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Summary

  • The Apple-IBM partnership will significantly hamper BlackBerry’s efforts to re-establish itself and gain a strong foothold in enterprise.
  • Without the opportunity for expansion as an enterprise software player, BlackBerry’s future is once again tied to being a device player.
  • Apple, on the other hand, is well positioned to attack the enterprise market.

Apple (NASDAQ:AAPL) has put aside its decades old rivalry with International Business Machines Corp. (NYSE:IBM) and announced a partnership with IBM to extend its reach into the enterprise mobility market through IBM's MobileFirst for iOS solutions. Tim Cook, who previously worked at IBM for 12 years, knows the company and has played a significant role to forge out a deal between the two companies, which have been rivals since the dawn of the personal-computing era.

I think that the enterprise partnership between the two tech titans will have significant impacts on many areas of the market. While the partnership would be a severe setback for some of the companies, such as BlackBerry (NASDAQ:BBRY) and Microsoft (NASDAQ:MSFT), for BlackBerry in particular it is a match made in hell. However, the partnership will also compel these companies (BBRY and MSFT) and others to make advancements in technology, which in turn would be great for the market/sector on the whole.

Win-Win for Both Apple and IBM

Similar to consumers' lives, the PC is rapidly vanishing from enterprises as well, as smartphones and tablets are taking its place because of their flexibility and ability to add additional layers of content. In wake of this opportunity, Apple has rightfully decided to tap the enterprise market and has entered into a partnership with the leading shareholder, IBM.

In the partnership, IBM would develop more than 100 iOS industry specific apps in addition to providing IBM cloud services, such as device management, analytics, security and mobile integration, which would be specifically optimized for iOS. The deal will integrate Apple's cutting edge iPad and iPhone hardware with IBM's services such as big data, cloud storage and security infrastructure.

I think the deal is a win-win for both companies, as Apple would benefit from IBM's huge sales force and support organization to sell its smartphones and iPads in enterprise, an opportunity that still seems nascent. IBM, on the other hand, would now be able to provide its enterprise customers with a more secure and safer way to access their data and provide business solutions in a more creative way.

Apple to BlackBerry, You're Done!

For BlackBerry, this partnership is anything but a win. The already stumbling BlackBerry took another huge blow as was evident from a 10% stock dip the day the two companies announced their partnership. BlackBerry is currently struggling to keep pace with Apple in innovation while keeping its services affordable. Moreover, many firms have already left the company and many others are leaving, as the costs related to its services are significant. The IBM-Apple partnership has vastly negative implications for BlackBerry's new business plan to grow into an enterprise software vendor supplying Mobile Device Management or Mobile Application Management. Commenting on the partnership, Ross Gerber, CEO of wealth management firm Gerber Kawasaki, said, "Apple just took a sword and just stabbed it right in the heart of BlackBerry and said 'you're done.'"

BlackBerry's attempts to be a third-party solutions provider have taken a huge blow from the Apple-IBM partnership, as the iOS platform remains a popular BYOD choice for smartphones and tablets among enterprises. BlackBerry does not have a significant mobile apps ecosystem and is just as behind as it was in consumer apps when Apple's and Android's App stores were exploding and contributed to BlackBerry's market share losses. We are seeing this phenomenon extend into the enterprise. BlackBerry's recent agreement with Amazon (NASDAQ:AMZN) to access Amazon's mobile apps store also does not significantly change the trajectory of BlackBerry's shares, especially in the enterprise.

The deal has dealt a serious blow to BlackBerry's expansion as an enterprise software player and the company's future is once again tied to being a device player. Despite the company's recent efforts to introduce new devices and some recent reports around new products such as the BlackBerry Passport enterprise device, the volume trend remains down and to the right.

A silver lining to this situation is that BlackBerry could benefit from the larger market, which would be created as a result of the Apple-IBM partnership. Moreover, the Apple-IBM partnership would only entertain iOS users, while many companies would be looking for support solution which works for multiple devices - iOS, Android, Windows and BlackBerry (old and new).

Is There Any Hope In BlackBerry Transition?

