly respectable showing. Even the mighty

Microsoft was not able to amass such a wide selection at the launch of its app store.

More importantly, BlackBerry has announced that its new OS will have the ability to run Android apps with minimal modification by developers through an Android player. This significantly lowers the barrier of entry for developers seeking to port applications over to BlackBerry.

Much has been said of BlackBerry’s drop in market share, as compared to other popular smartphone OSs such as Windows Phone, Android and iOS. This sort of analysis is flawed however, because BlackBerry is just not in the same category as the others. The company’s core competency lies in the enterprise market and its ability M

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Why BlackBerry isn’t going away anytime soon

March 2013 GlobeAsia 79

By Jason Fernandes

to license and sell the BlackBerry platform itself.

A comparison that’s based solely on sales of BlackBerry’s own devices therefore considers only a sliver of its potential market, lumping BlackBerry in with non-business devices. Perhaps a bigger problem with the comparison is that it fails to take into account that most BlackBerry users pay subscription fees. This changes the equation somewhat, making BlackBerry unique from other smartphone manufacturers because it’s selling a product coupled with a service as opposed to just the product alone.

 Focus on just a few core competenciesIf BlackBerry is to truly thrive, it will need to do much more than just make better phones with more features that are comparable to their competitors. The company needs to figure out what its core strengths are and focus solely on those.

One of these strengths, of course, is the extremely secure BlackBerry OS itself. Recent statements by CEO Thorsten Heins indicate that BlackBerry is actively pursuing opportunities to license its latest OS. Unfortunately, this would be a tough sell in the smartphone industry because there are a limited number of handset manufacturers, and most are pretty well invested in their preferred ecosystem.

Unlike Google, which gives Android away to manufacturers for free, BlackBerry will have to follow the Microsoft model and charge a licensing fee for the use of their platform. The most obvious partner would be Samsung, since it has something of a history of experimentation with different OSs. It’s not clear, however, if Samsung would be interested in yet another OS – and one it would have to license at that.

BlackBerry’s market cap has plummeted from $80 billion in 2008 to $5.2 billion today. By any measure, this is a staggering free-fall, but the new operating system, coupled with very capable devices, could really turn things around.

The usual suspects HTC, Nokia, LG and Sony appear pretty committed to Windows Phone or Android. BlackBerry may be able to interest Chinese companies such as Huawei and other budget manufacturers in producing phones running the BlackBerry 10 OS. A partnership with Huawei or ZTE could lead to increased subscription fees from BlackBerry users of those devices. Since BlackBerry Internet Service fees account for almost 60% of BlackBerry’s service-based revenues, an increase in subscribers in high-growth developing countries (where smartphone penetration is generally lower) could be a major boon for the company.  

BlackBerry could allow ZTE or Huawei to create low-cost budget instruments while continuing to corner the market on premium phones, thus maintaining the brand. This would avoid a system where they would be directly in competition with other companies also making BlackBerry 10 instruments, while still increasing net revenue.

More intriguing, perhaps, is how BlackBerry could implement and license its new OS on other consumer electronic devices like tablets or car entertainment systems. BlackBerry’s acquisition of QNX in 2010, and its subsequent implementation in BlackBerry 10, makes this a very real option for them. Indeed, QNX already powers airplanes, medical devices and even nuclear power stations.

Last May, CEO Heins demonstrated

a car whose computer system was almost wholly integrated with BlackBerry 10. QNX is currently implemented in over 200 models of cars, including premium brands such as Bentley, Audi and Jaguar. All this indicates, of course, that the licensing of the BlackBerry 10 OS could be a potential goldmine for the company.

 New opportunitiesBlackBerry’s traditional focus on security and encryption also makes it perfectly poised to enter the payments market. As far back as October, during a visit to Jakarta, Heins implied as much when he said that BlackBerry Messenger was a “strong platform not just for communication,” but also possibly for “transacting money.”

It was no surprise, therefore, when the company began testing a peer-to-peer fund transfer system in Indonesia based on BlackBerry Messenger. The feature, currently still in testing, allows any BlackBerry user to easily send or receive money from and to other users of BlackBerry Messenger.

