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Did BlackBerry Just Become a Lean Start-Up?

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Less than four months into John Chen's tenure as CEO of fallen smartphone giant BlackBerry (NASDAQ: BBRY  ) , it's clear that this company isn't your grandfather's BlackBerry. Smartphones running on the BB10 platform are still a part of the mix, but they have now taken a back seat to software and services initiatives.

Over just a few months, BlackBerry has announced a large number of new strategic initiatives that will hopefully turn it into a more diversified tech company, rather than a pure-play smartphone maker. In other words, BlackBerry is moving fast and breaking things: i.e., acting like a lean start-up. This could be a sign of good things to come.

BB10 phones: version 2.0
Many investors -- myself included -- expected the release of new phones on the BB10 platform to revive BlackBerry's fortunes in 2013. After some hopeful signs early in the year, sales fell well short of the company's expectations. Not only did the all-touch Z10 fail to win converts from the iPhone and Android, the Q10 did not sell very well among the BlackBerry user base, despite its QWERTY keyboard.

BlackBerry's Q10 phone turned out to be a flop (Photo: BlackBerry).

This week, BlackBerry revealed its next generation of BB10 phones. On Tuesday, Chen showed off the Z3 smartphone (code-named Jakarta), which will go on sale in Indonesia in April and will eventually be sold in some other markets in Southeast Asia, where BlackBerry remains fairly popular.

The Z3 will be priced below $200. That still won't match the sub-$100 Android phones that have shown up in recent years, but it will be much more affordable than prior BB10 devices.

The Z3 is the first product of a partnership between BlackBerry and Foxconn announced back in December. Foxconn, which is already the largest global contract manufacturer of smartphones, will be responsible for procurement, manufacturing, and inventory management for the Z3, reducing BlackBerry's risk. This represents a completely new -- and hopefully profitable -- smartphone business model for BlackBerry.

BlackBerry also announced that it will take another crack at high-end QWERTY phones. Many BlackBerry loyalists were apparently upset that the Q10 didn't have BlackBerry's classic function keys (menu, back, send, and end). Based on that customer feedback, the new Q20 will bring back these function keys. (Whether this design update will lead to better sales is still very much an open question.)

Moving beyond smartphones
The real story of the last few months at BlackBerry has been its move beyond smartphones. One area that Chen has been emphasizing is building BlackBerry Messenger, or BBM, into a profitable business. After Facebook bought rival messaging service WhatsApp for $19 billion, this seems like an even bigger priority. (WhatsApp has about 450 million monthly active users compared to 85 million for BBM, but that could still make BBM pretty valuable.)

BlackBerry remains focused on the enterprise side of messaging. On Tuesday, the company announced "BBM Protected," which will offer a higher of level security and keep a record of chats; both features had been requested by enterprise customers. This is the first in what will eventually become a suite of business-oriented services available through BBM for a fee.

The company is also simplifying pricing for its BlackBerry Enterprise Service, with two levels (silver and gold), in response to customer feedback. The new BES12 is designed to offer value-added capabilities beyond basic mobile device management (which by itself is expected to be a $4.8 billion market by 2017) to gold-level customers. This will include items such as tools for building secure mobile apps.

The last key area for future growth is the QNX embedded OS. QNX is the dominant operating system in cars, and it appears to be on the verge of winning another convert in Ford. However, the bigger long-term opportunity that BlackBerry is pursuing is selling QNX into other industries. This will require figuring out how QNX could be useful in other applications.

The risk of being a lean start-up
The hallmark of a lean start-up is prioritizing flexibility in order to change the business model to meet the needs of potential customers. Rather than building a product and trying to sell it, a lean start-up figures out how it can help customers through a process that resembles trial-and-error.

While BlackBerry is still working to turn the device business around, it is starting to act like a lean start-up in these other nondevice parts of the company. The three nondevice focus areas (BBM, BES, and QNX) currently represent capabilities more than products. BlackBerry is at the very beginning of figuring out how to deploy those capabilities as products and services that customers will pay for.

However, unlike a typical lean start-up, BlackBerry is a highly visible public company that has had some high-profile miscues in recent years. False starts and minor failures are inevitable for any lean start-up. For BlackBerry, these hiccups could easily become magnified into market-moving investor panics.

Thus, as BlackBerry sails into uncharted waters, the ride is likely to get a lot bumpier. Hopefully the reward will be worth it for shareholders.

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  • Report this Comment On February 27, 2014, at 3:34 PM, Chippy55 wrote:

    I think it's hilarious that FB payed 19 billion for Whatsapp, I never even heard of it until he bought it. If it's worth that much then simple math says BBM is worth $3.58 billion all things being equal.

    And what does Zuckerberg plan on doing with his new acquisition? He pay $42.22 for each of Whatsapp's 450 million customers, and the only thing that comes to mind is more ads. That's the only way dot coms make money, I'm sick of continuing pop ups, even though I can block most of them. Is Whats app going to show more ads for geico? Count on it because geico is on EVERY TV and radio station, at the grocery store they play a geico ad every 15 minutes, its on the sides of buses, in yer mail, in your junk mail, and now it will be all over FB because insurance companies make 40 cents on the dollar and ads are just a business write-off.

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Adam Levine-Weinberg

Adam Levine-Weinberg is a senior Industrials/Consumer Goods specialist with The Motley Fool. He is an avid stock-market watcher and a value investor at heart. He primarily covers airline, auto, retail, and tech stocks. Follow him on Twitter for the latest news and commentary on the airline industry!

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