BlackBerry is in the process of transitioning its business model, but whether the company can reinvent itself and regain some of its position in the enterprise remains a big question. While the strategic focus on software by the new CEO, John Chen, makes sense, BlackBerry is far behind with its current initiatives to become a top supplier of enterprise mobile device management solutions, or to gain prominence in the mobile messaging ecosystems in most markets globally.

As BlackBerry moves down the road of selling mobile enterprise software, it faces significant challenges. There were already a number of public and private challengers that have offerings in this space and have built customer bases for years, at BlackBerry's expense. Now in the form of the Apple-IBM partnership a formidable new competitor enters the market. BlackBerry faces an uphill battle from here on to regain the market position it once had.

It will take BlackBerry time and capital to carry out its new software-centric company strategy. In order to bridge this transition, the company's effort to shore up its cash position through the pursuit of its real estate sales, tax refunds and collections program in Venezuela are positive events for the longevity of the company and certainly gives Blackberry the required financial firepower to execute its new business model. That said the long-term mobile trends remain against BlackBerry.

According to Morgan Stanley (NYSE:MS), BlackBerry had about 60 million subscribers globally as of the end of February 2014. The investment firm estimates about 14% of these are enterprise subscribers and they contribute the majority of the service revenue. One can argue that some of these loyal subscribers will stick with BlackBerry though the next cycle at least. However, history tells us that ecosystem decay ultimately kills off the entire user base even if the new products provide a short-term reprieve. We have seen this in the case of PalmPilot, whose estimated one-time 10 million strong user base closely matches the current BlackBerry enterprise user base.

New devices and a new unifying BES platform may slow the rate of decline temporarily, but these products will largely be stop-gap pieces until companies migrate to truly long-term products and services. Even if BlackBerry somehow manages to stabilize the enterprise user base, which seems unlikely, the rate of decline in service revenue will remain dramatic. The company eventually hopes to offset that lost service revenue by selling mobile enterprise software to the customer base, and then collecting maintenance fees on that software. However, this model faces significant challenges, as the company's MDM solution seems to be well behind that of competitors and established enterprise software companies such as Microsoft, VMware (NYSE:VMW) and Citrix (NASDAQ:CTXS) which are moving aggressively to improve their offerings.

While bulls would disagree, as of now it's all doom and gloom for BlackBerry. The company regaining its relevance as an enterprise software company does not seem likely.

Apple, On The Other Hand, Well Positioned To Attack the Enterprise Market

The deal shows that Tim Cook, despite of all the pressure from Steve Jobs' legacy, is steering the company in the right direction and only making the decisions and pursuing opportunities which are beneficial for the company in the long-run. I think that the company would reap long-term benefits from the partnership by leveraging IBM's experience, workforce and established contacts. Moreover, the company would also benefit from IBM's strong sales force with its enterprise partners.

Apple would gain credibility among the enterprise customers because of the market leader, IBM, developing and selling its products. The deal solidifies Apple's positioning in the rapidly-growing enterprise mobility market. With enterprise solutions exclusively developed for iOS and tailored services provided from Apple and IBM, the iPhone and iPad will likely see increased enterprise use.

The enterprise is still a nascent opportunity and the partnership would provide Apple with the critical support and distribution to exploit this opportunity. Apple through this deal has well positioned itself to benefit from the rapidly growing enterprise market with low barriers to entry (for a company like Apple) as BlackBerry is stumbling and Samsung (OTC:SSNLF) is struggling to hold its ground. The enterprise opportunity has not been a key focus for Apple investors before this deal. However, this changes post this partnership. The enterprise will likely be a key driver of momentum in the iPhone business going forward.

Conclusion

The Apple-IBM partnership will significantly hamper BlackBerry's efforts to re-establish itself and gain a strong foothold in enterprise. Without the opportunity for expansion as an enterprise software player, BlackBerry's future is once again tied to being a device player and despite the company's recent efforts to introduce new devices and some recent press around new products such as the BlackBerry Passport enterprise device, the volume trend remains down and to the right. Apple has just stabbed BlackBerry in the heart. The company remains challenged as a going concern. Refocusing its business on areas where BlackBerry has been losing share as the market has shifted away from it is likely to lead to substantial operating losses going forward as management attempts to put the company on a strong footing in a shifting environment.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Apple Stabs BlackBerry In The Heart