Recently I created a strategic analysis of Blackberry – struggling Canadian mobile developer and service provider. Here is some information that I collected that might help in bringing the organization back to profitability.

Strategic Analysis – BlackBerry

by Andre Kaminski

Executive Summary

Overview

The target audience of this document is BlackBerry’s senior management. The objective is to assess current competitive position of the organization and to provide recommendations for the future.

BlackBerry, founded in 1984, was once leader in wireless innovation that revolutionized the term “Smartphone”. After period of exceptional growth in revenues from $85M (2000) to $20B (2008), for last three years it is in constant decline with revenues of $11B in 2013. The Net Income during the same period dropped from $3B profit (2011) to $0.6B loss (2013) (see figure 1).

During this analysis, there were several tools used. Five Forces and Environmental Analysis were used to examine the current industry structure. Both of the tools give different perspectives on the competitors and market segments, allowing to predict future movements. SWOT and VRIN tools were used to analyze current capabilities and competitive positions of the organization. Other tools like Competitive Lifecycle and Capability Analysis diagrams were not found suitable due to nature of the business and the purpose of this document.

Industry Analysis

The current situation of smartphone industry could be described as ‘Red Ocean’ (see figure 2), with high level of fierce competition. Although there are high entry barriers, there is already large number of competitors that saturated the market (according to IDC report – over 150 vendors). The industry is in early maturity phase, with well-established competitors with strong brands and excess capacity. In November 2013, IDC found that smartphone shipments grew 40%, while average pricing declined by 12%. Over last few years, more and more organizations allow employees to bring their own devices to work (BYOD) which changed the market landscape. There is no more clear differentiation between enterprise and consumer market segments, but rather an overlap. Another strategic group with fierce competition is middleware area – software that connects disparate mobile applications, programs and systems (Fig. 5).

In order to keep the costs down, many competitors buy standard components provided often by the same suppliers, which is increasing companies’ vulnerability to any changes in the relationships or new alliances. Most of the vendors are able to relatively quickly imitate new features, and currently there is little differentiation among offered devices. Apple’s introduction of iPhone in 2007 was a good example, currently almost all vendors offer the touch screens, including BlackBerry. There are high risks of substitution as voice and data services could be used on several types of devices like tablets, smartphones or laptops. Due to continuing difficult economic situation, end users are sensitive to pricing, leading to high cross price elasticity. Since handsets are sold through resellers who add data services on top of voice, relatively small number of resellers in given geographic market segments provides them with high bargaining power when negotiating pricing. Another important aspect in the industry is the need of complementing the hardware devices with software offering. Without large number of applications, it is almost impossible to sell products to consumer segment. This led to consolidation of operating systems – Google’s Android and Windows Phone OS are used on several vendors’ devices across the market space, with only two used on proprietary handsets – Apple’s iOS and BlackBerry’s QNX. Ability to attract good software development companies is directly linked to number of sold devices, which currently unfavorably positions BlackBerry (see figure 3 and figure 4).

The industry is very dynamic, with constant changes – clearly an example of Schumpeterian rents, where timing and adoption are critical to success. Blackberry lost its dominant position when it failed to recognize threat from Apple’s iPhone in 2007. Inability to quickly respond, with several misses of deadlines for delivery of new generation of devices by as much as 18 months (model Z10), only deepened the crisis for Blackberry. Key factors that will drive the industry over next few years will be related to security and privacy protection (driven by NSA scandal), data consuming and social networking shifting to mobile devices due to changing demographics, and feature rich operational systems, supporting large number of applications (figure 6).

