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Struggling BlackBerry faces up to new reality

As sales drop, the embattled Canadian brand is betting on software sales to enterprises and its messenger service to regain market share

Sunil Lalwani
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Raman Roy, chairman & managing director of Quatrro BPO Solutions, is a die-hard user, and on to his 6th one. "I can't do without my BlackBerry," says Roy, a pioneer in the Indian business process outsourcing industry. But his daughter, he says, never took to BlackBerry; she went for an iPhone-and has stuck to it.

This anecdote perhaps captures what went wrong with the iconic that first brought mail-on-the-go feature to mobile handsets. The market share of the one-time smartphone leader has plummeted from 14.8 per cent in the April-June quarter in 2010-11 to 1.6 per cent in 2012-13, according to data from IDC India. Even though thousands of business executives and professionals, like Roy, swear by BlackBerry's Qwerty experience, the proprietary , or BlackBerry messenger, and the data security features, the reasons for the sharp slide in market share and the lukewarm response to its new models are not hard to fathom.

Android-powered cheaper smartphone handsets have shifted consumer demand to the sub-$100 segment (less than Rs 6,000) of the market. (Click for chart)

BlackBerry does not play in that territory-its cheapest models are priced in the $175-$200 range ( Rs 10,500-Rs 12,000). At the same time, in the feature-rich top end of the market ($500-700), BlackBerry now has competition from several Android-powered devices. Though it opened up its messenger services to the masses around three years ago with more affordable data plans, multi-platform messengers like weChat and WhatsApp now drive the social media ecosystem. BlackBerry was also late to come to the touch-screen party, and still does not have an answer to bigger screen phones from its rivals.

Simply put, analysts say, BlackBerry failed to keep pace with the changing consumer tastes over the last three years. However, a silver lining to dropping handset has been the growing revenues from sale of software and services to enterprises and business users. Over the last two years, BlackBerry has tried to cut down on its reliance on hardware sales, while pushing up its revenues from . This essentially emanates from its relationship with business users, helping them manage their mobile and communications solutions across the company, across different locations, preferably using BlackBerry devices. From around 70:30 revenue split between hardware sales and software services to enterprises in 2011, it hopes to reach an even split by the end of 2013.

Advantage India
BlackBerry executives say the Indian market too reflects a near even split in revenues between hardware and enterprises, with a slight skew towards the former. That makes India a bright spot in BlackBerry's global ecosystem. India remains a profitable market in Asia Pacific, along with Indonesia. Even though BlackBerry's market share in handset sales in the country has seen a steady erosion over the last two years (see chart), there has been a sizable ramp up in revenues from services offered to business customers.

"The business model of BlackBerry is changing very fast," says , managing director of BlackBerry India, who took charge in May this year after earlier managing director Sunil Dutt, an industry veteran, left abruptly after a 16-month stint.

Over the last two years, BlackBerry has been focusing on installing operating-system-neutral servers on the premises of enterprises. These device-agnostic servers manage multiple operating systems, be it BlackBerry, Android, iOS or Windows. "We have around 1,000 BES 10, or BlackBerry Enterprise Servers, customers in India" says Lalwani. BlackBerry also plans to roll out BES 10-on-the-cloud for price-conscious small and medium enterprises.

India is also emerging as a key market for app development for the BlackBerry platform. There are around 45,000-odd developers in India who work on BlackBerry-related apps. Around 15 per cent of all applications developed for its latest BB10 platform have come from India.

Even as BlackBerry's services increasingly become device and operating system agnostic, on the hardware side, it does not have any plans to enter the sub-$100 device segment. While Lalwani concedes the delay in the launch of the new BB10 platform has led to some erosion in market share, he says: "The core thing is our focus on profitability and business growth as software services revenue remains intact."

Road ahead
As BlackBerry rolls out its cross-platform in the coming days, India would be one of the biggest markets for such a service. "Our next big focus would be to build a strong BBM community in India," says Lalwani. He hopes once BBM opens up across Android and iOS, it will be one of the strongest platforms in the market and will help woo "prosumers", or professional consumers, who may not have moved away from the platform.

BlackBerry's plan is to integrate the huge community of existing instant messenger users across platforms and bring them under the BBM umbrella. According to internal studies by BlackBerry, there are around 60 million active BBM users worldwide who send and receive 11 billion messages a day. For the new platform, there will be no compromise on privacy and security- related issues as it would run on the BlackBerry network. BlackBerry currently has a private network spread across 170 countries.

Hurdles on the way
Analysts, however, feel that the transition to a services and solutions-oriented business model may not be a smooth one, given the cloud hanging over the future of the company's ownership and sliding device sales. "With so much uncertainty about the future of the company, a lot of enterprise users in India are also likely to explore other options for upgrading existing or getting newer enterprise services," says Gyana Ranjan, executive editor, Voice & Data, a trade journal.

Manasi Yadav, a senior analyst with IDC India, feels that a premium pricing strategy-that BlackBerry has followed till now-does not go down well with consumers in the emerging economies.

Even a hardcore BlackBerry user like Raman Roy concedes that the brand has not been able to build on its equity with professionals and business executives due to positional issues. In recent months, there are signs a price correction is under way as some of its older models- Q10, Z10 and Q5 -could be bought at 10 to 30 per cent discount as part of a festival offer for enterprise users. But the road ahead could well be a long, hard grind for BlackBerry.

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