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DOD Approval of iOS and Android Deal Another Blow to BlackBerry

By Leo Sun - Jul 8, 2014 at 1:28PM

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BlackBerry CEO John Chen had some harsh words for Android L’s Samsung Knox integration. But is anyone listening?

Google ( GOOG -0.87% ) ( GOOGL -0.68% ) recently announced that it would integrate part of Samsung's (NASDAQOTH: SSNLF) Knox security platform in the next version of Android, Android L, to address ongoing security concerns about its mobile OS.

BlackBerry ( BB -3.66% ) CEO John Chen wasn't impressed. "Don't be dazzled by those who can talk the security talk," he stated. "Instead look to the company that has proven repeatedly it can walk the walk."

Chen is not Knox's only critic. Last December, David Goldschlag, the former head of mobility at McAfee and current CEO of BYOD (bring your own device) security vendor MobileSpaces, also stated that Knox wasn't ready to become an enterprise-grade security platform.

Source: Telegraph.co.uk.

Mobile security remains a top issue among enterprise customers, who once helped BlackBerry claim 50% of the smartphone market back in 2009. Today, BlackBerry controls less than 1% of that market, due to fierce competition from Apple ( AAPL -1.17% ) iOS and Google Android. Therefore, it's going to take a lot more than bold claims about "walking the walk" for BlackBerry to reclaim even a sliver of that lost market.

BlackBerry's biggest backer
Last year, the U.S. Department of Defense approved Apple iOS and Samsung Android devices with Knox installed for military use. BlackBerry 10 devices were also approved, but the approval of iOS and Android Knox devices marked the first time BlackBerry faced any real competition in the military market.

In January, the DOD stated that BlackBerry devices still account for 90% of the mobile devices used within the U.S. military. It has shown that it intends to stick with BlackBerry -- out of 100,000 new devices being tested in its DOD Mobility Implementation Plan, 80% will be BlackBerries, while the remainder will be comprised of a mix of iOS and Samsung Knox devices.

Although the military's loyalty doesn't mean that BlackBerry will regain market share among businesses, it's given BlackBerry the rights to market itself as the leader in military-grade security. Android, by comparison, is highly vulnerable to malware. A study from security specialist F-Secure found that Android-based malware accounted for 97% of all mobile malware in 2013. The remaining 3% targeted Nokia's (NYSE: NOK) discontinued Symbian OS, while iOS, BlackBerry, and Microsoft (NASDAQ: MSFT) Windows Phones accounted for 0% of all malware attacks.

That's why Google hopes that integrating part of Samsung's Knox platform in Android L, which has already been released to developers, will address Android's poor reputation for security. Knox devices might not be as proven as BlackBerry ones in terms of security, but Samsung has nonetheless dealt BlackBerry a critical blow by integrating itself into Android L -- a move that allows it to protect 80% of the world's smartphones as opposed to Samsung's own 31% global market share. 

Can Chen save BlackBerry?
Looking beyond Knox, Chen's turnaround plan for BlackBerry consists of three main strategies. Chen plans to sell lower-end BlackBerry devices through a partnership with Foxconn, monetize its BlackBerry Messenger (BBM) mobile messaging app, and turn BlackBerry into a dominant player in the cross-platform corporate mobile device management market.

BlackBerry's Z3, its new phone for emerging markets, is priced between $200 to $270 -- making it roughly the same price as the Z10 with better specs. But since the Z10 failed to make much of an impression, the Z3 will likely face the same challenges. Plunging market shares in key emerging markets also won't make things any easier. BlackBerry's market share in Indonesia -- once affectionately known as the "BlackBerry Nation" -- fell from 40% to 4% within two years.

BlackBerry Z3. Source: Company website.

Meanwhile, monetizing BBM, which has 85 million monthly active users (MAUs), with ads and mobile payments has shown promise. Content providers like Time, CNBC, Rolling Stone, and Virgin Atlantic have already purchased ads on the app's BBM Channels.

BBM is still much smaller than Facebook's (NASDAQ: FB) WhatsApp (500 million MAUs) or Tencent's WeChat (355 million MAUs), but the fact that most BBM users are enterprise ones could make it a more appealing platform to advertisers and mobile payment providers. BBM is currently available for BlackBerry, iOS, and Android devices.

BlackBerry Messenger. Source: Google Play.

Last but not least, BlackBerry's cross-platform mobile device strategy refers mainly to a tool called BlackBerry Enterprise Service (BES), which helps business and government customers manage mobile devices across their networks. The latest version, BES12, is scheduled to launch at the end of 2014. BES12, like an earlier version, BES10, will connect to BlackBerry, iOS, and Android devices -- acting as a unified "control panel" for enterprise customers to monitor all employee devices. This makes BES a valuable tool for large businesses as the number of data breaches rises year after year.

The Foolish takeaway
In conclusion, it's too early to tell if the military will eventually drop BlackBerry in favor of iOS and Knox devices, or if Chen's three bold turnaround plans will succeed.

One thing is certain, however -- Samsung scored a major victory against BlackBerry by integrating Knox into Android L, since it further levels the playing field against BlackBerry among enterprise customers. Chen can claim that Samsung can't "walk the walk," but Android L clearly represents a missed opportunity for BlackBerry, which should probably have pushed harder to license its IPs to Google instead.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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