For about a year or so, many business writers have put tech company BlackBerry in the same category as the woolly mammoth, the dodo bird and Cuba Gooding Jr.’s movie career:
Extinct. Kaput. Finished.
Then in late January, it was (erroneously) reported that the Pentagon would purchase some 80,000 new mobile devices from Canada-based BlackBerry. In a matter of hours, the narrative changed, and the Canadian company was cast as a frigid phoenix from the north, rising from ashes made of push-button keyboards to fly once again. It was common to see headlines from many business sites that read Pentagon May Save BlackBerry from Extinction.
Many of the reports went on to note an 8 percent stock “surge” on the (wrongly) reported news of a Pentagon rescue.
To put that in perspective, at about the same time Apple stock was battered for selling only 51 million new iPhones, BlackBerry stock surged by about 8 percent on the news of selling 80,000 new mobile units.
Of course, the reality is that BlackBerry stock has been rising slowly for the past few months as the company repositions itself as the leader in secure devices and software.
But despite the hyperbolic tone many tech-business reports have taken toward the company, is it possible BlackBerry is genuinely headed toward extinction?
Biologists use the term “extinction-event” to describe the sudden mass die-off of one or more species. The event can be caused by disease, a catastrophic circumstance or an abrupt change in the environment.
According to investment analysts, BlackBerry has had its own extinction event: the invention of the iPhone and Android-platform devices. It was an abrupt environmental change BlackBerry didn’t evolve with.
“The firm failed to identify and properly respond to the threat of Web-enabled smartphones that offered robust app stores and developer support,” reported investment rater Morningstar. “We see no scenario where BlackBerry re-emerges as an industry leader … BlackBerry remains in free fall.”
Not that BlackBerry hasn’t tried to change. The company unveiled a series of BlackBerry touchscreen smartphones, cumulating in the much-hyped (but little-sold) BB10 in 2011.
“Ultimately BB10 was the firm’s last-ditch effort to save itself, yet it was unable to exceed an extremely low bar of expectations,” reported Morningstar. “At best, the company may reinvent itself as a supplier of highly secure devices to enterprises and governments that value topnotch security.”
As a result, Morningstar is advising investors not to add the company to their portfolio, and the firm rates the company as having a very high risk.
It’s almost hard to believe that BlackBerry, a company that dominated the market for several years and became a favorite of governmental workers, is now not a significant player in mobile devices. Apple and Samsung lead the field, with Microsoft making significant strides in the market space. And because BlackBerry is no longer a strong name in the market, analysts see the company as having only one escape from extinction.
“If the company is not on its death bed, then it’s definitely in the hospital,” said Morningstar Analyst Brian Coello. “And if they can’t keep the government contracts, it’s the beginning of their death spiral. It’s BlackBerry’s only hope.”
New Survival Strategy
BlackBerry management is embracing security services as a key component of survival. On the company’s website, for example, BlackBerry lists multiple government agencies (including the U.S. Department of Defense and the Los Angeles Sheriff’s Department) that use BB security and mobile products.
Meanwhile, senior executives at BlackBerry are turning their focus on promoting enterprise and security software. That includes, somewhat ironically, protecting the products that helped kill the company as it was: BlackBerry is offering security software for Android and Apple operating system smartphones.
The company also is trying to capitalize on the turn to the cloud, and is expected to announce cloud-based security software in the near future.
This is a major turn for the company away from the mobile devices, which were popularly called “Crackberries,” toward security and software services.
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“Our re-pivot as a company to enterprise and the public sector ensures that we will continue to play our part in the war against cybercriminals,” wrote BlackBerry Global Enterprise Services President John Sims, in a statement. “We know our government customers count on us to provide the most secure solutions, and for them, there is still nothing more secure than a BlackBerry device managed by our software and on our server and network.”
The company has a strong reputation for providing highly secure data encryption, especially with officials in Washington, D.C. Even President Barack Obama recently said he was still using a BlackBerry device.
“I’m not allowed for security reasons to have an iPhone,” Obama explained at a press conference last December.
Yet, while highly classified governmental departments may utilize BlackBerry services, it’s questionable whether the demand will be broad enough to keep BlackBerry afloat. For example, the Los Angeles County Sherriff’s Department, which is featured on the BlackBerry website as a customer of the company, is not wedded to the device.
“We let our employees pick what phone they want to use,” said an IT procurement official with Los Angeles County, who was not authorized to speak publicly about contracts. “I wouldn’t say there is a high demand for BlackBerry, and I’m not sure what security software they may provide. As far as I know that’s handled by the providers, like Verizon.”
The L.A. County policy mirrors a wider trend by government officials to let employees choose their own mobile devices.
Meanwhile, the larger “re-pivot” toward security services seems the only way forward for BlackBerry. An attempt to sell the company has failed, and Morningstar notes that potential strategic partners are waiting for the business to fail so they can purchase assets of value out of bankruptcy.
Sims suggested that security services could help the company turn the “free fall” described by Morningstar into a soft, safe landing for the company.
“Our leadership will continue through an investment in a Washington, D.C., area security innovation center, which will enable us to work closely with government partners to encourage ongoing dialog aimed at making better products and policy for the public and private sectors,” he stated.