BlackBerry's strategy shift: messaging and device management

Posted on December 9, 2013 by Eric Benjamin Seufert

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Businessweek recently published an interesting history of BlackBerry, née Research in Motion Limited, which details the former giant’s dramatic deterioration. The origins of the company date back to 1984, but its recent history – its rise to a market cap of $83.4BN in 2008 and subsequent decline to a market cap of just $3.10BN today – is more interesting.

BlackBerry’s mis-steps are welldocumented:

  • The company failed to foresee that consumers, not enterprise customers, would drive smartphone growth;
  • The company failed to adapt to growing preferences for touch-screen devices;
  • The company suffered major and repeated outages (the most symbolic and damning being that which occurred in October 2011, rendering the system useless for more than 3 days) that weakened its perception as the secure, stable mobile enterprise email solution;
  • The company operated under a dual-CEO leadership structure – the company’s co-founders, Jim Balsillie and Mike Lazaridis, served as “co-CEOs” – through January 2012 which resulted in ineffectual management and was lambasted in 2011 through a public letter to the company’s executive team by an anonymous senior manager entitled, I have lost confidence;
  • The company’s obtuse tablet strategy removed it from that market altogether: it was late to market in 2011 with the feature-poor, ludicrously priced, and BlackBerry phone-dependent PlayBook. After the ill-fated PlayBook launch, BlackBerry refused to acknowledge the growing tablet market segment, with then-CEO Thorsten Heins (who replaced co-CEOs Balsillie and Lazaridis in 2012) claiming in May 2013 that tablets would be “obsolete in 5 years”;
  • The company didn’t encourage the development of a rich app ecosystem: at one point, a single developer was responsible for more than a quarter of all apps available in BlackBerry’s app store.

As a result of BlackBerry’s strategic blunders, the company is now in a difficult position: its stock is trading below $6 – which is about 50% of what it traded at in late December 2012 and 10% of what it traded at in late December 2010  — and in September it announced that it would lay off 4,500 people, a reduction in workforce size of 40%.

In September 2013, a consortium of buyers – led by Canadian private equity firm Fairfax Holdings – entered into talks with BlackBerry to acquire the company for $4.7BN, but in early November, the deal disintegrated. The collapse of the buyout catalyzed three changes:

  • Rather than acquire the company, the institutional investors assembled behind Fairfax would inject $1BN into the company as a strategic investment;
  • Thorsten Heins was ousted as CEO of BlackBerry;
  • John Chen – famous for having turned around software company Sybase in the 90s — was appointed CEO and chairman of BlackBerry’s board.

Chen has been vocal about the company’s strategic shift since assuming the role of BlackBerry’s CEO. On December 2nd, Chen issued a letter to shareholders outlining the firm’s commitment to its cross-platform enterprise device management products and stating that BlackBerry’s “for sale sign” had been taken down.

Chen’s acronym-laden letter essentially makes five points:

  • BlackBerry is shifting its strategic focus to enterprise mobile device management (MDM);
  • BlackBerry sees its opportunity in multi-platform workplace device ecosystems and seeks to be the go-to security layer (with its BES, or BlackBerry Enterprise Server, product) to unite them all;
  • BlackBerry thinks BYOD (“bring your own device”) policies at large corporations and government entities will become more popular, and its enterprise mobility management (EMM) suite best facilitates that;
  • BlackBerry sees its historical position as the platform of choice for security-oriented workplaces – in fields such as law, finance, and government – as a competitive advantage. Chen cites BlackBerry as the sole recipient of the Department of Defense’s “Authority to Operate” designation in supporting this;
  • BlackBerry’s hardware offerings are no longer a primary concern (“We known that BlackBerry devices are not for everyone. That’s OK.”) and the firm will focus on cross-platform compatibility.

In other words, BlackBerry is reducing organizational emphasis on its hardware business and focusing on its position as a security and device management layer in large organizations operating across multiple mobile platforms.

Before the letter was published, a fairly significant sign surfaced indicating that BlackBerry’s new organizational agenda might be succeeding in expanding the firm’s market share. In late November, Distimo, the mobile marketing place intelligence agency, reported that BlackBerry’s BMM messaging service had overtaken WhatsApp and Viber and was approaching SnapChat’s market share on iOS in key geographies. BBM offers messaging capabilities similar to Apple’s iMessage – as well as video calling functionality similar to Apple’s Facetime – and had only launched for iOS a month earlier.

Messaging is an important – and highly competitive — mobile market segment: Snapchat recently raised $54.5MM on a $2BN, pre-revenue valuation (weeks after rumors circulated that multiple companies were considering investments at valuations ranging from $3BN to $4BN), and a number of popular and highly-profitable Asian messaging services are thought to be readying themselves for aggressive entry into Western markets: Japan’s LINE messaging service, which reported Q3 net revenues of nearly $100MM in early November;  China-based Tencent’s WeChat messaging service, which reported 272MM worldwide users for Q3, 100MM of which live outside of China; and South Korea’s KakaoTalk messaging service, which has expanded into a platform for gaming and other social apps.

But BYOD management represents perhaps a more accessible, less heavily contested market segment — and one within which BlackBerry is better positioned to lead. In June 2013, Gartner predicted the IT security market could grow to be worth$86BN by 2016.

BlackBerry’s last few disastrous years put it on a perilous path toward irrelevance: in Q3 2013, the company’s share of mobile device sales in the US, Spain, China, and Japan fell to nearly 0%. But by extricating the company from its Sisyphean mobile platform agenda and moving it into the development of a software layer that leverages BlackBerry’s strength of brand — secure IT services — Chen might be ushering the company into a more sustainable line of business. Whether BlackBerry can move fast enough to take this new market, even with $1BN freshly deposited into its coffers, will depend on how masterfully Chen can reorient the company’s still numerous — and likely disenchanted — ranks toward their new collective goal.