Last month BlackBerry announced a huge change in its hardware strategy by implementing a joint venture with FoxConn, the Taiwanese giant of the electronics manufacturing industry. John Chen disclosed that the two companies plan to build their first phone together for the Indonesian market, and it will be built in a new Indonesian factory. Obviously there is no reason such a phone news to be sold only in Indonesia, so I’d expect it to hit multiple markets going forward.
One year ago, cheap smartphones (off contract) were hard to come by in the developed world. And in emerging markets there were plenty of cheap Android phones, but they were mostly coming from brands most of us are unfamiliar with. We tend to know names like BlackBerry, Samsung, Apple, HTC, LG, Motorola, and Nokia. We’re usually a bit more hesitant to buy a phone from an unknown brand.
In February 2013 Nokia announced the Lumia 520. And even today, early in 2014, it is selling very well for under a hundred bucks with no contract or carrier subsidy. It’s sold out in many places, and demand is absolutely solid. It is by far the best selling Windows Phone on the market. This, to me, is really fascinating. It’s the first example that I can remember where we’re seeing a respected brand name put out a decent smartphone at an incredible price.
A few years ago I was at BlackBerry’s Wireless Enterprise Symposium (WES) conference and I was lucky enough to be put in touch with the Chief Marketing Officer of Indosat, one of the major Indonesian carriers (Thanks for that, Rob!). At the time BlackBerry handsets were dominant and expensive. This Indosat executive told me that if only we could see a $100 smartphone volume would grow ten-fold.
Up until very recently the only low cost option was Android. Period.
The Android market, especially in China, has seen sub-$100 hardware for a while. But now here we are in 2014 almost one year after the Lumia 520 hit the scene. Nokia (soon to be Microsoft) is scooping up market share with its low cost smartphone. Sure, the specs are nothing overly impressive. A 480 x 800 screen is hardly competition for the Z30, Galaxy S4 or iPhone 5s. But the price points are radically different and the market for this phone, in many cases, is first time smartphone buyers on a budget. Up until very recently the only low cost option was Android. Period.
So this brings us to the BlackBerry “Jakarta”. We’ve been told BlackBerry can have this device manufactured by Foxconn for significantly less than what it costs them to make current devices. I assume they’re comparing it to the Q5. Plus, BlackBerry doesn’t have to take any inventory risk or do hardware design work. Foxconn is doing all of this. The question is, how much less will it cost? Can BlackBerry put this phone on the market at $99? Depending on the specs it goes out with, I think it has to be under $150. For entry-level smartphone buyers there are too many other decent options below $150 in emerging markets.
The question is, how much less will it cost? Can BlackBerry put this phone on the market at $99?
One Wall Street analyst said BlackBerry should entirely stop making high end phones. I didn’t hesitate to say that I thought it was a stupid idea. Of course they need high end devices to sell to the enterprise market. Executives aren’t going to use a Q5-class device. But as long as they have a competitive OS (BlackBerry 10) and a big audience of users in emerging markets, they absolutely have to kick ass at the low end of the market, even if it is a break-even venture.
If BlackBerry fails to compete effectively at the low end of the market, those customers will be 100% served by Google and Microsoft. BlackBerry will be left with nothing worth hanging onto in the hardware market. They wouldn’t have enough market share to support a decent application ecosystem. Without big enough numbers, hey may as well shut down the hardware business entirely, get rid of App World, SDK development, software engineering on BB10, and everything else related to BlackBerry hardware. They’d become purely focused on enterprise mobility management and mobile messaging (BBM).
I don’t say this to be bearish or negative. It’s just reality. If you want to stay in the operating system game (and continue making devices), you have to own enough market share to be a player. Right now this is a big question mark. If they’re going to stay in the device business I think the BlackBerry and Foxconn relationship will need to prove itself rather quickly.
Can they do it? I can’t see what would stop them aside from the all-important and ever-frustrating issue of execution. The biggest difference between a low cost Lumia or Android versus a low cost BlackBerry 10 device would be the operating system you install on it. Sure, there are some spec requirement differences, there really isn’t anything different enough about BB10 hardware to significantly change the bill of materials cost.
By moving to Foxconn, BlackBerry at least has a fighting chance in the emerging markets. Let’s hope they fight a good fight.