Should BlackBerry Revive BB10?

| About: BlackBerry Ltd. (BBRY)

Summary

BlackBerry has a lot of IP, but most of it is of little value.

There is really no key advantage in security and they won't win in handsets.

They do have a very solid mobile operating system, but is it worth dusting off?

Introduction

It's been a rough run for BlackBerry (BBRY) since the late 2000s. Many investors tuned out long before the name change in 2013 from Research in Motion (RIMM) to BlackBerry.

I followed BlackBerry and Nokia (NOK) very closely during 2011 and 2012 when it looked like there was a possibility that we could see a third mobile operating system with a commercially viable market share. Like many I used a BlackBerry device exclusively for years in my job to receive email, browse the web and actually had a few apps that I came to rely on.

There are very few products that I have an instant respect for. These are usually products that make things easier for me in ways that I would never have thought of - they have a ton of extra polish and a smart design. TiVo (NASDAQ:TIVO) is a product that still fits in the category for me and the BlackBerry handset also was one.

A quick history lesson on mobile operating systems

In the mid-2000s, there was a very fragmented mobile operating system space. In the European Smartphone market, Nokia was king with about 45% market share with Symbian. BlackBerry had BBOS on its handsets and Palm had Palm OS. Windows Mobile also was still a product and like BlackBerry had a significant following and user base.

There was an awkward period in time where the smartphone experience had a lot of promise but continually failed to deliver. Vendors like LG had phones that would allow you to watch television, some offered video calling, but the software, networks and vendor support for these handsets let users down. Many were buying handsets and investing in a brand or operating system, only to see it die off or become superseded almost immediately.

I won't go in detail, but the Apple (NASDAQ:AAPL) iPhone came along running iOS on a Samsung ARM chip and offered next-level functionality and a greatly improved touch interface. Microsoft (NASDAQ:MSFT) developed and killed the Silverlight based Windows Phone 7. It was replaced with Windows Phone 8 that was based on the new Windows base code that had been redeveloped for ARM chips in their Surface RT. Palm developed WebOS and then was acquired by HP during the financial crisis. This operating system had lots of promise (and promises) but was executed poorly and kept closed, similar to how Apple operates with iOS.

BlackBerry and BB10

BlackBerry owns a very solid and capable operating system called BB10 which is built on QNX; software that they acquired in 2010 from a company called Harman International Industries. I recommend doing some research on BB10 as it is really an excellent operating system, and has a far superior codebase than Android in my opinion. For reference, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) acquired Android five years earlier in 2005. Unlike Google which chose to create the Open Handset Alliance and offer the operating system to other hardware vendors, BlackBerry tried what many others also failed at, making a better iPhone. BlackBerry was largely doomed before they started because everything they were trying to do was done better on another platform. Want to run Android apps? BlackBerry 10 can but not as well as an Android phone. Want a solid experience? BlackBerry 10 offered that but with a poorer app experience than an iPhone? It was the phone that cost as much as the others, but was second on the list. All things being equal nobody will buy their second choice. Every company that tried to go after the iPhone user base by making a better version failed. Microsoft even abandoned its Windows Mobile user base and went after the iPhone's consumer customer base with Windows Phone 7 and 8. Neither of these operating systems were designed to support the enterprise customers that utilized its predecessor Windows Mobile and again it became the second, third or fourth choice.

BlackBerry has changed strategy so many times that I'm not sure changing again will help, but let's be honest, BlackBerry has very little in the way of a competitive advantage via their intellectual property (NYSE:IP). Anything they had around security, their following in low-cost markets, and BlackBerry messenger are largely valueless now. BlackBerry also has a huge number of patents of which I would argue have little value. There have been very few patent lawsuits and licensing deals that have delivered the kind of payouts that provide the meaningful long-term revenue that BlackBerry needs.

What can BlackBerry do to monetize BB10?

IBM (NYSE:IBM) found themselves in a similar situation with their higher end microprocessor chips called POWER. The POWER chips are excellent but have found themselves being squeezed out of the market by Intel (NASDAQ:INTC). Intel chips aren't better per se, in many cases they are actually inferior but they can be used for almost every processing need in a data center. The POWER chips can't use the same versions of the operating system that the Intel chips use, so it's largely inconvenient to have and manage both.

Source: openpowerfoundation.org

IBM created the OpenPOWER foundation in August 2013 and is offering the POWER technology for others to utilize under a generous licensing program. At first you could wonder why they are doing this. But what if you already knew that the single largest consumers of microprocessors would rather not buy from Intel? Who are these crazy people? Google is the largest one by far, and the Chinese government will surely give them a run for their money. Anyone that follows Google knows how little they like to purchase expensive technology from other companies. In addition, the Chinese government has been looking to free themselves and their nation from the spying eyes of Western Hardware and Software for a long time.

OpenBB10?

Who would license OpenBB10 and potentially make it a success? I think Samsung could definitely make a go of it, especially given that it supports Android apps. It would allow Samsung to break away from the pack and free themselves from the shackles of Google. BlackBerry would have to approach the licensing different to Google that requires you to bundle all the Google apps to receive the full experience. The question remains whether Samsung could or would want to survive without Google? What about Xiaomi (Private:XI)? Xiaomi sold 70 million handsets in 2015 and has no use for Google services. I would imagine they'd be very interested in this technology. The Chinese market actually seems to be the one that is ripest for the picking.

Bottom line

The smartphone graveyard is littered with many who tried to make a better version of an existing market-leading product. My opinion is that success was found by those products by meeting a market need and that's the only way that BlackBerry will be successful in the future. The Priv will be a failure - the price is just the first excuse, it's not the actual reason it's failing.

BlackBerry should be trying to monetize existing assets and give up on competing in products where they can't be successful. They also need to go back to their roots and start developing the next smartly designed product that fills a gap in the market.

Click to enlarge

Source: dollarphotoclub.com

In short, they need to be a leader, not a follower. I hope you are reading Mr. Chen.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.