Not content with that, the company has even developed a proprietary near-field communication (NFC) payment method it calls Secure Element Management. The system is already available in Canada and was recently approved for use by VISA in January this year. These are exactly the sorts of features that BlackBerry should concentrate on developing. In focusing on payments, they make the BlackBerry system increasingly

80 GlobeAsia March 2013

Technologycompelling to those who use their phones for business.

 Turning the tideBlackBerry’s revenue from its BlackBerry Enterprise Server product accounts for almost 40% of its service market, so it’s cause for concern when BlackBerry loses enterprise clients. A new study from iPass and MobileIron has BlackBerry support among enterprise companies at 62%, down 15 % just in the last year.

This is especially troubling for a company that has lost several high-profile corporate and government partners over the past few years. More bad news came last month when, shortly after the latest launch, Home Depot announced it was dropping BlackBerry in favor of iPhone. This news resulted in a 3% drop in share prices in a week when BlackBerry was expected to rally.

The rise of the BYOD (bring your own device) movement in the corporate world is also a big challenge for BlackBerry, which has traditionally dominated this segment. These are dire signs and BlackBerry will have to push back and aggressively court the corporate sector.

The fact remains that BlackBerry 10 is a feature-rich OS for enterprise users. The superior encryption and secure environment that BlackBerry provides continue to make its products compelling to a slew of industries that value these features. The dearth of new BlackBerry models launched in the recent past has no doubt contributed to the decline in popularity that BlackBerry struggles with at the corporate level.

Fortunately, BlackBerry appears to be taking the problem seriously. Knowing it would not have a next-gen smartphone available soon enough, last year it attempted to tackle the BYOD trend head-on by launching BlackBerry Mobile Fusion. The product is platform-agnostic, allowing corporate

clients to manage a mix of mobile devices including those running on iOS or Android.

This was a brilliant move, enabling the company to continue to earn a per-user subscription fee, even on devices not made by BlackBerry. Mobile Fusion allowed the company to continue raking in service revenues, even as their hardware line grew stale and declined in popularity.

BlackBerry’s latest handsets are an opportunity for the company to focus on selling direct to consumers, as opposed to relying on dwindling corporate agreements. The company will have to focus on creating a unique ecosystem of features and apps tailored almost exclusively to the needs of the modern professional customer. The new OS appears to take this into account with the introduction of a new feature they call “BlackBerry Balance.”

Balance enables users to completely separate their work and personal lives in an encrypted environment. The feature could well be the so-called killer app for IT managers, who live in constant fear that an employee might copy confidential information and accidently upload it to Facebook or forward it elsewhere. BlackBerry Balance ensures that when you are in

“work mode,” your personal apps are inaccessible and grayed out.

This is a step in the right direction, differentiating the OS from less secure competitors. The company must continue this trend and ensure that its app store features business and productivity apps that are exclusively available on the BlackBerry OS.         

Not dead yetTo quote (and modify) Mark Twain, the rumors of BlackBerry’s death have been greatly exaggerated. After being counted out for years, BlackBerry appears poised for a comeback. In December, it released results that beat analyst expectations on earnings and revenue, while simultaneously increasing gross margins.

Most importantly perhaps, it increased its cash reserves to $2.9 billion, in preparation for the January launch. The company is all-in on this one, and it’s betting the farm on the latest OS. BlackBerry 10’s QNX integration indicates that the new OS could be by far the most robust mobile operating system in existence today.

Early sales are nothing short of spectacular. The company reported having its best day ever in Canada by over 50%, while tripling the sales of their best performance in the United Kingdom. This is no mean feat for a company widely considered to have outlived its usefulness.

BlackBerry is still valued (probably undervalued) at $5.2 billion and has cash reserves of over 2.9 billion – not quite chump change. This is still a massive corporation with a recognized and trusted brand representing 80 million subscribers. Whether or not BlackBerry will rise like a phoenix out of its ashes remains to be seen. When you put everything together though, the company sure has a fighting chance.

 Jason Fernandes is a tech commentator

and the founder of SmartKlock.

If BlackBerry is to truly thrive, it will need to do much more than just make better phones with more features that are comparable to their competitors. The company needs to figure out what its core strengths are and focus solely on those.