Hello BlackBerry: Why Dropping Hardware Is Part of a Brighter, Security-Centric Future

E. Parizo

E. Parizo

Summary Bullets:

  • BlackBerry’s smartphone hardware exit is a positive development, not negative, and signals that the company’s turnaround is nearing completion.
  • BlackBerry held on to its hardware long enough to grow its software and services business, a move now paying off strategically and financially.

I must respectfully disagree with my esteemed colleague Avi Greengart’s take on BlackBerry’s recent decision to exit smartphone hardware design and manufacturing. Not only is this a positive development for BlackBerry, but it’s also a key sign that the vendor’s dramatic turnaround is nearly complete.

Three years ago, then-new BlackBerry CEO John Chen was in an unenviable position: forced to reinvent a company that was no longer competitive in smartphones, was hemorrhaging cash, and had a brand tied to legacy technology.

Chen smartly decided to double down on the vendor’s last valuable asset: BlackBerry Enterprise Server, the reliable, security-centric backend software still in use in thousands of organizations to manage mobile devices. In recent years, BlackBerry has steadily evolved BES into a viable enterprise mobility management (EMM) platform to manage and secure a wide variety of mobile devices. It accelerated that effort in 2015 with its $425 million acquisition of Good Technology. With the addition of Good’s mobile app management technology, BlackBerry sought to empower customers to securely access apps, services, systems, networks, and data from any endpoint, regardless of its OS, location, or owner.

It has also supplemented BES with recent tuck-in acquisitions including SecuSmart (encrypted voice and text messaging), WatchDox (DRM-enabled file sync and share), and AtHoc (crisis communications), additional building blocks to support its effort to position itself as the premier provider of mobile productivity and security solutions.

In a perfect world, Chen likely would have cut hardware two or three years ago, but it was a lifeline to appease Wall Street while ramping up software and services revenue. In its recently released fiscal Q2 2017 earnings, BlackBerry reported an 89% year-over-year growth in GAAP software and services revenue, totaling $138 million. The turnaround is starting to pay off.

BlackBerry has a ways to go: it’s still losing several hundred million dollars per quarter, it hasn’t yet learned how to communicate its new strategy broadly and clearly to customers and partners, and its new primary rival, VMware AirWatch, is as stout competitively as it’s ever been.

However, BlackBerry’s cash position is strong, and more importantly, Chen has proven to investors that a software-centric BlackBerry focused on mobile management, security, and collaboration can be strategically and financially successful. That in turn has bought him the goodwill necessary to say farewell to hardware.

What’s next? As the number two player in EMM by market share, BlackBerry can’t sit still. The EMM market is quickly evolving into unified endpoint management, driven by the convergence of traditional and mobile endpoint technology and the growing popularity of Windows 10 in the enterprise. BlackBerry is behind competitors’ offerings in preparing for the EMM-to-UEM transition. Similarly, IoT device management and mobility analytics represent innovative, emerging capabilities that BlackBerry must soon address. It must also reinvent its brand and tie it closely to security and mobile enablement.

But, for BlackBerry, these challenges are welcome. Given where it was in 2013, few industry observers would have wagered on BlackBerry’s survival, never mind its newfound success in software. BlackBerry has reinvented itself on the fly, and is poised to complete a turnaround for the ages.

About Eric Parizo
Senior Analyst, Enterprise Security, with Current Analysis.

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