The mobile device management (MDM) market is a fairly new one in the IT market. In a nutshell, MDM services help companies monitor and manage their employees' mobile devices from a central location. This is an increasingly important trend and demand for MDM services is rising across the enterprise sector, due to the relaxation of BYOD (bring your own device) restrictions.
Microsoft (NASDAQ:MSFT) has three MDM solutions. The largest, Enterprise Mobility Suite (EMS), is aimed at large enterprises. Intune, a subset of EMS for smaller businesses, originally monitored Windows PCs, but Microsoft expanded it to manage iOS, Android, and Windows Phone devices last October. In late March, Microsoft expanded its MDM services to monitor Office 365 across all devices. But unlike the subscription-based versions of EMS and Intune, the Office 365 MDM service will be free for all commercial Office 365 customers.
However, Microsoft's interest in the MDM Market could hurt BlackBerry (NYSE:BB), which is relying on its MDM solution, BES (BlackBerry Enterprise Service), to offset its losses in smartphones. Let's take a closer look at Microsoft and BlackBerry's interest in the MDM market, which research firm Markets and Markets forecasts will grow from $1.01 billion in 2013 to $3.94 billion by 2019.
Why MDM matters to Microsoft
A $4 billion market opportunity is a drop in the pond for Microsoft, which is expected to report $94 billion in revenues in fiscal 2015. However, the MDM market is an ecosystem play rather than a revenue one.
On its own, the MDM market's future looks murky. The market is being fragmented and commoditized by a wide range of players like MobileIron (NASDAQ:MOBL), Citrix (NASDAQ:CTXS), SAP (NYSE:SAP), AirWatch, and BlackBerry. Open source MDM solutions, like Talend, are flattening price expectations. MDM products cost up to $150 per device back in 2010, but by 2013, the average price fell below $30, according to Gartner (NYSE:IT) research VP Peter Firstbrook.
As price expectations for the MDM market decline further, businesses will start expecting MDM features to be bundled with cloud-based services. That's why Microsoft added MDM features to Office 365, a main pillar of its commercial cloud business, which posted an annualized run rate of $5.5 billion as of last quarter.
The Office 365 MDM solution also serves as a "freemium" gateway which leads enterprise customers toward Intune and EMS subscriptions. That can help Microsoft ramp up its presence in the larger enterprise mobility market, which Markets and Markets expects to grow from $72 billion in 2014 to $284 billion by 2019.
Why MDM matters to BlackBerry
Unlike Microsoft, a $4 billion market opportunity matters financially to BlackBerry, which reported just $3.3 billion in revenues in fiscal 2015. Last quarter, nearly 90% of BlackBerry's top line, which fell 32% year-over-year, came from hardware and services. Just 10% came from software, which rose 20% annually to $67 million.
BlackBerry believes that its software segment -- which houses BES, its embedded OS QNX, and BlackBerry Messenger (BBM) -- can eventually offset its losses in hardware and services. Yet BlackBerry finished fiscal 2015 with $234 million in software revenue, which missed its prior target of $250 million. This could make it tough to achieve the company's lofty goal of more than doubling software revenue to $600 million in fiscal 2016.
BlackBerry tried to accelerate the adoption rate of BES with its EZ Pass program, which let businesses swap BES 5 or competitors' MDM licenses for free BES 10 trial licenses, which could be upgraded to BES 12. The EZ Pass program ended with 6.8 million licenses issued, but BlackBerry didn't disclose how many EZ Passes were converted to paid subscriptions since the program ended on Jan. 31.
BlackBerry is optimistic about BES' ability to boost its software revenue and lead MDM customers toward its other enterprise mobility services, but that effort could be crippled by the aforementioned commoditization of the market.
The bottom line
Microsoft's addition of MDM services to Office 365 was a clever move which gives the company three mobility solutions for small, medium, and large enterprise customers. While it may not generate much revenue on its own, it will enhance its commercial cloud and enterprise mobility ecosystems. But that move, which further flattens price expectations for MDM services, could curb BlackBerry's ability to turn BES into a major source of revenue.