BBM Won’t Save BlackBerry

After the successful release of BBM on iOS and Android this week, is there promise in the ailing tech company?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

In the 1930s, there were 2,000 car manufacturers in North America. Today only three are left in the United States — and they’re barely holding on. While the automobile was a tremendous benefit for consumers, it was a raw deal for investors.

The same could be said about the instant messaging space today. With dozens of different applications, the industry is bound for a round on consolidation. After the successful release of BBM on iOS and Android this week, many expect BlackBerry (TSX: BB, NASDAQ: BBRY) to be one of those survivors. But investors shouldn’t count on it.

BBM: too little, too late
There’s finally some good news out of Waterloo this week. BlackBerry’s instant messaging app was opened to Android and iOS users, and it appears to be a hit. The company announced that more than 10 million people signed up for the service within 24 hours of its release. BlackBerry claims to be processing new users at a rate of 500,000 per hour.

The move is long overdue. Just a few years ago, the company dominated mobile messaging. BBM was the killer app that brought consumers into the BlackBerry ecosystem. But had the service been made available on multiple platforms right from the start, BlackBerry could’ve overpowered the competition and may have survived today as a social network of sorts.

But now it might be too late. Today the space is littered with rivals including iMessage, Skype, Google Hangouts, FaceTime, SnapChart, Kik, WhatsApp, and dozens of others. With so many competitors, BlackBerry’s first-mover advantage is gone.

Of course, the obvious counterargument is that opening BBM would’ve eliminated a compelling draw to buy a BlackBerry device. Indeed, hardware, not chat apps, were the company’s bread and butter.

But there are some pretty compelling examples in the technology industry where openness was the right move. When Apple released iTunes on the PC, it eliminated a big draw to buy a Macintosh. But the move opened the iPod to the 95% of public who owned a PC. Once a user’s first iPod became their first iPhone and they saw how good the software was, many switched to a Mac altogether.

What does the future hold for BBM?
Taking off our 20/20 hindsight goggles for a moment, what does the future hold for BBM?

The industry is ripe for a consolidation. Much like what we’ve seen in the smartphone space, industries that benefit from network effects or economies of scale tend to collapse into two or three major players. Could BBM survive? It certainly has a large and loyal user base. But going up against competitors like Apple, Google, and Microsoft will be a challenge.

Even if BBM survives, what then? There’s no clear business model. Many messaging services are free and only derive revenue from games or gimmicks.

BlackBerry bulls will point to the success of Facebook in monetizing its mobile app through ads. But Facebook is a mature platform with 1.1 billion users. If you were a business, where would you rather park your marketing dollars?

It’s also hard to compete when your other competitors act like non-profits. Smaller rival WhatsApp is popular because of its position against advertising. Will users drop BBM when their feed is flooded with pop ups for the Goo Goo Dolls and Mercedes Benz?

These aren’t knockout arguments against BBM. The service could survive. BlackBerry could monetize its user base. But it’s a highly risky bet that is more suitable for venture capitalists and angel investors. Even assuming the most optimistic scenario, BBM may only be worth $5 per share.

Foolish bottom line
Like the auto industry of the 1930s, the mobile messaging space is poised for a consolidation. But even if BBM survives this phase, it might not be a lucrative opportunity for investors. That’s too bad. It didn’t have to be this way.

More from The Motley Fool
Interested in a top small-cap stock idea from The Motley Fool’s senior investment advisor? Click here to download a FREE copy of “A Top Canadian Small Cap for 2013 — and Beyond.”

Disclosure: Robert Baillieul doesn’t own shares of any company mentioned in this article. David Gardner owns shares of Apple and Google. Tom Gardner owns shares of Google. The Motley Fool owns shares of Apple, Google, and Microsoft.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

growing plant shoots on stacked coins
Dividend Stocks

2 Oversold TSX Dividend Stocks to Buy Now and Own for 25 Years

These top TSX dividend stocks look oversold and now offer attractive yields for TFSA and RRSP investors.

Read more »

money cash dividends

Passive-Income Power: How to Make $105/Week TAX FREE in a Bear Market

Investors may want to pursue a passive-income strategy in this bear market by snagging dividend stocks like Freehold Royalties Ltd.…

Read more »

Money growing in soil , Business success concept.
Energy Stocks

3 Growth Stocks up +30% in 2022

These three growth stocks are up over 30% in 2022 alone but have come down in the last few weeks…

Read more »

Oil pumps against sunset
Energy Stocks

2 Energy Stocks That Jumped Over 60% This Year

Consider investing in these two energy stocks amid the recent pullback after putting up stellar gains earlier this year.

Read more »

Profit dial turned up to maximum
Dividend Stocks

RRSP Investors: 2 Undervalued TSX Stocks to Buy Now for Total Returns

Top TSX dividend stocks are now on sale for RRSP investors seeking attractive total returns.

Read more »

TFSA and coins
Dividend Stocks

2 Beaten-Down Stocks to Buy for Your TFSA

Two beaten-down, but high-yield TSX stocks are profitable options for TFSA investors.

Read more »

Volatile market, stock volatility
Stocks for Beginners

3 Top TSX Stocks to Buy in Volatile Markets

Sitting on cash? Consider these three TSX stocks for the long term.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

Inflation Soars to 7.7%: 1 Dividend Stock to Buy Now

Enbridge (TSX:ENB)(NYSE:ENB) stock looks like a magnificent dividend stock to help Canadians deal with inflation at 7.7%.

Read more »