BlackBerry (BBRY)’s chances of becoming a viable contender to Apple Inc. (AAPL) and Google Inc. (GOOG) in the smartphone market are dimming amid lackluster demand for its flagship touch-screen device.
Corporate information-technology departments have long wanted a third alternative to Apple’s iPhones and devices based on Google’s Android operating system, to ensure innovation and price competition. Yet many businesses are dropping support for BlackBerry as employees flock to touch-screen devices from Apple, Samsung Electronics Co. (005930) and others, according to makers of software used by companies to manage smartphones at work.
That trend was underscored last week when BlackBerry missed analysts’ estimates for phone shipments and profit. Now the Waterloo, Ontario-based company could see further declines as businesses grow more skeptical of its brand, said Bob Tinker, chief executive officer of MobileIron Inc., a maker of smartphone-management software used by 5,000 companies. That makes Microsoft Corp. (MSFT)’s Windows Phone a likelier third option.
“Most of our customers have been planning to support three mobile operating systems -- iOS, Android and either Windows Phone or BlackBerry,” said Tinker, whose products compete with the enterprise servers BlackBerry offers its clients. “The recent results indicate that BlackBerry is not going to be the third.”
BlackBerry last week disclosed weaker-than-expected sales of its flagship Z10 handset, which was designed to exploit its new BB10 software to take on high-end phones such as the iPhone and Samsung’s Galaxy S4. The stock plunged the most in 13 years after the news and has lost a third of its value since the announcement. BlackBerry fell 0.5 percent to $9.65 at the close in New York, its fifth consecutive day of declines.
The disappointing results give a shot in the arm to Microsoft, which has gained ground on BlackBerry in recent years in the struggle for third place. In the global smartphone market, BlackBerry’s share shrank to 2.9 percent last quarter from 6.4 percent a year earlier, according to research firm IDC. Apple and Android together held 92 percent of the market. Microsoft’s Windows Phone bumped BlackBerry into fourth place.
BlackBerry’s worldwide subscriber base slipped to 72 million last quarter, from 76 million and 79 million in the preceding quarters, and the company last week said it will no longer disclose a user tally.
With limited employee demand for BlackBerry devices, some companies are deciding to turn off the BlackBerry Enterprise Server, which is the back-office software that lets BlackBerry users securely get e-mail and synchronize appointments in the corporate network, rather than upgrade to the new version for the BB10 operating system, said Tinker. That saves monthly charges and lowers IT costs. Without BES, BlackBerry devices lack most of the features that made them so popular with IT departments and many users.
“We have seen a very enthusiastic response to BES10 from our customer base,” said Pete Devenyi, senior vice president of enterprise software for BlackBerry, who said 18,000 companies have downloaded or deployed the software since it was released in January. A BES10 server can manage 15,000 BlackBerry phones, versus about 2,000 for the previous generation. “The adoption of BB10 has been very much in accordance with our expectations,” he said.
Microsoft cites a growing library of 160,000 apps for Windows Phone devices as evidence of the platform’s strength.
“We agree with the industry experts who say Windows Phone has claimed the third spot in the mobile space and is gaining traction,” Tony Mestres, a vice president in Microsoft’s Windows Phone unit, said in an e-mailed statement.
BlackBerry announced an addition to the new version of BES called Secure Work Space on June 25 that’s designed to manage iPhones and devices from other platforms in addition to its own products. Still, many companies have decided to use independent mobile-management platforms from MobileIron and AirWatch LLC, among others, said Maribel Lopez, founder of Lopez Research.
The Australian Sports Commission recently decided to stop using BES, as fewer employees wanted to own BlackBerry devices, said Chief Information Officer Steve Solk via e-mail.
“Consumer devices based on iOS, Android and even Microsoft have taken considerable market share while BlackBerry seemed to react very slowly to the shift toward consumerization,” Solk said. “It’s a bit late to re-evaluate the BES.”
Microsoft has its own mobile-management product, called Intune, but provides software tools so companies can use independent systems to keep track of Windows Phone devices, along with iPhone and Android phones, from one software console. BlackBerry refuses to share these tools, called Application Programming Interfaces, said Alan Dabbiere, chairman of AirWatch.
“A lot of companies want to get to one console, but to do that you basically have to turn BlackBerry off,” said Dabbiere, who said AirWatch has 8,000 customers.
Microsoft has an advantage with mobile-application developers, said Tim Bajarin, founder of Creative Strategies Inc. in Campbell, California. More programmers know how to build Windows Phone apps than BB10, which is a based on a new, less familiar technology.
“I see almost zero interest from the serious money in backing BlackBerry apps,” Bajarin said. “People are more interested in Microsoft.”
One reason is that Microsoft offers money to software makers to write for its platform, said Wade Beavers, an app developer and CEO of DoApp Inc. He said his company stopped designing for BlackBerry about a year ago because it was making so little money because of the small number of people using the platform.
BlackBerry’s poor first quarter suggests even bigger losses going forward, said Mike Morgan, an analyst at ABI Research. BlackBerry’s margins for the first quarter should have gone up, since the devices built on BB10 -- such as the Z10 -- are more expensive and were supposed to be more profitable, he said.
Instead, the company took a loss of $84 million. “That shows that they don’t have room in the business model to just spend more on marketing” without posting more losses, Morgan said.
BlackBerry CEO Thorsten Heins, speaking on a June 28 conference call, asked for patience. “BlackBerry 10 is still in the early stages of its transition,” he said.
Morgan said BlackBerry’s only hope to beat Microsoft is to invest heavily in the next few quarters.
“They won’t make any money, but their ecosystem could grow,” he said.
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