Blackberry Capabilities and competitive position

Blackberry still has lot of hardly matched strengths (figure 7) including industry leading encryption, security messaging, pushed based email that doesn’t require crossing enterprise firewalls, 77M of active users, strong financial balance sheet with $2.1B in cash, proprietary middleware software to manage enterprise data and extensive relationships with over 650 worldwide carriers. However all these strengths relate more to enterprise market segment rather than to the end consumers where BlackBerry was trying to position itself recently. This includes 95% of Fortune 500 organizations that still use BB service. BlackBerry grew up in enterprise segment and it was the area where the company achieved biggest successes (niche competitive position). After threat from Apple and other competitors, and especially the Bring Your Own Device trend in enterprises, Blackberry tried unsuccessfully to enter the consumer area with differentiation as competitive position – leading to being ‘stuck in the middle’. Unfortunately Blackberry capabilities to innovate and deliver were quite poor and brought more damage to company’s image and trust, of both consumers and enterprise clients (see figures 7, 8 and 9). Current high level of competition weakens Blackberry reliability on revenues from hardware sales (75% of revenues according to BB financial statements). Failures to capture consumer segment (figures 3 and 4), inhibit number of available applications. This is augmented by poor marketing strategy that contributes to BlackBerry failure to capture and keep the market. According to Kantar Media, in 2012 Samsung spent on marketing $402M in USA alone, while Blackberry only $39M (figure 10).

However there is still lot of opportunities for BlackBerry (figure 7). The recent scandal with global wide voice and data surveillance by NSA, creates a perfect opening for BlackBerry primarily in the market segments where it was always strong – enterprises and government. Also the end consumer market could benefit, the need was confirmed when BlackBerry made the messaging system (BBM) available on competitive operational systems – Apple’s iOS and Google’s Android, in December 2013. It was downloaded over 10 million times in first 24 hours of availability. This messaging system is patent protected that gives organization long term sustainability under provision that BlackBerry will invest more in R&D in this area, to keep innovation moving (figure 7 and 8). Recent meeting between leaders of Germany and France (February 16, 2014) concerning creation of own mobile data networks that would not be susceptible to espionage, creates another opportunity that BlackBerry should urgently pursue. Another opportunity that BlackBerry should embrace rather than fight is the concept of Bring Your Own Device. BlackBerry has proprietary middleware that helps organizations to manage mobile data, and which is also patent protected. Managing competitors’ devices would put the company in a sweet spot. BlackBerry has also opportunities to increase number of available applications, by making changes to its operational system to streamline transition from competitors’ OS. Increasing incentives and building alliances with software vendors could also help to attract consumers and enterprises.

Failure to act on the opportunities would make BlackBerry exposed to attacks from Apple and Google. BlackBerry must also resist from pressures from US and Canadian governments to open its data network to security agencies. Currently the organization’s headquarters are based in Canada, but since current conservative government is closely aligned with the US administration, BlackBerry might consider relocation its business to independent country. BlackBerry should admit that cannot win in consumer market, and should go back to its roots – enterprise secure communication. This strategic focus demonstrating leadership as well as increased marketing efforts should be able to temporarily fend off the anxious investors, giving management some breathing space.

Recommendations

The above analysis leads to the following recommendations:

Move back the strategic position of BlackBerry to its roots (niche strategy) – secure enterprise messaging and communication. This is the area that is still uncontested by any other player in the industry, and BlackBerry should develop aggressive strategy to defend this position.
Focus marketing efforts on enterprise customers and governments. BlackBerry sales and business development teams should aggressively pursue these segments, especially in Europe and emerging markets.
Increase spend in R&D to match or exceed the competitors’ investments. The company has still over $2.1B in cash that should be used to move organization technologically forward and to reaffirm resellers and customers about its innovation leadership in secure communication.
Attract and keep the best human capital. The morale of the teams was severely affected during last few years, but this could be changed by management showing clear path forward and developing incentives.
Develop strategic alliances with software development companies to increase number of available applications.
Increase investments in own software development, and reduce reliance on revenues from hardware. This could also be achieved by purchasing of some of existing software companies, BlackBerry has enough cash to move into this direction.
BlackBerry has still 77 million of active users. The organization should reward these users with customer centered marketing, building and increasing followership and loyalty.