How does the Q5 add to the BlackBerry story?

Last week during BlackBerry Live, only a few major announcements were made. We’ve already discussed the cross-platform BBM launch platforms in detail but we haven’t really talked in depth about what the other announcement means to the company. Yes folks ... I’m talking about the BlackBerry Q5.

When Thorsten Heins unveiled the slick lower cost QWERTY device on stage, pretty much everyone noticed two things. First, it’s not expected to come to the US market. Instead its more of a play on emerging markets. Second, no pricing information was disclosed at all. So we’re left to guess.

Let’s touch on those points a bit more closely. BlackBerry doesn’t actually refer to “emerging markets” with this device. Their wording is “Selected markets in Europe, the Middle East, Africa, Asia and Latin America.”  In other words, it’s going to almost all areas of the world except the USA and Canada (where the Q10 is going to play a very important role).

We’ve already seen some good evidence of aggressive pricing at around £20 a month for UK customers who buy the phone on a contract. We don’t know what the sticker price for the phone will be on such a monthly tariff, but I’m betting the phone is free or next-to-free.

But that’s the UK. People still take contracts there. Not as many as in the US and Canada, mind you, and none of these are considered emerging markets. When we speak of emerging markets we usually mean places like the Philippines, Indonesia, Malaysia, Vietnam, Nigeria, Kenya, much of Venezuela, Colombia, and other countries across the world with relatively low GDP figures.

I’m pretty sure Kevin has said this already, and I’ll repeat it because I think it’s true. The Q5 essentially fills in the BB10 portfolio where the Curve brand filled in the BBOS portfolio. During its time, the Curve sold remarkably well and was priced competitively with other smartphones. So now with the Q5 coming out, I think BlackBerry needs to accomplish that exact same price positioning.

Over at BGR (be kind in the comments, please), Tero Kuittinen writes about how the average selling price of BlackBerry phones was above $300 in the summer of 2011. He goes on to say,

”This simply must change right now. The prices of relatively fancy Android models like Samsung Galaxy S Advance have drifted to the $250-270 range in emerging markets. We are talking 4-inch Super AMOLED touchscreens and 5-megapixel cameras at this level."

He then goes on to point out that there is a very competitive layer of cheap Android hardware at about $100 (which he rightfully points out is killing Nokia’s business). His conclusion is that we need to see a $200-250 price point on the BlackBerry Q5, or else it’s not going to sell well in emerging markets.

I think this is a decent analysis, but there are a few bits that I disagree with. So let’s go through it, because I think a $300 price point can still work on this phone.

I wouldn’t have necessarily chosen to compare the Q5 against an all-touch Android phone, but since the argument was made in the context of what pricing the Q5 needs to hit, let’s flesh it out. I know this isn’t a spec game, but specs do affect performance so here is a look at the Galaxy Advance S versus the Q5:

• Internal memory of 768 MB compared to 2 GB on the BlackBerry Q5. We all know this affects OS responsiveness as well as the number of apps you can keep open at any given time.
• The processor is a dual core 1 GHz versus 1.2 GHz on the BlackBerry Q5. Combine the power of BlackBerry 10 with a beefy Snapdragon processor and the Q5 is going to be a much snappier phone.
• Screen resolution on the Samsung is a pathetic 800 x 480 compared to 720 x 720 on the Q5. The BlackBerry, with a smaller 3.1” screen has 35% more pixels and 41% better pixel density. Anyone looking at these two phones will be able to see the difference as clear as day.
• No LTE
• Huge difference in battery since the Samsung comes with 1500 mAh versus 2100 mAh for the Q5, just like the BlackBerry Q10. Which phone do you think will have a better chance of getting you through an action-packed day? Keep moving :)

Bottom line - If the market pricing for the Samsung Galaxy Advance is $250-270, then on specs alone I think the Q5 justifies a higher price. But it’s not just about specs, as I’ve said.  I think everyone knows this. The Q5 is a physical keyboard phone built for people who want to do a lot of typing ... for people who are messaging centric. BlackBerry is rebuilding its entire brand around the concept of getting things done, whether this be purely social or business. 

Now let’s quickly discuss the idea of $100 cheap Android phones. Obviously the Samsung competitor above is not a $100 phone and it’s obvious that specs still significantly fall short relative to the Q5. So I’m not even going to bother doing any kind of comparison.  I’ll just say that if Samsung can sell its phone for the mid to high $200 level in a market that is already flooded with ultra low end phones built on MediaTek reference designs, this demonstrates very clearly that there is a market for more than the absolute bottom of the barrel in emerging markets. Samsung has built up a solid brand and can price its products at a premium. Guess what?  So has BlackBerry. The BlackBerry brand is not nearly as tarnished overseas as it is in North America (and they’re making a nice comeback here too). 

My conclusion: I think the right price point for the Q5 is somewhere around $300. I think BlackBerry needs to re-establish itself as a high end brand in each of its markets. In the emerging markets that means something above $250, and in the US market that means not even selling the Q5. Then, in another year or so, I think it makes sense to introduce even lower priced handsets (organically, or through BlackBerry 10 licensees.)

Financially speaking, it’s obvious that the Q5 will have less contribution margin compared to the Q10. But I expect the phone will still be profitable for BlackBerry, and perhaps drives even more volume than the “tens of millions” the Q10 is expected to sell (as per Thorsten Heins’ comments to the media). With the launch of the Q5 I’m more bullish on this company, not more bearish. 

Unfortunately we don’t know what pricing will be.  But the wait won’t be long.  It’s coming to market in July, and pricing always leaks ahead of launch. 

Until then ... let’s not sit still. Keep Moving.