While in the US and Europe, BlackBerry (BBRY) has steadily lost market share, BlackBerry has experienced a meteoric rise to become the leading smartphone brand in many emerging countries, even capturing nearly 50% of smartphone market share in some countries. Yet, with the advent of BlackBerry 10, all of their hard work is about to change.
Recently, BlackBerry unveiled its new smartphone platform, BlackBerry 10. While it has been met with mixed reviews, BlackBerry had to sacrifice its core competitive advantage that has allowed it to maintain the top spot in places like Indonesia, South Africa and Nigeria.
While I write this, I am not saying that BlackBerry 10 is "bad," or that the company even had a better choice. They did not. However, in keeping up with consumer trends, they had to eliminate a core part of their offering that drove a large number of sales.
Last year I wrote an article detailing BlackBerry's Secret Weapon that has so far allowed it to keep a powerful business going in much of the developing world, even as its sales in the developed world falter. Much of this has changed with BlackBerry 10.
The magic of the BlackBerry platform has been in its convenience and affordability to users in emerging markets. These markets are dominated by prepaid users with limited and sporadic incomes and high data prices. The problem with other smartphones, whether it is an Apple iPhone or an Android, is that these phones use significant amounts of data. For prepaid users, when they inevitably run out of money some time during the month, they can no longer message or communicate with others.
BlackBerry presented an alternative offering. With BlackBerry Internet Service (BIS), prepaid users could pay an affordable price at the beginning of the month for unlimited data usage and messaging for the entire month. The beauty of this is that regardless of how bad financially the rest of the month was, a prepaid user could still communicate with their friends and family through BBM and not worry about how much data they are using.
This constant communication is something that many with postpaid or contract plans take for granted. But, for consumers in many emerging markets, this was their first taste of this "always on" communication.
Operators loved BIS as well. Due to how it was built, BlackBerry, not the carrier, handles the data processing and even created a system that was significantly more data efficient. In effect, BlackBerry handled several of the costly elements of building a data network while reducing data congestion, thereby reducing operator cost. Operators like MTN also discovered that they could treat BIS as a pseudo-subscription service thereby providing a more constant revenue flow when compared to prepaid. All told, the service was very profitable for the operators due to higher consistent revenues and lower operator costs.
And we saw this in BlackBerry's performance. From 2010 to mid-2012, BlackBerry grew to almost 50% market share in South Africa overtaking Nokia and Samsung for the top smartphone maker in that country.
The Changing Business Model
This is changing with BlackBerry 10. It was inevitable. Part of the strength of BlackBerry's BIS service is that some of the data intensive services made easy with Apple iPhones (AAPL) and Google Androids (GOOG) were either limited or difficult with BIS due to the way BIS was set up. When a user accessed the Internet on BIS, it went through BlackBerry's servers adding latency-- in other words, data is slower to download compared to a standard data service.
BlackBerry 10 had to change in order to keep up with consumer trends, which has shifted strongly towards more data intensive uses, such as apps, full Internet and videos. As a result, the unlimited, affordable package will not be offered anymore. In its place, are standard data plans that users buy with iPhones and Androids.
You might be wondering how significant is this? It is huge! In many of these countries, consumers were willing to accept a less powerful BlackBerry purely because of BIS and BBM, which became the crux of their offering even as BlackBerry fell behind in the straight hardware.
The problem that will present itself is that as BlackBerry 10 handsets become more prevalent, the demand and desire for BlackBerry will drop in many of the places that have sustained BlackBerry even during poor US and European sales. BlackBerry's appeal was always the cost-effective nature of the complete offering.
MTN (MTNOY.PK) in South Africa has indicated that the new plans will even be changing its BlackBerry 7 offerings, capping data usage for the first time. Ultimately, this is going to destroy one of BlackBerry's best-selling points and cause confusion in consumers' minds with all the extra choices.
We are yet to find out if BlackBerry 10 will be successful. This will become evident in the next few years. Overall, I believe there is hope for BlackBerry to regain some market share in the US and European markets as it comes with an offering that can almost match its competitors. Its refocus on businesses will most likely be a boost to its business as well. This business niche is where the company had a competitive advantage in the first place.
The question will remain as to how BlackBerry intends to capture consumer markets, particularly in emerging markets where it has been the consumer who has driven massive sales. The new phones have opened opportunities for phones running Google's Android as well as new Nokia (NOK) smartphones to catch up and compete with BlackBerry. In the past, BlackBerry's offering with BIS was so good for emerging market consumers, that few companies could offer a competing offer or even just match this value proposition.
Ultimately, I believe BlackBerry's days as the leader in many emerging markets are numbered. With more expensive BlackBerry 10 handsets combined with a much less powerful value proposition, it will only be a matter of time before we will begin seeing BlackBerry's growth slow and then decline in places like South Africa and Indonesia.
The challenge and the task for BlackBerry is whether it will be able to differentiate its offering enough to compete in the US and Europe where it hopes to gain market share and in emerging markets where it hopes to keep its lead.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.