Can a group of investors turn around BlackBerry?
On Monday, BlackBerry announced a tentative agreement to be purchased and turned private by an investment group called Fairfax Financial.
The proposed purchase price of $4.7 billion values the business at zero because it's roughly the value of BlackBerry's cash and its patents, according to Brian Colello, analyst with Morningstar.
Colello said the private investors' goal is to turn around BlackBerry into a niche handset maker focused on business, or enterprise, and government customers who value "top-notch security."
"The question remains whether even with BlackBerry's restructuring, including its plans to lay off 40 percent of its workforce, can the remaining business drive enough demand to become profitable?" Colello asks. "We're skeptical."
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Colello said BlackBerry's core base has been corporations and governments, but the company still faces cutthroat competition in that space.
"They've seen a decline in sales to those customers in the past few years as companies shift to a 'bring your own device' model," he said. "BlackBerry has a history of doing well there but competition has eroded BlackBerry's market share with this customer base. They'll fight to win that share back, but we still think that's an uphill battle."
Brett Robinson, University of Notre Dame visiting professor of marketing, said, "This narrows BlackBerry's sweet spot to those companies that have very specific security needs. They will need to own this segment in a way that Android, Apple and Microsoft have not."
Robinson added that the company needs to convince potential customers about the need for security.
"BlackBerry needs to tell a compelling story about the vital importance of data and messaging security at the enterprise and government level," he said. "This narrative should resonate given the spate of information leaks that have plagued the federal government."
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|Expand web capabilities|
Colello says BlackBerry has marketed their security strengths for years.
"The problem is that Apple and Android are better in virtually every other feature," Colello said.
He admits that BlackBerry has the more secure device.
"But consumers have spoken and want web capabilities and robust app stores in ecosystems they can develop," he said.
|Attract developers to the platform|
Colello said that BlackBerry is years behind in supporting app developers, who have now focused their energies on Android and Apple apps.
"This is the heart of the problem," he said. "The company invested heavily in BlackBerry 10, which is a fine operating system. The problem is the ecosystem around it: convincing thousands of developers to develop apps for your platform and that they'll get paid for them."
Whether BlackBerry can innovate a new product or "hip feature" is a challenge.
"It's much more likely that Apple, Samsung or a startup comes out with it," Colello said. "At this point, I would not be betting on BlackBerry for that."
|Don't forget consumers|
While the consumer smartphone market is becoming increasingly competitive, Robinson said there are still ways to stand out from the crowd.
"BlackBerry also has an opportunity to stake out some new territory as the consumer smartphone market becomes more homogenous in terms of features and benefits," he said. "If BlackBerry can find a way to reboot its OS and handset design to serve the specific needs of their segments, they can bolster their niche position," he said.
Robinson said BlackBerry's strategy in Europe has sustained them in the past, but that may no longer be the case as Europe is growing much slower than Asia and Latin America. "In order to survive, they will need to keep an eye on the long game and expand their geography," Robinson said.
|Premium or not?|
The smartphone market's price range became slightly wider with Apple's "cheaper" iPhone 5C. Are there more opportunities for the next premium product, or a "more affordable" BlackBerry?
Colello said BlackBerry's early devices were priced as premium products with no price advantage over an iPhone or Samsung phone.
"If they want to reposition these in midrange for $350 rather than $650 they might become more attractive," Colello said. "At the same time, we're not sure BlackBerry can be profitable by selling in that price range or lower, given their cost structure."