Has BlackBerry Made a Big Mistake?

QWERTY fans rejoice! The highly anticipated, QWERTY-based BlackBerry (NASDAQ: BBRY  ) Q10 is expected to reach the U.S. by the end of the month.

Just be prepared to pay up for the privilege of owning a modern-day QWERTY smartphone.

BlackBerry Q10.

BlackBerry has confirmed that the Q10 will run users $249 on a two-year contract in the U.S. Clearly, BlackBerry believes it can get away with charging a 25% premium over the Apple (NASDAQ: AAPL  ) iPhone 5, the Samsung Galaxy S4, and other flagship Google Android devices since the Q10 takes aim at deep-pocketed business customers, which can likely spare the expense.

Quite frankly, it's a risky move, considering BlackBerry lacks pricing power and market share. Between Apple and Android controlling over 90% of the smartphone market, there isn't a whole lot of mindshare left for BlackBerry. Not to mention Apple experienced a 77% activation rate among enterprises in the first quarter, an area where BlackBerry remains highly committed. So unless you're an enterprise customer with specific needs or you're a die-hard loyalist, there's isn't any economic incentive to "trade up" to the Q10.

76 million strong
Naturally, BlackBerry's most desirable customers are the ones it already has, which as of last quarter stood at 76 million subscribers worldwide. Although this pales in comparison to Android's 750 million and Apple's 500 million devices sold, it gives BlackBerry a solid foundation of loyalists who are the most likely to upgrade to the BB10 ecosystem. The unknown is the pace at which these loyalists will upgrade.

This hasn't stopped BlackBerry CEO Thorsten Heins from setting lofty expectations for the device. Although he wasn't clear as far as timing goes, he expects Q10 unit volume to be in the "several tens of millions" range, which to me sounds like a gross exaggeration.

3 touch, 1 QWERTY
During an interview conducted by Bloomberg in December, Heins told investors that he expects touch device sales to outpace QWERTY devices by 3-to-1. In other words, the CEO of all things QWERTY doesn't believe that the addressable market for QWERTY devices will be nearly as robust as touch devices.

Perhaps when Heins was referring to "several tens of millions" Q10 devices, he meant over the life of the device. Sill, this figure would imply (based on the 3-to-1 ratio) that "several 30s of millions" of touch devices sold, which seems a bit unrealistic.

By the end of the year, BlackBerry expects to have six BB10 devices, covering a range of price points, equally split between QWERTY and touch-only designs. Given the fact that future products are coming, I don't believe BlackBerry has necessarily made a mistake with overpricing the Q10. The company is likely testing the waters with deeper-pocketed clients. If it can sell potential users on the idea that they'll be more productive with a physical keyboard, perhaps BlackBerry is coming from a position of strength.

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Read/Post Comments (15) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 01, 2013, at 11:06 PM, Cpuiulet wrote:

    I want a physical keyboard and Blackberry knows that. I'll pay the extra $50 just so I can have an updated version of a phone with a physical keyboard. Still using my old 1.2 ghz single core trusty Motorola Admiral with a Blackberry like keyboard since all the latest Android devices went full on touchscreen. Galaxy S4, the iPhone 55 and the Nokia Lumia whatever, can suck it, I'm sticking with my Moto till BB Q10 comes out in another month or so.

  • Report this Comment On May 02, 2013, at 4:35 AM, H3D wrote:

    @cpuiulet

    You paste straight from the RIM marketing blogbook.

    Do try to vary it a bit to keep some sense of originality. Readers begin to recognise the wording.

    8^)

  • Report this Comment On May 02, 2013, at 6:03 AM, Arthur1111 wrote:

    The same "over priced" comments were made when the Z10 was released. These are new devices are should be priced higher than the iphone 5. A $50 increase on a 2 year contract equals to $2 per month. So it is nothing.

  • Report this Comment On May 02, 2013, at 7:02 AM, TIMNPAWC wrote:

    I think it is safe to say that out of the 76 million, that close to 1/6th would be coming up for upgrade in the second half of 2013 so over 12 million. Some more will have waited even though their contract ended in the 1st quarter, some more will want or need to replace early based on loss or damage so add a 10% additional group of possibly buyers. My contract ends in December but I can upgrade early for another 50 dollars. If we track this out to March 31st, you could expect 27.5M current BlackBerry users in a position to buy a Q10 or the soon to be released mid range QWERTY product. Add to the number IOS, Android and WP users who want to return to or try BlackBerry QWERTY as well as some of the 4% new smart phone users (.04*800=32M), perhaps add 1% of 800 so 8M more totaling a possible 35M BlackBerry QWERTY purchasers in the next 12 months. If there is a third QWERTY type phone in the pipe, it will most likely be a phablet or tablet like device, no idea there.

