Shining a Light Through the Black Box
At times, trying to follow developments in Indonesia to decipher the BlackBerry (NASDAQ:BBRY) Z3's uptake can be frustrating: Watching Twitter (NYSE:TWTR) feeds involves juggling with Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Translate and Google Translate Web; and attempts to follow developments using Google Trends without knowing its weaknesses will just cause a mass population to draw the wrong conclusion. Neither Twitter nor Google are reliable sources of information:
- While both the United States and Indonesia are amongst the top 10 countries with active Twitter users, the disproportionate amount of users being geographically located in the US makes it impossible to have an accurate idea of what is going on in Indonesia while sitting in an armchair. Ditto if you are located in the UK or Canada. Just take a look at this table from Beevolve:
- 50.99% of Twitter's users are from the United States, and only 1.43% are from Indonesia.
- Given BlackBerry's interest in releasing the Z3 in other ASEAN countries (Malaysia, Vietnam, India, and the Philippines), we should also consider the validity of Twitter data in any future assessments of consumer responses to BlackBerry's products: as a scan of the list above will confirm, only India made it to the Top 10... but at a pathetic 2.87%! And as a side note: China and Russia are not even on the list. Alarm bells should be going off in any prudent investor's head. While every multinational corporation is pursuing growth in developing countries, the tools we take for granted as being most robust for providing real-time data are in fact, quite useless (more on the uselessness of our tools will be discussed below, when I tackle Google Trends' limitations).
- Further to this, one should also note that the largest group of Twitter users are 15 to 25 years old (73.7%) and the gender distribution is 47% male to 53% female.
- Generally, people interested in investing for the purpose of retirement planning are 35 years old and over. This would mean that potentially, of the Twitter population, at most they make up only 11.4% of the pie.
- As for Google Trends, it seems I am not alone in discovering its problems and fickleness. David Leinweber from Forbes commented on Google Trend's issues back in July of 2013. The salient point of his piece is the fact that "Google seems to update the trends information in a vaguely erratic way, without normalizing by the time the data is updated."
- In my work as a researcher, I frequently tap many sources for data. I have been on the bench with Google Trends for a very long time: While it is a springboard for more thinking, I have come to think of it as unreliable but interesting trivia. If you know what you are going to use it for, and it is not real-time analysis, you might have better luck. Also, if you know how to exclude invalid search expressions from junking up your queries, all the better. Not that Google Trends offers much help in that area. As a point of consideration: A search for Z3 can end up including data about the BMW Z3, the Mazda Z3, the Motorola Z3, the Sony Xperia Z3, and the Acer Liquid Z3. Google Trends does not allow you to conduct advanced searches, and in this regard, for a more accurate view, one is forced to look into the Z3 interest as of the last 90 days, and also to limit it to Indonesia in an attempt to keep findings relevant.
- Google Trends' data is lagging by anywhere between 2 and 3 days. For example, while I was gathering information for this article, I started work on May 10th. Google Trends did not show much interest in the Z3. It was not till the 18th of May that the chart got interesting. Even then, the data point for 7 days only shows information up to the 16th. Below is the 7 day and 30 day charts. The Google Trends search criteria was limited to "Indonesia" and the search term "z3":
- Due to the weakness of Google Trends (being a lagging indicator), it ends up benefiting the bears on the opening day of the Z3 sales. Without knowing more about the problems of Google Trends (or if bears knew but were betting they could outsmart the bulls), a quick glance at the chart on or before May 15th would give the superficial conclusion that the interest in the Jakarta Z3 was limited. BlackBerry's Eric Lai has since disproved the article released by Indian news media about the Z3's lukewarm reception by releasing photos from the sales at the world's 10th largest building, the Central Park Mall. I find the whole event a good lesson in distrusting the media: Indonesia never once said the interest was lukewarm. It is a news agency from outside of the country that says it is so. And why was there no pictures from the Indian Times to support their argument that the queue was short? Nevertheless, that article spread like wildfire on Twitter. Though 7,200 to 7,800 miles separate India from New York, the negative message nevertheless impacted the stock.
By this point, you are probably asking, "If Twitter is not reliable, and Google Trend is a trivial joke - what can an investor rely on?" My answer: The CIA.
What the CIA Can Tell You
The Central Intelligence Agency releases valuable information which can be leveraged to evaluate the Z3 sales and to also predict who will be the target audience for future products from BlackBerry. At $640 B in 2013, the US's military expenditure remains at the top in the world. While sequestration reduced the budget allocated specifically to intelligence research, it remains high relative to other countries.
In the 2013 year, for intelligence alone, the budget was $71.9 B. Sequestration reduced it to $67.6 B. The significance of this spending is that the CIA World Factbook contains the most up-to-date information; and by comparison, the United Nations, Google, or Wikipedia's data is older. For the purpose of market research and knowing the government, economy, and population distribution of a country, there is nothing publicly available that is comparable.
