As BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) struggles to regain relevance, it has had to face a number of giant obstacles. Now, we can add something else to that list.
On Wednesday, Facebook Inc. (NASDAQ:FB) unveiled its latest service, dubbed “Business on Messenger.” The service allows businesses to connect directly with users through Facebook’s Messenger application—this even means selling products and managing returns. For the time being, this will be offered for free.
Only a week earlier, Facebook announced that users will soon be able to send money to friends through the Messenger app. It’s pretty easy to see the company’s goal: it wants a big role to play in the e-commerce world. Its user base of 600 million will help achieve this goal.
Of course, BlackBerry has its own messenger service (BBM), and hopes to generate US$100 million per year from it. So, what effect does Facebook’s announcement have on BlackBerry? Should investors be worried? Below we take a look.
Not a direct attack
First, let’s make one thing clear. Facebook is not going after BlackBerry with this move. BBM is not an e-commerce tool at all—rather, it simply allows users to communicate with each other in a secure environment.
BlackBerry does have a service called BBM Channels, which lets you “post messages, share pictures, spark discussions, and chat directly with your subscribers.” In other words, a user can broadcast messages to a large group of people. However, it doesn’t allow businesses to directly interact with customers.
Does this mean BlackBerry’s shareholders can relax? Absolutely not.
A big threat long term
BBM may not be an e-commerce tool now, but that could change before long. BlackBerry is testing its BBM Money service in Indonesia, which allows users to send money to each other. In the long term, the company has the same goals as Facebook—to turn its messaging service into an e-commerce tool. Mr. Chen’s US$100 million target depends on this goal being met.
Let’s face the facts. If BBM and Facebook Messenger start competing head-to-head in e-commerce, BBM will lose badly. The reason is quite simple: network effects. In plain English, retailers won’t sign up with BBM because there aren’t enough users. Meanwhile, users won’t use BBM because there aren’t enough retailers. It’s a vicious cycle that’s nearly impossible to break.
It gets worse
Facebook has another advantage over BlackBerry: it doesn’t have to charge for this new service. Instead, it could simply collect the data from all these business-to-consumer interactions, and use this data to improve its advertising business. Meanwhile, BlackBerry is forced to charge a hefty fee to generate any substantial revenue. In today’s world, retailers may not be willing to pay such a price.
So, investors have every reason to be worried. It’s one more reason why BlackBerry’s revival is a long way away.
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