BlackBerry (BBRY) is making its messaging platform, BBM, available on Apple's (AAPL) iOS and Google's (GOOG) Android. The platform is still very powerful, and is a core asset for BlackBerry. Consider the following:
- Over 60 million monthly active users
- Over 51 daily active users connect for 90 minutes a day on average
- Over half of the messages are read within 20 seconds of receipt
- Over 10 billion BBM messages are sent daily
Now that Blackberry is opening a platform that has high engagement and strong loyalty among users to other platforms, the move serves to accomplish three things. First, the existing 60 million users on Blackberry do not need to switch platforms because users who already left will be reachable via BBM. Second, opening up BBM serves to showcase the value of a physical keyboard. BlackBerry users are quick to respond to messages because it is much more efficient to enter text with a physical keyboard. The timing of opening BBM coincides with the release of Blackberry Q10. The Q10 is already getting strong initial orders from the Blackberry user base. Consumers who are on another smartphone platform and without a keyboard may finally consider switching back to Blackberry.
The third and most significant reason opening BBM to other platforms is to respond to the threat of messaging service apps like WhatsApp, Facebook (FB) Messenger, Kik and Viber. In particular, WhatsApp poses the most threat to Blackberry's BBM. Its CEO boasted that WhatsApp has more users than Twitter and more messages than Facebook. This implies that WhatsApp has more than 200 million monthly users, and processes 18 billion messages daily. By comparison, Facebook processes 10 billion messages a day.
A $0.99 annual subscription rate would imply a $200 million revenue value for Blackberry, were BlackBerry to win the entire WhatsApp user base. To aim for a user base of 200 million for BBM outside of the BlackBerry platform, BlackBerry is making the messaging service free.
There are two ways to quantify the value of opening the BBM service. If between 0.1% and 5% of the WhatsApp user base switched to a BlackBerry Q10 device, the net addition of users would be:
Net Adds to Q10 from 200 Million WhatsApp User Base
% Who Switch
Additional Q10 Users
Assuming the BB10 release serves only to stop the decline in the user base, convincing users from other platforms to buy a Q10 would have a significant impact on unit sales. BlackBerry could double its BBM user base if 30% of the WhatsApp users install BBM for iOS/Android:
Net Adds to BBM from 200 Million WhatsApp User Base
% WhatsApp Users Installing BBM
BlackBerry could realistically capture at least 25% of the WhatsApp user base since BBM will be free. BBM also has premium functionality that includes video, voice and groups having up to 30 people. The new BBM Channels, which is currently in beta testing for users, provides further advantages over WhatsApp.
In April 2013, rumors circulated that Google would buy WhatsApp for $1 billion. The rumor was promptly denied. In fact, at Google's I/O conference, the company said it would integrate its own suite of video and messaging services to a single platform, Google Hangouts.
If WhatsApp is worth $1 billion on a 200 million user base, then Blackberry's BBM platform would be currently worth $300 million. The value would increase as the total user base rises when BBM is made available to iOS and Android. At the most extreme case, if Blackberry won all 200 million users from WhatsApp, the BBM app would be worth $1.3 billion, or $2.48 per share. Blackberry shares closed recently at $14.62.
Opening up BBM is the right move for Blackberry to make. It might be argued that this move should have been done a few years ago to slow down the defection of users to other platforms and to prevent WhatsApp from growing so fast. At the time, it did not make financial sense for BlackBerry, since network operating system fees, a loyal customer base, and a lack of other messaging competitors allowed BBM to be unique to BlackBerry.
By opening up BBM, the company is playing on its core strength of messaging. This helps reduce churn, and could convince users who left the platform to return. When BlackBerry reports results on June 28, 2013, chances are high BB10 sales will be solid. The opening of BBM will likely contribute positively to sales growth in the following quarters.