Blackberry’s Z3 may not fire in India—but then it may not need to

Blackberry's future will almost certainly not hinge on the sales of phones like the Z3 in hot emerging markets like India. Instead, it plans on re-inventing itself as a service company.
Written by Rajiv Rao, Contributing Writer
blackberry john chen
John Chen, Blackberry's CEO, is trying to transform the company from a handset maker to a service provider

As I've written on this blog before, Blackberry has always had a devout following in India, as it has in other parts of the world. What seemed to have won these folks over were things like hard-button keyboards and a unique messaging service, BBM, that was a godsend in a pre- instant messaging universe when there was no other way to have a live chat with someone else.

So, even while the mobile landscape has been transformed over the years thanks to the wave of iPhones and Android smartphones that have blanketed the world, loyal Indian Blackberry followers—reduced to a comparative trickle today—have seen the company's market share in India freefall, from 14.8 percent in the April to June quarter in 2010-11to 7 percent in 2012, 2.9 percent in Q1 of 2013 and finally to a miserable all time low of 0.5% in Q1 2014 according to IDC.

Naturally, this is nothing short of calamitous in one of the fastest growing smartphone markets in the world that still has 80 percent or so of 1.3 billion people to outfit. Instead, Blackberry spent much of its time in the past few years launching exorbitantly priced phones (at prices of around US$700) that few Indians could afford to buy.

The Z3

So, when news of the launch of Blackberry's  'budget' phone, the Z3, began to make the rounds, there was much froth and excitement about the product and how it would boost the fortunes of the company. Indeed, the Z3 supposedly sold out on its debut in Indonesia and if that was anything to go by, India sales would be a scorcher too, or at least that was the thinking. 

The problem, it turned out, was that familiar Blackberry bogey—the price. We thought that the Z3 would hit shelves at around Rs 12,000 (US$200) which would have made it pretty competitive and on par with its Indonesian price tag. Instead, the phone is now being sold for Rs 15,999 in India (US$266) which makes it difficult for any sane Indian to contemplate seriously. One reason is becase Blackberry has, in the past year, slashed the prices of many of its expensive products making them ironically competitive with what the company was hoping to be its budget blockbuster rollout. For instance, the Z10 is being sold in in many places for just Rs 1,000 ($16) more than the Z3 today and apart from the smaller screen, is generally viewed as a superior product, with a better display, zippier processor and faster RAM.

Some may say that it isn't really Blackberry's fault—after all, the Indonesian price is subsidized by telcos there and by the time you tack on duties and taxes in India as well as the volatile rupee-dollar dance, that price is no longer what it was supposed to be. Of course, one would imagine that an intern with a functioning calculator and a ballpoint pen at Blackberry would be able to figure this out and factor it in to a major product rollout.  

Blackberry Messenger
BBM will be an important part of the outfit's new service strategy

Then there's the state of Indian competition in the smartphone arena, which is fierce, to use an understatement. The arrival of Motorola's MotoG (now owned by Lenovo) at around US$200 and armed with a with a 4.5-inch 720p display, 1.2GHz quad-core Snapdragon 400 processor, 1GB RAM, 5MP rear camera pretty much vanquished any smartphone contender in that bracket, and shoved local players like Karbonn and Micromax who were once dominant in that category onto the backfoot. Then, Nokia unveiled its X, which suddenly redefined the smartphone category by nudging the budget category to under Rs 10,000 (US$166). Soon after, Motorola, upped the ante by stunning India (and the world) with another spectacular, cheaper smartphone, the Moto E for Rs. 6,999 ($116) which instantly settled all debate about what was the best value for money smartphone around. Blackberry competing with this bunch is almost like an ageing Cape Buffalo, on its last legs, trying to outrun a herd of giddy, leaping Impala.

A Turnaround and a new plan
But is the success or failure of the Z3 by and large inconsequential? A few important things have happened to the beleaguered company in the last several months. Suddenly, there's been positive financial news, if you can believe it, considering the unending stream of woes broadcasted by the Waterloo, Canada company. The company's new CEO John Chen has been hacking and chopping his way into the black with cost cutting measures that recently resulted in a loss of just US$.11 (or eleven cents) per share (US$60 million overall) on revenues of US$966 versus the much higher pre-analyst guestimate of US$.26 per share. Operating expenses are apparently down an impressive 57 percent from a year ago. In fact the company actually posted a—drumroll—net profit of US$23 million thanks to some accounting recalibrations, asset sales and pre-tax restructuring charges.

That's good stuff, but what is more salient news is that Blackberry is actually trying to limit its dependence on its smartphone business. What it is really interested in are its business customers, software, mobile services like its BBM instant messaging, network security for all mobile devices and the alluring new world of Internet of Things (IoT) where everything from your airconditioner to your car's GPS system is connected to the internet and, therefore, to one another.

A race against time
This could actually turn out to be a very smart bet considering the smartphone game, much like PCs and flat screen TVs, will soon become a commoditized game requiring a constant shower of new, segmented products that have fast cycles of R&D, manufacturing and marketing with increasingly smaller margins. Tack on the fact that Blackberry's global shipments are estimated to tank by 50 percent this year (to about 9.7 million smartphones) according to IDC and that its market share will slump from 0.8 percent to 0.3 percent by 2018, and this makes getting out of the phone game even more urgent, despite the fact that phones like the Z3 have done well in emerging markets like Indonesia and signal some sort of comeback potential for the company's devices.

Accordingly, the company is trying as quickly as posisble to rejig its revenue composition—in the first quarter, 39 percent of its business came from haring phones versus 54 percent from services and Chen is driving hard to further tilt that balance in favour of higher-margin services.

Considering how quickly you can be king of the hill one year and down and out the next (Blackberry's market share was 19 percent just four years ago), the question is whether Chen can grow Blackberry via software and services fast enough to make up for losses due to phone sales. It's a race against time that Chen simply has to, and is determined to, win.

Editorial standards