In April 2019, Amalgam Insights attended BlackBerry’s Analyst Summit, a collection of high-profile industry analysts and financial analysts who were provided with the key highlights of BlackBerry’s accomplishments over the past year. This day included BlackBerry’s top executives including CEO John Chen, President and Chief Operating Officer Bryan Palma, Chief Financial Officer Steve Cappelli, Chief Marketing Officer Mark Wilson, Chief Technology Officer Charles Eagan, and a collection of subject matter experts across security, the Enterprise of Things, mass communications, and Blackberry’s key verticals including automotive, government, and healthcare.
Above all, the key takeaway from BlackBerry’s Analyst Summit is that BlackBerry’s transformation into a software and services company is complete.
A Successful Transformation
When John Chen first joined Blackberry roughly 2000 days ago, BlackBerry was a 7 billion dollar mobility company focused on its once-iconic handsets, but losing money hand-over-fist in the era of the iPhone and Android. Although Apple and Google had taken over the handset market, BlackBerry’s leadership at the time was reluctant to take the hard steps necessary to transform into a digital company and to take full advantage of its intellectual property. In this 2011-2012 time period, I was among the analysts who were criticizing BlackBerry for its inability to separate devices, software, and services and hoped that BlackBerry would move to Android, QNX (a 2010 acquisition) or another operating system that would be more flexible and app-friendly than BlackBerry.
In that perspective, John Chen came into BlackBerry with a straightforward goal: transform BlackBerry into a profitable digital company before BlackBerry’s cash reserves ran out. Although BlackBerry had considerable intellectual property, especially from a mobile security perspective, BlackBerry also faced the practical issue that the vast majority of its operations and personnel were focused on the handset market. Over the past five years, Chen and his team conducted the hard work of slowly slicing away at the handset business while putting increased focus on software and services. And BlackBerry identified its focus on what it calls the Enterprise of Things: the ecosystem of sensors, things, and computing associated with enterprises and organizations requiring governance.
Over that time, BlackBerry has transformed over the past five years from a handset company with a 36% gross margin and losing about $400 million per year in cash into a company that has 90%+ of its revenue coming from software and services, a 78% gross margin, and positive operating income. And, most importantly, BlackBerry has evolved beyond being a handset company and sold its last handset roughly six months ago.
BlackBerry has made a transformation that even Chen thought was a 50/50 proposition when he first started and that many pundits thought was potentially even less likely. Today, BlackBerry is a software and services company focused on providing security, privacy and control for the next generation of Things in the enterprise and government.
“With the era of Blackberry handsets officially ending from a business perspective in 2018, Blackberry has successfully transformed into a software and services company by conducting a difficult digital transformation from hardware to software.” – Hyoun Park, Principal Analyst
BlackBerry As A Practical Example of Digital Transformation
In a world where the term “digital transformation” is overused and overstated, Amalgam Insights believes that BlackBerry is an example of true digital transformation. BlackBerry’s legacy products, the handsets, already had digital components in them but BlackBerry’s business was based on hardware manufacturing and physical distribution. Although BlackBerry still has some custom hardware and endpoints, the business fundamentally transformed into a true digital company where the majority of core assets are defined as intellectual property that can be digitally delivered or provided through the cloud rather than physical inventory.
And it is easy to look back in retrospect and simply say that BlackBerry had to conduct this transformation. (Heck, I was on that bandwagon myself as an analyst.) But many companies over the past decade have had similar challenges as formerly dominant companies with strong cash reserves and a clear path forward that refused to transform: Blockbuster, Sears, Borders. One can even look at software companies that have struggled to move from on-premises to the cloud, such as BMC Remedy, Teradata, and the massive Oracle and SAP Customer Relationship Management systems overtaken by Salesforce. There is always another level of digitization and simplicity to achieve as business environments evolve and BlackBerry took the difficult step of delivering on that transformation.
Going forward, BlackBerry should be both analyzed and critiqued solely on software, services, and the strength of its intellectual property as the basis of both the strength of the company and its technology portfolio.
