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Christopher Maverick
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Former Investment Advisor for 7 years Focused on the Big Ideas or Great Value for my Investing dollars I believe stocks are really business, and i'm just looking for a few that i really like, with the understanding that great things sometimes takes time. i can be found tweeting my favorite tech... More
  • Part 2, Why Microsoft Should Buy Blackberry And How It Could Work. 0 comments
    Sep 9, 2013 1:05 PM | about stocks: MSFT, BBRY

    In a previous article, I explored the idea that Microsoft (NASDAQ:MSFT) should buy Blackberry (NASDAQ:BBRY) following their acquisition of Nokia's (NYSE:NOK) handset division. I would like to explore this possibility in greater detail in this article.

    Firstly, I should make it clear, the argument that Blackberry is a dying company and brand is an argument I really don't think is relevant in this discussion. My focus is on how an acquisition of Blackberry's technology and brand could be used to expand the Microsoft mobile product line. The Lumina line, in my view, is just a commodity, its sales volume is based on how compelling its value proposition is versus other competing brands (and the value comes from the hardware, not Windows.)

    Blackberry leadership and marketing departments are fully to blame for the company's sales decline, not the underlying product. The department had completely misjudged the market, and was too slow to make necessary changes to offer a competitive product today. Except for its lack of quality (not quantity) apps, the company does have a competitive product.

    Before I break down the advantages each bring, I will first preface that I would form two product lines, similar to the "Toyota/Lexus" model.

    The "Toyota" Model: Microsoft Lumia - This line would include consumer wearable's, consumer mobile phones, feature phones, tablets and even PC/Ultra Books.

    The "Lexus" Model: Microsoft Blackberry (or Microsoft BBX) - This line would be a high end business and government focused line with security being a focus point. The line will have the ability to enjoy some of the same ecosystem features that are desired by professionals when not working. Something that Blackberry currently lacks, and why so many blackberry business customers also have a iPhone or android smartphone.

    Here is what each company can potentially bring to the table:

    Nokia:

    · Design team could be in charge of the hardware design in Wearable's, Tablets, PC and mobile phones.

    · Nokia could integrate Blackberry's famous QWERTY keyboard on a larger screen device (the issue on the Q10 is screen size), or bring it to the Lumina line.

    · Nokia's PureView technology, the best camera technology in the space could be brought to Blackberry phones.

    · Nokia's mapping system could replace Blackberry's mapping service.

    Blackberry (Microsoft BBX)

    · QNX could be the basic of the underlying "High end" platform due to the stability and security advantages.

    · Blackberry Messaging Hub and BBM (60 million current users) could be brought to the Lumia line (currently company has shown no interest to bring it to windows platform, just iOS and Android.)

    · QNX OS designed wearable. QNX might have an advantage over the other operating system in this regards as the microkernel-based OS, according to the company "is a full-featured and robust OS that can be scaled down to meet the constrained resources requirements of real-time embedded systems."

    · Blackberry predictive virtual keyboard could be brought to the Lumina line. Windows virtual keyboard was one of my biggest pet peeves when I owned a Windows phone.

    · Blackberry's enterprise could be merged with Microsoft's enterprise operations.

    · Blackberry Time Shift mode could be brought to the Lumina line.

    · Blackberry Browser is the fastest of all browsers and is required for any high-end smart phone.

    · The company name is trusted by corporations and governments worldwide.

    Microsoft

    · Xbox Live users to both mobile lines (48 Million users) which will bring quality games to Blackberry devices.

    · Skype and its 299 million connected users can replace Blackberry's video/voice offering resulting in a deeper integration of Skype.

    · Microsoft cloud services - could replace and/or improve Blackberry's cloud efforts.

    · Microsoft Office -

    · Xbox Music/Video and Microsoft Music - should replace Blackberry's weaker offering

    · MSN network / outlook.com - These assets could be better used under a new ecosystem.

    · Microsoft freestanding stores/Best Buy (NYSE:BBY) stores - Knowledgeable salespeople pushing Blackberry product is something consumers are not likely to find at most carrier stores. Apple's (NASDAQ:AAPL) extensive retail network is a large part of the company's total client experience and success and a similar strategy for blackberry products in Microsoft standalone stores and Best Buy store in stores would be very positive.

    What I would also do:

    · I would include a Google (NASDAQ:GOOG) Chromecast type device in all the Microsoft BBX boxes. The possibilities for business presentations and home use could be very exciting and the need to expand the ecosystem to the TV outside of using an Xbox is very important. Perhaps a Lumina model could be sold as accessory or loss leader.

    · I would like to see an acquisition of "Map my Run" and integrate it into the Lumina and BBX lines and would consider other fitness and health applications for deeper integration in a similar way that Apple does with the Nike+ app. http://www.mapmyrun.com/my_home/

    · I would use the BBX line to push quality design and craftsmanship, and roll out new technologies first.

    · I would limit the BBX line to 5 products - a touchscreen 4 inch smartphone, a QWERTY touch smartphone, a 6 inch phablet, an 8" and 10" inch redesigned Playbook. I feel it would be important to give governments and corporate clients the same choices as they can get from Apple, but with the additional security and stability of the QNX operating system.

    · I would open discussion with Amazon.com (NASDAQ:AMZN) on how the two companies can work together. Maybe Amazon.com could take over all the digital sales and bring a real iTunes competitor to the Windows platform or work together to bring Amazon.com vision of a smartphone under the Lumia brand. iTunes is a cash cow for Apple (but the overall revenue size distorts that fact). It's also a factor in retention, the more a user spends on iTunes products, the likelihood is higher that the user will never leave Apple and migrate to another operating system.

    I believe Blackberry's Director, Bert Nordberg, was half right when he said in an interview that "BlackBerry Can Survive as 'Niche' Player". I think it would be more accurate to state, that Blackberry can survive as a niche product line, but not as a niche independent company. Such a product line could focus purely on government and corporate clients as well as individuals who really enjoy Blackberry's QWERTY keyboard over virtual keyboards. With the ability to leverage the hardware team, manufacturing, ecosystem, and application development of the new and larger partnership with Microsoft and Nokia, Blackberry phones can succeed as a product line.

    The real issue for these companies is in their respective application marketplaces. What hurt Apple the most in the 1990's was their lack of software for Mac users, not the actual product, which was what I believed to be far superior to any Wintel product on the market. Today, the tables have turned and Apple has a clear advantage in this regards over their competitors, a key reason for its success and its high retention rate. The fact that Blackberry itself has no plans to make a BBM for Windows, goes to show the lack of interest top developers have in making investments on the Windows platform.

    The battle for the 3rd spot in smartphones sales (with the two undisputed leaders being Apple and Samsung) is going to get even more competitive going forward. Notable events include several articles reporting that Amazon.com will launch an Android based Smartphone , plus my strong feeling that Samsung will make a push with the open source Tizen operating system. We are also seeing Apple's low cost iPhone 5C, which undoubtedly is going to put pressure on Lumia sales in many markets. It is not inconceivable to see Microsoft slowly becoming an irrelevant player in the smartphone category utilizing the best of what Nokia and Blackberry have to offer. Naturally, the boys in Redmond can't afford to just allow to happen, making the smartphone market an interesting industry to follow for years to come.

    Finally, I will us another baseball analogy and say that Microsoft should do what "The Boss" would do. George Steinbrenner (famed former owner of the New York Yankees) would make one later season acquisition to make a push at smartphone supremacy (or at least the wildcard spot.) Ultimately, Blackberry is the perfect free agent for Microsoft to acquire.

    Disclosure: I am long MSFT, AAPL. 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.

    Stocks: MSFT, BBRY
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