BlackBerry (NYSE:BB) recently announced that it was experimenting with wearable devices like smart watches and smart glasses.
Although the company didn't reveal any additional details, BlackBerry's enterprise head John Sims noted during a roundtable discussion at CTIA's Super Mobility Week that he "would love BBM (BlackBerry Messenger) to be running on a wearable," although the company didn't plan to release "anything at the moment."
BlackBerry's revelation isn't surprising, considering how many tech companies have jumped aboard the smartwatch bandwagon, but investors are probably wondering if researching wearables is really the best use of the struggling company's time and money. After all, BlackBerry currently has less than a 1% market share in smartphones across the world -- down from 50% back in 2009.
What BlackBerry likely believes
BlackBerry probably believes that two key factors -- the growth of the wearables market and BBM's user base -- could make wearables a viable business venture.
The smart watch market, according to research firm ON World, is expected to rise from 4 million shipments in 2013 to 330 million by 2018. Expectations like those have fueled a fierce land grab in the fledgling market, with Samsung (NASDAQOTH:SSNLF) claiming a 71% share of the smart watch market at the end of the first quarter of 2014.
Meanwhile, BBM is one of three pillars of growth that BlackBerry CEO John Chen has highlighted in the past. The other two pillars are lower-end phones for emerging markets and the growth of BES (BlackBerry Enterprise Service) to monitor employees' Apple (NASDAQ:AAPL) iOS, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Android, and BlackBerry devices.
According to BlackBerry and Ubergizmo, BBM had 160 million registered users in June -- up from 69 million last March. Chen believes that BlackBerry can monetize these users by integrating sponsored channels and mobile payment platforms into the app.
On the surface, it makes sense to launch a smart watch. BlackBerry could hitch a ride on the growth of wearables and rising BBM usage while using its industry-standard security features to ensure secure NFC payments and messaging services.
What BlackBerry probably overlooked
Unfortunately, that would overlook BlackBerry's biggest problem -- its lacks of a dedicated smartphone user base.
If BlackBerry had launched a smart watch five years ago, it would have been an undisputed hit. Unfortunately, enterprise users are now accustomed to relaxed BYOD (bring your own device) policies. Therefore, iPhone and Android users are more likely to buy Apple's Watch or an Android Wear device, respectively, instead of a BlackBerry watch.
Meanwhile, BBM isn't as strong as BlackBerry would like investors to believe. Despite more than doubling its registered user base over the past year, monthly active users (MAUs) only rose from 80 million last October to 85 million this June. It's unclear why there's such a gap between registered and active users, but it's a clear indication that BBM should never be compared to Facebook's (NASDAQ:FB) WhatsApp, which doubled its user base from 300 million to 600 million users over the past year.
BBM isn't exclusive to BlackBerry -- it is also available for iOS and Android devices. Therefore, if BlackBerry is serious about delivering BBM to users' wrists, it will have to launch a BBM app for Apple Watch or Android Wear, rendering a first-party smart watch irrelevant.
Meanwhile, smart glasses could certainly have a place in the workplace, but Google already has a head start in this field with Glass at Work, an enterprise-facing program, which it launched in June. If Glass is upgraded to Android L (5.0), which has integrated Samsung KNOX security, it will likely conquer the enterprise market long before "BlackBerry Glass" arrives. Once again, BlackBerry would probably be better off designing an app for Google Glass instead of launching its own device.
A Foolish final thought
The only potential market I see for BlackBerry wearable devices is the U.S. military. According to the U.S. Department of Defense, BlackBerry phones still account for 90% of the military's mobile devices. Therefore, it could be an ideal market for rugged smart watches with built-in BBM capabilities, or smart glasses that can use cameras to shoot around corners (as seen with TrackingPoint's Google Glass app).
Although there's a glimmer of hope in the military market, I believe that BlackBerry should avoid exploring wearables for now and stick to introducing new phones, expanding BES, and monetizing BBM. There's just no reason for BlackBerry -- which reduced its research and development expenses by 34% year over year to $237 million last quarter -- to start spending excessively to launch "me too" wearable devices.
Leo Sun owns shares of Apple and Facebook. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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