Blackberry is about to give away its last advantageMay 17, 2013: 10:24 AM ET
Its free messaging service is one of the struggling company's most valuable assets.
By Cyrus Sanati
FORTUNE -- Blackberry's decision to make its free messaging service, BBM, available on other mobile phone platforms is a Hail Mary play for a damaged company that pretty much has nothing to lose at this point. By giving away the stickiest feature available to Blackberry's dwindling consumer base to Android and iOS users for free, the company is hoping that it will be able to expand, or at the very least maintain, its once lucrative ecosystem.
It is extremely easy to bash on Blackberry (BBRY) these days. The bunglings of its former management team over the last five years will probably be studied in business schools for generations as how not to do just about everything. But Blackberry is on an upswing of sorts at the moment. Its stock has more than doubled from its lows hit last year, and after two years of development (light years in the tech world) the company is "back in the game" with the launch of its new operating system, Blackberry 10, and a few new handsets, the Z10, Q10, and the recently announced Q5.
Yet despite the recent optimism over the launch of the Blackberry 10 series, the company will almost certainly continue to lose market share in the crowded consumer hardware space to rivals that use Google's (GOOG) Android platform. Phones shipped with the Blackberry operating system made up just 2.9% of mobile phones sold in the first quarter of this year, down 35% from last year, according to new sale numbers released by IDC on Thursday. Phones running Microsoft's (MSFT) Windows operating system outsold Blackberry for what appears to be the first time, capturing 3.2% of the market. But phones running either Android or Apple's (AAPL) iOS, captured 92% of all mobile sales -- with Android garnering 59% of the total market, an 80% increase from the same time last year. With that, Android now runs on 75% of the world's smartphones.
To be fair, those first-quarter sales numbers just reflect eight days of sales for the new Blackberry phones in the U.S. and just a couple of months of sales in Canada. Nevertheless, the public's lukewarm reception to the product -- no one was camping out for the new Z10 -- isn't encouraging. The phone has reportedly passed the 1 million shipped mark in its first quarter of launch, which isn't bad, but isn't great for a company with such huge brand recognition. By contrast, nearly 5 million iPhones were sold in the first week of its launch back in September.
There really isn't much you can do on a Blackberry that you can't do on an Android phone these days. There aren't a bunch of must-have apps that run exclusively on Blackberry, for example. Indeed, Blackberry seems to have surrendered the app development space to Google as it considers the new Blackberry 10's ability to run Android app clones as a major selling point.
But there is one consumer-focused feature that Blackberry offers that no other handset maker or mobile platform has -- its Blackberry Messaging Service (BBM). The service allows Blackberry users to send and receive messages, share files, and even exchange music with other Blackberry users without incurring special messaging charges from their wireless carrier. It has proven to be very sticky in places like Indonesia, Haiti, and Nigeria where wireless service is unreliable.
So imagine the confusion when Blackberry announced this week it was opening up BBM to both iOS and Android users through a free app that will be made available this summer. It seems odd that Blackberry would give up its only truly sticky consumer-focused feature. Some in the geek media called it "surrender," while others saw it as a great move by the company to open itself up to the rest of the mobile community.
The move seems more akin to a company spinning off one of its divisions than anything else. BBM, with its 60 million users, is arguably the most buoyant thing in Blackberry's sinking consumer mobile division. If it remained attached to the ship it would surely drown. But allowed to roam free, BBM could possibly survive as a separate entity -- a slim chance, but a chance nonetheless. Survive as what? If BBM attracts enough iOS and Android users it could eventually become a sweet advertising portal for the company -- launching Blackberry as a player in the mobile advertising market. It could also possibly morph into a premier messaging app for companies who want to monitor employee communications.
But in order for that to happen, Blackberry will need to overcome an already saturated messenger app market. Here, scale and location matter. Texting and data plan prices in the U.S. have dropped so low you will be hard pressed to find anyone using a messaging app just to save on domestic text messaging fees. That may not be the case in other countries, but there, people are already using messaging apps like WhatsApp, Viber, and Skype. BBM touts its ability to set up Group chats of up to 30 people, but WhatsApp can do that and so can GroupMe, which is all the rage on college campuses these days. Most of these third-party messaging apps on all mobile platforms so they are ahead of the game with hundreds of millions of users. Unlike BBM, these apps don't require clumsy "pin" numbers to talk with other people; rather they just sync up easily to your phone's contacts and seek out those who have already downloaded the app. Unless Blackberry introduces some amazing new features, it will be tough, if not impossible, to get people to switch to BBM.
Nevertheless, BBM does have a couple things going for it that other messaging apps don't. First it has scale in the third world, which is the fastest growing market for smartphones. Blackberry could leverage its scale to totally dominate the messaging space in certain key markets, such as in West Africa and Indonesia. Secondly, BBMs are sent through Blackberry's own proprietary global data network, which encrypts incoming and outgoing messages and is thus considered "safer" than messages sent through other data networks. Blackberry has confirmed to Fortune that BBMs sent through the iOS and Android apps will travel through its servers and thus will have the same security perks as BBM messages sent between Blackberry users.
It is unclear what the future holds for Blackberry, but the company clearly feels that the potential benefits gained from allowing BBM to grow outside its own platform make up for any potential loss in handset sales. That's a good bet because while Blackberry's flagship phone, the Z10, has received praise from some tech geeks, it is hardly the game-changing product the company needed if it wanted to become a major player in the consumer handset market again. But even if Blackberry folds up its front-facing consumer division, it will remain a player behind the scenes as companies and governments remain dependent on Blackberry servers to keep their data safe. So by letting BBM go, Blackberry's new management may be saving it from a sad and quiet death.