It's Way Too Late for Apps to Save BlackBerry Phones

One of the many issues with BlackBerry's (NASDAQ: BBRY  ) new line of BB10 phones has been a dreadful selection of apps. With the BlackBerry platform already shrinking rapidly at the time that BB10 was introduced, many major companies decided it wasn't worth spending any money to develop BB10 apps. This made the failure of BB10 a self-fulfilling prophecy.

Last week, BlackBerry announced an agreement with Amazon.com (NASDAQ: AMZN  ) that will put the Amazon Appstore on BB10 phones. If this deal had happened prior to the launch of the BB10 platform in early 2013, it might have raised BlackBerry's chances of success. Today, it is too late to revitalize BlackBerry's smartphone sales.

Adding key apps
BlackBerry's deal with Amazon.com will allow it to add numerous key apps to its ecosystem. The Amazon Appstore has more than 240,000 apps: almost twice as many as BlackBerry's own app store. The deal gives BlackBerry users access to popular apps like Groupon, Netflix, and Candy Crush Saga, according to BlackBerry's press release.

BlackBerry users are getting access to the Amazon Appstore.

However, even with the addition of the Amazon Appstore, BlackBerry users have a significantly smaller selection of apps than iOS and Android device users. Both of those platforms have more than 1 million apps available!

Moving at a snail's pace
After entering 2013 with high hopes for the new BB10 platform, sales of BlackBerry's revamped phones never took off. In the first few quarters after the BB10 release, BlackBerry booked sales of millions of smartphones, but most of these phones ended up sitting on retailers' shelves and did not sell through to end users.

For the last few quarters, BlackBerry has been reporting "sell-through" (the number of phones purchased by customers) as well as "sell-in" (the number of phones shipped). Here is the estimated sell-through of BlackBerry phones for the last three quarters:

 Quarter

Sell-Through

Quarter ending November 30, 2013

4.3 million

Quarter ending March 1, 2014

3.4 million

Quarter ending May 31, 2015

2.3 million

Source: BlackBerry quarterly earnings reports (available here).

These numbers look paltry enough. By comparison, Apple (NASDAQ: AAPL  ) has averaged selling about 40 million phones per quarter in the past year -- at a much higher price point than most BlackBerry phones.

Moreover, BlackBerry still sells phones running its outdated BlackBerry OS 7 despite the launch of the BB10 platform. Those older phones -- which barely have full smartphone functionality -- have actually sold better than the BB10 phones, a serious slap in the face for BlackBerry's new OS. If we look just at BB10 phone sales, the numbers are far worse:

 Quarter

BB10 Sell-Through

Quarter ending Nov. 30, 2013

~1.1 million

Quarter ending March 1, 2014

~1.1 million

Quarter ending May 31, 2015

~1 million-1.5 million 

Source: BlackBerry quarterly earnings reports.

Too little, too late
Getting access to the Amazon Appstore is an incremental positive for BlackBerry. However, its problems run much deeper than app selection at this point. For the past several quarters, it has been selling just 1 million BB10 phones per quarter. That isn't nearly enough to fulfill the normal replacement demand for BlackBerry phones.

BlackBerry's flagship Z10 phone sold terribly. Source: BlackBerry.

Indeed, while a few BlackBerry devotees have remained loyal, most have jumped ship by this point. BlackBerry's global share of smartphone sales is expected to fall below 1% this year, causing its installed base to shrink further.

BlackBerry's biggest problem today is this erosion of its installed base. It's harder to convince a customer to switch platforms (or switch back) than it is to win a new customer or convince an existing user to upgrade.

The recently released $179 Z3 phone offers some hope for gaining new first-time smartphone users in developing markets. However, these are destined to be low-margin customers simply due to their lack of purchasing power. Meanwhile, the upcoming "Classic" QWERTY phone may convince the remaining high-end BlackBerry users to upgrade, but that is a fast-shrinking market.

For BB10 to become a successful smartphone platform, it would need to win tens of millions of users away from iOS and Android, and that's extremely unlikely to happen. Amazon, which just released its own smartphone -- the Fire Phone -- faces a similar problem. The vast majority of smartphone users simply are not looking to switch platforms.

BlackBerry needs to keep moving beyond smartphones
The BlackBerry smartphone is all but dead. BlackBerry may be able to continue to sell a few million each quarter, and if it can do so profitably, that's fine. However, BlackBerry's long-term survival depends on the success of some of the company's other growth initiatives.

BlackBerry has three main businesses outside of smartphones. BBM is a messaging app and suite of related services. BES is a platform that allows enterprises to secure and manage mobile devices. Lastly, QNX is an operating system that can be used for machine-to-machine communications. All of these businesses have long-term growth potential -- far more than BlackBerry's device business, with or without apps from Amazon.com.

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Read/Post Comments (4) | Recommend This Article (2)

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 June 24, 2014, at 8:58 AM, hawt2trot wrote:

    I'm trying to figure out why you are focused on apps and phones when CLEARLY BlackBerry isn't. Move on as they have. I known it's the "Fools" job to dredge up and twist everything in a negative spin when speaking of BlackBerry bit this is ridiculous.

  • Report this Comment On June 24, 2014, at 10:30 AM, infektu wrote:

    The handset estimate seems pulled out of a hat.

    The company provided numbers actually show a slight increase for this quarter.

    Not to say they have it easy, but the numbers in this article are mostly fabricated, hence useless.

  • Report this Comment On June 24, 2014, at 12:19 PM, greenember wrote:

    So the whole point of this article was what? I read twice and didn't see any new information or any unique analysis. When you look at it that way, one would almost think this article was published just to kick a company while it's down because it looks like it might actually get back up again...

  • Report this Comment On June 24, 2014, at 12:57 PM, TMFGemHunter wrote:

    infektu: I don't know why you say that the handset estimate is pulled out of a hat. I think it's a reasonable estimate. Every quarter since Chen took over, BlackBerry has produced an estimate of sell-through. In December and March, BlackBerry also provided a BB10 sell-through figure, but it did not do so in June. I had to estimate the BB10 sell-through for last quarter based on the total sell-through (which was down significantly again) and the CFO's statement that the revenue mix for sell-in was about 2/3 BB10 and 1/3 BB7.

    Revenue per device is likely to be higher for BB10 than BB7, and due to the late-quarter launch of the Z3. Additionally, sell-through tends to lag reported revenue. As a result, I think it's safe to say that BB10 was closer to half of the sell-through volume. I provided a range on either side of that to be safe.

    Adam

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