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BlackBerry Ltd. Needs to Stop Making Phones and Focus on Software

BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has been trying to push the BlackBerry 10 (BB10) mobile operating system that comes loaded on BB10 hardware to users for over two years. It’s not exactly a failure as the lack of adoption has little to do with the actual operating system, but more with the hardware it runs on.

BB10 is a fluid, secure, modern operating system that can run most Android apps in addition to native apps. Couple this with the tried and tested security of BlackBerry, and what’s not to love?

Let’s take a look at what this means going forward for the company.

Stick to your strengths—and that’s not hardware

One of the many changes that John Chen has instilled since taking charge of the company is that BlackBerry is a software company first and foremost that happens to have a hardware division (for the time being).

This point is evident in quarterly calls where the focus has moved on to BES subscription numbers over device sales. Granted, device sales haven’t exactly been shattering records lately.

When it comes to software, the most impressive software BlackBerry’s portfolio really is BB10 itself. Up to now, BB10 is only available to users running a BlackBerry device, which is limiting its exposure.

If BB10 could be severed from the hardware it runs on and released to the masses on Android (which it can already run), it would be adopted more widely.

This may be where the company is heading. In a recent CNBC interview on the topic of an Android-BlackBerry hybrid device, Chen was quoted saying, “We only build secure phones, and BlackBerry is the most secure phone. So, if I can find a way to secure the Android phone, I will also build that.”

Keep in mind, most of those Android and iOS users used to be BlackBerry users, and despite all the merits to Android, users still want a secure, efficient device for communications—and when it comes to communications and security, BlackBerry is still king.

Don’t keep selling the same hardware

As good as the software is (trust me—BB10 really is that good), it all comes down to the hardware that’s running that software.

BlackBerry is notorious for incredibly slow hardware upgrade cycles. It’s so slow in some cases that newer devices have the same or even older components that were in devices a year or two older.

By way of example, just this week the BlackBerry Passport Silver Edition was announced. While the Passport is to be saluted for its unique design, innovative keyboard, and large square screen, this successor device has identical internals to its predecessor that was released 11 months ago, differing only in the outer casing. In terms of technology, 11 months is an eternity.

If BlackBerry cannot compete with the hardware that competitors can offer, those devices should not be sold, and those resources should be pooled to make BB10 even better.

Know who your customers are

BlackBerry pre-Chen had a different philosophy. It was trying to grab the consumer market, and neglecting the roots the company had in enterprise. In contrast, with Chen at the helm, the pendulum has swung entirely in the opposite direction, with enterprise now the focus, but consumers being neglected.

The lesson here is that enterprise customers are still consumers, and consumers can be enterprise customers.  Chen’s predecessor understood only the latter, and Chen is just beginning to understand the former.

Should BB10 become a hybrid with Android, BlackBerry and its investors will reap significant rewards. On the other hand, if BlackBerry continues to recycle the same device every six to eight months without an upgrade, customers (and by extension, investors) left on the platform will be inclined to start looking elsewhere.

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Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

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