BlackBerry’s Not Going to Disappear
“If you’re a product guy, you obviously always want to…” Ralph Pini trails off. He’s BlackBerry’s product guy. Specifically, he’s the company’s COO and General Manager of Devices. And since BlackBerry no longer designs or makes its own devices, it’s a hard sentence to finish.
“Product guys are product guys,” he says.
Early Wednesday morning, BlackBerry CEO John Chen announced as part of a routine quarterly earnings report that the company was out of the smartphone game. “The company plans to end all internal hardware development and will outsource that function to partners,” said Chen in a prepared statement. And with that, the company responsible for some of the most iconic phones of the last 15 years bowed out.
The reasons for BlackBerry’s hardware decline have been well-documented, and besides, it’s ultimately just one reason. It collided with a giant, iPhone-shaped iceberg. From here, BlackBerry’s going to focus primarily on its software business, which makes sense. Software has been profitable for the company, to the tune of $29 million just last quarter. Hardware lost $8 million in the same three-month period. It doesn’t exactly take an applied mathematics degree to understand the move.
BlackBerry phones aren’t disappearing altogether, though. At least not for a while. They’ll just be made by other hardware companies. In fact, they already are.
In July, BlackBerry announced the DTEK 50. Billed as “the world’s most secure Android smartphone,” it’s a device of confusing provenance. You know how the Holy Roman Empire was neither holy, nor Roman, nor an empire? The DTEK 50 hardware isn’t BlackBerry hardware. Or, at its core, BlackBerry software either.
Instead, the body was made by Alcatel, while the brains are Android, modified to include the end-to-end security solution that amounts to BlackBerry’s best pitch in an increasingly crowded mobile space. This is what the future of BlackBerry looks like: Modified software powering a third-party host, trading on a name that, the hope is, still holds some juice.
“The strategy has been in the works for some time,” says Pini, who notes that BlackBerry has already scored a major licensing deal in Indonesia, a market where it still has plenty of clout.
And while a $300 Android smartphone and the Indonesian market seem to indicate a focus on the lower end of the pricing spectrum—especially given the difficulties BlackBerry had moving units of the Priv, its $650 Android-based flagship—Pini says that shouldn’t be taken to mean that BlackBerry suddenly means entry-level. The goal, at least, is to dish out a full range of devices. As many, anyway, as there are partners looking for a more established brand to piggyback off of.
“Some might be premium products, some might be unique products that represent the BlackBerry brand, like with a keyboard,” says Pini. “The objective is to be able to offer the market an alternative from a software point of view, an end to end secure platform.”
BlackBerry will continue to release monthly security patches for all branded devices, and enable powerful features, like monitoring apps for suspicious activity.
That sounds awfully appealing, especially in our era of post-Snowden security awareness. Then again, BlackBerry devices have done this for a while, without managing to sell. Which raises the question: How will the future be any different from the downwardly spiraling past?
It’s a crowded Android market. In fact, it’s two markets. There’s the slim premium space occupied by the Samsung Galaxy line, and a low-to-mid range area that Chinese manufacturers like OnePlus fight over.
“In theory, BlackBerry might have been able to carve out a third segment focused on secure enterprise devices,” says Jan Dawson, chief analyst at Jackdaw Research. “But the combination of its lateness to the market and the strides made in this field by Samsung in recent years basically precluded that outcome.”
No one’s more aware of BlackBerry’s failure to sell smartphones than BlackBerry. And no one has more insight the key cause of that failure.
“Going back two years ago, the company has been going through some significant restructuring at all levels,” says Pini. “To really win at devices, you need capital to really promote products from a marketing point of view. Even if you have great products, if you don’t have the capital to promote them, it’s difficult to win against very tough competition.”
Whether the Priv could be considered a “great” product is debatable; it had its issues. But the root problem seems clear: BlackBerry has had limited resources to allocate, and chose to put what it had toward figuring out what comes after hardware. That means the enterprise software that BlackBerry licenses to everyone from Samsung to Salesforce, but also its Android-hybrid for consumers and businesses alike.
At the very least, hitching a ride in other company’s devices beats the alternative of disappearing from the market altogether. This way BlackBerry gets to pocket licensing fees without having to deal with any of the manufacturing and supply chain headaches that come with one’s own hardware operation. It can specify quality standards for anything with the BlackBerry name, without having to shell out money on marketing. It’s significantly less risk, with at least some reward left over.
“We had a heavy investment to create the Android offering,” says Pini. “That was a lot of effort, and probably took away resources from being able to effectively participate in the general market.”
Now that it’s done, though, it can reap licensing fees while other companies fight in the trenches. Companies like Alcatel, one of the low-cost Chinese manufacturers that squeezed BlackBerry out of the market in the first place.
Onward and… Onward
That’s the rosy scenario. It’s the one that assumes the BlackBerry brand is still in international demand, and that its software isn’t just secure, it’s by now also refined.
Pini’s confident about what’s in the pipeline, and says he’s seen specifically strong demand from second and third-tier players, some of whom are even lining up to put BlackBerry’s own BB10 platform in their phones. He says BlackBerry will maintain a portfolio in the hyper-competitive US market as well.
The worry, though, isn’t so much whether BlackBerry will dilute its brand by depending on third parties. It’s how much brand BlackBerry has left, compounded by the material impact of leaving the hardware business behind.
“There’s still tons of corporate overhead, and BlackBerry has been deriving nearly a third of its revenue from hardware even in recent quarters, so there will be a big chunk of revenue that goes away as it abandons selling its own hardware,” says Dawson. “That’s going to put even more pressure on the software business.”
Whatever the uncertain future, as far as Pini’s concerned, the important thing is that BlackBerry’s still in the game, at least in a sense. He’s a product guy, after all.
“It’s a good compromise to still be able to be out there,” says Pini. “Some people might have some mixed feelings, but the compromise is actually a good compromise.”