BlackBerry Analyst Day: Product and Platform Highlights
All that said, BlackBerry Analyst Day was not just focused on the past, but on the present and future of BlackBerry. John Chen kicked off the event by describing the key focus areas of BlackBerry being security, privacy, and control with a focus on BlackBerry’s secure IoT platform, BlackBerry Spark, and the recently Cylance acquisition. Chen joked that BlackBerry became profitable only for Chen to spend all that money ($1.4 billion, for those keeping count) on Cylance.
Cylance was an interesting acquisition for BlackBerry both because of Cylance’s ability to enhance BlackBerry’s Unified Endpoint Management and QNX operating system as well as Cylance’s advances in behavioral analytics security and its direct-to-consumer commerce channel through Amazon. The CylancePERSONA offering includes continuous monitoring of biometric behavior (such as measuring the dwell time, flight time, latency, and intervals between keystrokes and mouse movements), user conduct behavior, real-time detection of anomalous behavior and contextual identification of location, time, and login methods. This combination of capabilities provides a security method that focuses on the user rather than passwords or other third-party authentication methods that ignore anomalous behavior. CFO Steven Capelli pointed out that BlackBerry was providing guidance of 25%+ growth in BlackBerry Cylance over the next year.
BlackBerry’s Unified Endpoint Management continues to be a highlight for the company. One of the examples BlackBerry brought out for Unified Endpoint Management involved supporting over 10,000 users with less than one full-time equivalent (FTE) focused on mobile architecture, which is a level of efficiency Amalgam Insights estimates to be Best-in-Breed especially since it is not uncommon to see organizations assign an FTE to the management tasks of a mobile fleet starting at 1,000 devices.
QNX continues to be a market leader in automotive systems adopted by auto brands including Audi, BMW, Fiat Ford, GM, Honda, Subaru. QNX has turned out to be a powerful solution in the BlackBerry portfolio in managing the future of connected things with embedded computing and media capabilities. The QNX story is still one in progress as “Things” continue to get smarter and need improved operating systems, management, and interfaces.
Defining Market Positioning for BlackBerry Spark
A personal highlight was in seeing Geoffrey Moore describe the potential for BlackBerry Spark as an Internet of Things platform. Based on his work consulting for the company and with a set of frameworks across his previous published works, Moore broke down BlackBerry’s positioning in avoiding the “general” security use cases that only required a minimum level of competence and focused on specialized and high-value use cases, such as in government, public safety, financial services, healthcare and automotive. As Moore pointed out at one point in digital banking, “If people can get your 0’s and 1’s, the can get your net worth.”
In using BlackBerry as a case study to describe the need for differentiation and road to growth, Moore provided a master class to an audience of experienced analysts and business consultants on how to translate theory and frameworks into specific directional guidance for a single business to pursue profitability and evolve into a multi-billion dollar platform over time. Over the next several years, one of the key tasks that industry and financial analysts face is to track BlackBerry’s progress in executing on the roadmap that Moore provided.
Moore’s positioning was bolstered from a technical perspective by CTO Charles Eagan, who provided guidance on how Spark would support more intelligent security capabilities and improved compliance across government, banking, logistics, and mass communications use cases. In showing each use case, BlackBerry demonstrated how it identified specific use cases, developed best-in-breed solutions, then gained significant market share in each space. This playbook has become more structured over time for BlackBerry after several years of experimentation in the software and services market.
As an industry analyst, it is beyond the scope of my work to determine whether BlackBerry “impressed” the public market and financial analysts from a quantitative perspective. However, it is apparent that BlackBerry has pivoted its focus into supporting high-value security and governance use cases, gained focus on how to effectively identify and support niche markets over time, and then build on top of prior successes in expanding the value of its platform. With this focus, BlackBerry can also now focus on strategic acquisitions, as seen with the Cylance acquisition, that align to BlackBerry’s long-term goal of securing the “Enterprise of Things.”
For John Chen, it’s Mission Accomplished once again as he has transformed another company from a last-generation company to a this-generation company by focusing on core strengths, digital trends, and focused execution. At this point, the question is not whether BlackBerry will successfully transform or whether it will be profitable, but how quickly BlackBerry can execute on its market execution and in covering all the high-value areas that require a higher level of technical or personalized security that can be supported through standard and commoditized security solutions. With the acquisition of Cylance, the continued success of QNX for auto, the success of AtHoc in mass communications, and the BlackBerry Spark platform across security use cases, BlackBerry is poised for future growth.