Where in the World is BlackBerry?
While Western economies are stagnating or experiencing slower growth rates, multinational corporations are seeking out new markets for their products. In the pursuit of the top line and the bottom line, many companies set their eyes on the Southeast Tiger Cubs or focus on the Next Eleven. The Southeast Tiger Cubs refers to Indonesia, Malaysia, the Philippines, and Thailand. The Next Eleven were 11 countries identified by Goldman Sachs as having the most potential to become the largest economies of the 21st century. These include Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea, and Vietnam. With BlackBerry's Z3s targeting these lucrative markets, one has to zoom in on these countries to truly understand the lure of these economies.
In the interest of time and relevance, my focus will be on Indonesia, Malaysia, Vietnam, India, and the Philippines; and predominantly, comparisons will be made to China, the United States, and Canada. But before we get into the statistical details, a few maps should serve as a good overview of countries and regions still loyal to BlackBerry. On Mapbox.com, I deliberately turned off Android tweets (green) and focused on BlackBerry tweets (purple) and iPhone tweets (red) prior to taking my screenshots. In parts of Asia, BlackBerry and Android tweets overlap so much, I felt it was the only way to go to obtain a clearer picture of the situation (more on this later).
- First, here is a look at Southeast Asia. The predominance of BlackBerry over Apple (NASDAQ:AAPL) is quite apparent - not just in Indonesia, but also in Malaysia, the Philippines, Vietnam, and Thailand (which seems to be written in Thai in the map, and might not be that apparent to a viewer; it is located to the left of Vietnam). *Please checkout Mapbox.com for a zoomable view if reading off my screenshot proves difficult:
- Here is a view of the world. For BlackBerry to fight directly with Apple is a waste of time and money. It is better to focus on large areas that are BlackBerry friendly, then turnaround and target the pockets of developed countries that continue to be loyal due to enterprise needs:
- Toronto, Kitchener, and Hamilton in Canada are still purple. Some may discount this information and consider this BlackBerry's "home" base.
- New York, Philadelphia, and Washington also light up. Given this is Twitter mapping, I do believe that many of the DOD-issued devices are not lighting up Washington but nevertheless, operating out of this particular city.
- Florida is also lighting up. Retirees in general and wealthy Canadian snowbirds in particular love to vacation or live here. Having worked with high net worth clients and been privileged to access research regarding the 55+ age group, it comes as no surprise to me that these parts still show a high concentration of BlackBerries. There are many in the jet set who own private yachts and remotely manage their empires. It seems that there are quite a few Type As (which the media would like us to think are in the minority) who love their keyboards and BlackBerries and operate off the beach or over water.
- Here is a map of Saudi Arabia and UAE. While the language is unfamiliar (and cannot be set to display differently on Mapbox), Iraq's capital of Baghdad clearly helps to identify the region. Twitter is not used much in this area. When I turn on all the indicators (Android, Apple, BlackBerry, and Other), the entire map does not get much brighter.
Further to the maps, here is my complete rationalization for disregarding Android and focusing on Apple vs. BlackBerry:
- Converting Android users to BlackBerry users will be far easier than converting iPhone users to BlackBerry users (from a price point perspective and a compatibility perspective).
- iPhone's OS is very different from BlackBerry's.
- iPhone's users are not price sensitive, neither are they particularly focused on specs. Apple's sales and pricing is a good springboard for this theory since the focus is on the finish (space grey, gold, or silver) and storage (16 GB, 32 GB, 64 GB) and nothing else (i.e. latest processor, camera features, battery life).
- When an iPhone user requires more storage, they shell out another $800 to $1000 for a new phone. When an Android user wants more storage, they purchase a new microSD card and pay between $50 and $200 depending on their budget, storage needs, and need for speed (30 to 40 MB/s is cheaper; 80 MB/s will cost you a pretty penny... but not a gold bar, a la iPhone).
- The BlackBerry OS supports Android apps.
- Price-sensitive Android users who want mid or high end specs will be able to find an array of choices on a BB10 device (Z3/ Z10/ Z30/ Q5/ Q10).
Altogether, the final conclusion is that the Android phones are more similar to the BlackBerries; and the BlackBerries are extensions of Android phones. It is easier to convince an audience to upgrade to something they are familiar with than to ask them to abandon the familiar for the foreign. Unless, of course, you are young and eager to experiment! This, then, becomes the next topic of discussion to follow.
