BlackBerry (NYSE:BB) recently announced the Priv, its first Android phone. CEO John Chen claims that the device, which will arrive by the end of this year, will combine "the best of BlackBerry security and productivity with the expansive mobile application ecosystem available on the Android platform."
BlackBerry hasn't revealed the full specs yet, but early reports claim that the device will sport a curved screen similar to that of Samsung's S6 Edge, a slide-out QWERTY keyboard, and an 18-megapixel camera. Chen might be optimistic about the Priv's chances at success, but the odds are certainly stacked against it.
The Android market is a brutal one
Over the past few years, the Android market has been commoditized by low-margin devices. Today, there are about 1,000 smartphone makers fighting over a tiny sliver of that market. Chipmaker reference designs, which cut the development cycle of a smartphone from months to weeks, have exacerbated that problem.
That's why Samsung's global smartphone market share plunged from 32% to 21% between the second quarters of 2012 and 2015, according to IDC. Even Xiaomi, which disrupted Samsung's business in China with cheaper phones, reported slower growth in the first half of 2015 as rivals like Huawei caught up. To escape shrinking market shares and margins, Android device makers have started diversifying into new product categories like smartwatches.
It's hard to believe that BlackBerry, which controls less than half a percent of the smartphone market today, can succeed where Samsung failed.
Going with Android doesn't solve anything
This isn't the first time that BlackBerry tried to expand its ecosystem with Android. Starting with BB 10.2.1, BlackBerry users could "sideload" Android apps to their phones. That process was cumbersome compared to one-click installations, but BlackBerry users could install plenty of Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Play apps. Last year, BlackBerry signed a deal to bring the Amazon (NASDAQ:AMZN) App Store, which hosts over 400,000 Android apps, to BB10.
With 130,000 native BB10 apps, 1.6 million Google Play apps to sideload, and 400,000 Amazon apps, BB10 users have never truly been starved for apps. Therefore, it's unlikely that a fully Android device could revive BlackBerry's hardware sales.
We've heard the same swan song from other dying handset makers before. Right before the sale of its handset unit to Microsoft closed, Nokia launched the Android-powered Nokia X. That device failed to gain much traction in the crowded Android market, and Microsoft quickly killed the device after the deal closed.
The slow shift to software
Many people think that BlackBerry lost the smartphone market because it failed to respond to iOS and Android devices in a timely manner. But two other key reasons are the relaxation of BYOD policies and the improved security of iOS and Android devices.
BlackBerry knows that it's losing its spot as the go-to brand in enterprise security. That's why it allowed Samsung to integrate its security technologies in its KNOX security platform, and the reason it partnered with Google to make Android more secure for enterprise users.
It's also why Chen is championing a shift toward software solutions, particularly BlackBerry Enterprise Service (BES), which acts as a central command center for mobile devices on multiple platforms. Chen believes that BES, along with BBM (BlackBerry Messenger), its embedded OS QNX, and the recent acquisition of Good Technology could drive software revenues to $500 million by the end of 2016.
The slow death of hardware
Chen likes to focus on the software and services unit's double-digit sales growth, but it still only accounted for 15% of BlackBerry's revenues last quarter. 41% still came from hardware, and 43% came from related service access fees.
Sharp declines in those two businesses caused BlackBerry's revenue to plunge 46.5% annually to $490 million, which broadly missed the consensus estimate of $605 million. BlackBerry's non-GAAP loss of $0.13 per share also missed estimates by four cents.
I believe that BlackBerry probably wants to sell or spin-off its dying hardware business, but the software and services segment still relies too heavily on the revenues it generates. As a result, BlackBerry can reduce the number of smartphones it releases annually, but it can't turn off that stream of revenue until the software segment can stand on its own two feet. Until that happens, we'll likely see more devices like the BlackBerry Classic, Leap, or Priv -- all of which are half-hearted attempts to squeeze out some more sales from its shrinking base of BlackBerry customers.