  • Report this Comment On May 02, 2013, at 8:39 AM, CZZZZZZ wrote:

    Here we go with the regular thursday bear raid of Blackberry

    You've recycled the same bogus arguments used for the Z10 ! Are your readers that gullible?

    How lazy and incompetent can you get.?

  • Report this Comment On May 02, 2013, at 8:52 AM, misledbyfools wrote:

    Heins was commenting on the market as a whole. So 3 to 1 sales of touch to qwerty leaves an enormous niche for Blackberry to profit as the qwerty king of that market.

    Are you really that thick? You couldn't figure this out on your own? Don't you feel embarrassed as your article illustrates your ignorance?

  • Report this Comment On May 02, 2013, at 9:05 AM, infektu wrote:

    what mistake exactly are you referring to?

  • Report this Comment On May 02, 2013, at 9:10 AM, mrmann1234 wrote:

    Blackberry made a mistake and lost our business when they:

    A) Required carriers to use the 'backend' BES Server - thereby raising the cost to the consumer by charging them to pay for 'corporate internet' vs 'consumer' - Perhaps thats changed recently?

    It was about 0-20 dollars more a month depending on the carrier.

    B) Took away redirector client. Was flaky anyway - BUT

    C) Failed to offer an active sync client like every OTHER device out there.

    D) Forced IT shops to use thier 'free' BES Server.

  • Report this Comment On May 02, 2013, at 9:14 AM, RandomMeaning wrote:

    Quite simple, BlackBerry is squeezing extra profits out of their most loyal fans who will be early adopters. This is not uncommon. Will raising the price above the competition help them get new customers? Not in the least. But the qwerty wielding BlackBerry fans are going to buy regardless, why not juice an extra $50 out of them?

  • Report this Comment On May 02, 2013, at 9:51 AM, cbglobal wrote:

    So the Q phone is being sold at a premium to other top line phones and is selling fast everywhere it is for sale. But they DO NOT have pricing power. What a pathetic analysis.

  • Report this Comment On May 02, 2013, at 10:20 AM, dapperone wrote:

    The upfront purchase prices for smartphones through Verizon, AT&T, and Sprint are fictitious anyway, so tacking on an extra $50 is unlikely to be a deal breaker - its about the same as paying for a premium case or other accessory. The true cost of a smartphone ($1000 and up) is measured by the inflated data plan overcharges that are accumulated during a 2 year plan - charges that can be avoided by paying full price for a phone and going with one of the smaller low cost carriers. Even if you were to purchase a phone with a credit card and pay it off over 2 years at 20% interest, you end up saving money this way.

  • Report this Comment On May 02, 2013, at 11:24 AM, vernr75 wrote:

    25% premium? That's not what's going on. It's a mistake to focus on the subsidized price rather than the actual hardware price, because that really has more to do with the carriers than with Blackberry. The actual cost of the Q10 (which is roughly what the carrier will pay to Blackberry for each device) is rumoured to be about $700, which makes it about $50 (or ~8% more expensive than the 16GB iPhone 5 bought from Apple for $650. The reason why you pay $200 and not $650 for the 16GB iPhone 5 is because $450 of the price is subsidized by the carrier and is hidden in the monthly service plans. And when you get an old iPhone 4 for $0 on a 2 year contract, the actual price of the phone is really $450 - you pay that back as a hidden cost over 2 years. It would seem that this Q10 is also going to be subsidized up to $450 (just like the iPhone), bringing the price tag that the consumer sees to $249. That's what's really going on.

    The most important thing about this phone's price tag is that it won't change Blackberries fortunes if it fails to gain significant market share in Western countries. This phone is, like the iPhone, far too expensive to gain significant market share in the developing world. In the recent past, cheap Blackberry phones and the cost benefits of their messaging service allowed the company to gain valuable mindshare and a new fan base in all corners of the world. This turned the blackberry from a business smartphone into the first smartphone brand to break into the emerging markets. But if, going forward, they only focus on high end products and high margins they fail to capitalize on the perceived value of their messaging service in the developing world, they're toast.

  • Report this Comment On May 02, 2013, at 12:38 PM, Oril wrote:

    I am surprised to see motley fool allowing comments on this article. They don't seem to be sticking on most of the others today. Makes one believe they are more interested in getting the negative blackberry titles out there then they are in the validity of the content. Too bad we can't short the fools.

  • Report this Comment On May 02, 2013, at 12:47 PM, SyDVooh wrote:

    What good is a QWERTY keyboard in most of the world where people don't use a language based on the Roman alphabet? Think China, Russia, or Japan, for instance. BBRY doesn't have global reach. This is why there is such a big short position in BBRY. Short is the only safe bet with BBRY.

  • Report this Comment On May 03, 2013, at 11:52 PM, bestjester wrote:

    The most important question is will Blackberry's Stock price go UP or DOWN this year?

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