Heading Southeast, Catching the Typhoon
What is the purpose of marketing in Southeast Asia? What is the lure? After presenting a plethora of maps, I am finally ready to let you in on the data from the CIA FactBook. My research shows that in aggregate, this region has the world's highest population, some of the youngest people, and the highest GDP growth rate. Altogether, this makes for an economic zone of fast growth and fast money. While we are 10,000 miles are more away from the activities out East, we need to be aware that this is where the real money in mobile devices (not to mention many other products) will be made. Out West, we may not think much about stickers or squarish phones. I have read a lot of negative criticism on BlackBerry regarding its stickers and the Z3 design. In Asia, stickers and sharply rectangular phones are hot:
- Japan's Line makes over $10 million a month selling stickers. The culture of cute (kawaii in Japanese; ke ai [可爱] in Chinese) is all pervasive in Asia. In these parts, it is normal for grown-up women to wear pig tails; and Hello Kitty is not just marketed to kids. Hello Kitty is more than a line of sleepwear.
- The Sony Xperia Z1 was a hit and Sony has not changed their design much since then. The Sony Xperia line is one of the bright spots for this beleaguered Japanese company.
- China's MiPhone 3 and Huawei Ascend line receive a lot of good press and have a strong following in the communist country.
BlackBerry's ability to cater to the target audience will be key to its success.
Here is a first look at various countries with information sorted by Population. China gets first place, and Indonesia ranks 4th:
Here is the same data, sorted by Median Age. Notice how Canada, the United States, and China have an older population as compared to the other countries:
Here is the same data sorted by GDP Growth Rate. It solidifies the case for US and Canadian-based companies to continue marketing goods farther from "home" base. The large population and healthy GDP growth rate of ASEAN countries means it is easier to find people eager to flaunt their new-found wealth by carrying a status symbol. An item associated with the West conveys the message that the owner is upwardly mobile:
Next, I present the data sorted by GDP Per Capita. While not an indicator of personal incomes, but an indicator of national economic activity, this figure is frequently used to gauge the standard of living in a country. As GDP increases, the standard of living of individuals increase. By this comparison, one can see that a $500 to $1000 BlackBerry or iPhone marketed in the United States and Canada is < 2% of per capita GDP in developed nations. It will be unaffordable for many people in Southeast Asia. Not many can afford a high end iPhone 5S with 64 GB of storage @ $900. Using Indonesia as an example, that would be the equivalent of 17% of Indonesia's per capita GDP. By comparison, a BlackBerry Z3 at $191 is 3.7% of per capita GDP. Storage can be upgraded later via microSD, and the cost for that upgrade is far less than that of buying a new phone.
Next, I consider the gross national saving. While not a measure of the amount of money saved by a population, it is useful in gauging the health of a nation. As the number includes government savings, the fewer times governments report deficits, the better the national savings rate. By this standard, the US is the worst performer of the bunch. Multinationals that are US-based will have no choice but to set patriotism aside and consider that for the security of their top and bottom line, they must look to other countries if for no other reason than to manage their risk. A debtor nation that spends today with very little consideration for tomorrow will have trouble developing the infrastructure of the nation later on when repairs are needed. In fact, cracks are already showing in the US as many municipalities have declared bankruptcy. By comparison, Southeast Asian nations show higher gross national savings; and interestingly, communist China and Vietnam lead the pack with a rate of 49% and 38.40% respectively.
Next, the same data is sorted by urban population. Notice how the most developed nations (US and Canada) have the highest population of urban dwellers and the lowest GDP growth rate. The Philippines, India, and Vietnam have the youngest median ages and also the lowest population of urban dwellers.
Last but not least, the annual rate of urbanization is sorted. Interestingly, Vietnam's rate of urbanization outpaces China's and India's. This suggests that multinationals are actively looking to Vietnam as the next place to invest. While China and India are still the elephants in the east, their growth is being offset by other nations that are offering better tax rates, political stability, or lower wages as incentives for attracting foreign investments. BlackBerry and Foxconn (OTC:FXCOF) are looking to open a factory in Indonesia to produce phones. While the majority of Foxconn's employees are based in China, recent political developments and rising wages is forcing the Taiwanese Foxconn to consider branching out into other Southeast countries - notably, Indonesia because it is offering excellent tax incentives and has a large labor force. Although, recently, it seems Foxconn is still on the bench, waiting for Indonesia's election to complete before deciding to set foot in the country. Making efforts to avoid a Nokia-like fiasco over taxes is a good thing.
BlackBerry is positioning itself differently for different markets. The devices made for the developed countries are different from the ones targeting developing countries. While we wait for the Q20/ BES12 to come out this November, we are treated to the Z3's launch in Southeast Asia. The success of this product and others to come out of the partnership with Foxconn will be largely dependent on understanding the market and giving the target audience what it desires. My research indicates that BlackBerry clearly knows what it is doing.
Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.