BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) CEO John Chen isn’t shy about setting ambitious goals. Perhaps the best example is his US$500 million target for software and licensing revenue in FY2016.
Unfortunately, this goal now looks out of reach. In the second quarter of FY2016, BlackBerry reported just US$74 million in software and licensing revenue, which was actually smaller than the number achieved in the first quarter.
So, why has BlackBerry struggled to gain traction in this arena? We look at three reasons why below.
1. Bad perceptions
BlackBerry is trying to grow its Enterprise Mobility Management (EMM) business, but selling EMM solutions isn’t like selling toothpaste. EMM involves a deep ongoing relationship with customers, a relationship that’s very costly for both sides to break.
So, if an EMM provider went out of business, this would create a major disruption for all of its customers. This is a big problem for BlackBerry, a company that’s largely seen as being in decline.
In other words, when news breaks about BlackBerry’s declining handset business, EMM customers wonder if the company’s days are numbered. That perception makes it very difficult for BlackBerry to sell its EMM solutions, no matter how well the company is able to secure mobile devices.
2. Intensifying competition
As BlackBerry ramped up its efforts in the EMM industry, it was going up against well-established companies such as AirWatch and Mobileiron Inc. But in the last couple of years, the competition has heated up even more.
Technology giants such as Microsoft, Oracle, and IBM have gotten more involved in the industry, and are offering EMM services as part of their larger software offerings. That’s made life very difficult for the independent EMM providers. Just as an example, MobileIron’s stock price has declined by two-thirds in the past 12 months alone.
Some independent EMM providers, such as Airwatch, have been acquired by larger software vendors. But BlackBerry is committed to operating as an independent company, at least for now. It won’t be easy.
3. Licensing can’t always be counted on
BlackBerry shareholders were encouraged when the company announced US$137 million in software and licensing revenue for the first quarter. But that number included two big licensing deals, one of them with Cisco.
Such licensing deals were not to be found in Q2’s results, and this is to be expected. Big licensing deals simply aren’t going to come every quarter, so even when major announcements are made, they don’t necessarily reflect a long-term trend.
Mr. Chen expects licensing to “contribute” in the next two quarters, and is also sticking by his US$500 million goal. But shareholders should be very skeptical.
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.
Fool contributor Benjamin Sinclair has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft and Oracle.