7 Reasons Microsoft Should Buy BlackBerry
The Canadian insurance and investment company Fairfax Financial Holdings has offered to buy BlackBerry. Here's why Microsoft should swoop in instead.
Yes, the Canadian billionaire investor Prem Watsa's insurance and investment company Fairfax Financial Holdings (OTCMKTS:FRFHF) has already announced its intent to acquire the former leader of the smartphone market for $9 per share. However, a cash-rich company like Microsoft could probably throw a wrench in that process and make its own offer. Here are seven reasons why it should.
1. It's Cheap.
Simply put, BlackBerry has a very dubious future. After its great fall from smart dominance, the company has failed to recapture its once sweeping share of the market, even with its new devices and operating system, BB10, which were introduced earlier this year. Because it will not likely make it on its own, BlackBerry could be bought for a discount, as its enterprise and safety features, rich collection of patents, and years of experience in the field make it a still-valuable asset.
Microsoft is paying $7.2 billion for Nokia, with $5 billion going toward hardware and $2.2 billion going toward patents and licenses. BlackBerry's market value is $5.3 billion, a figure that may undervalue the company, according to some analysts, given the installed base of BlackBerry users is larger than that of Nokia's Windows Phones users.
Whether or not it is undervalued, Microsoft is a cash-rich company. It's also a far-off number three in US market share of smartphones, behind Apple's (NASDAQ:AAPL) iOS and Google's (NASDAQ:GOOG) Android. The move to acquire Nokia is central to Microsoft's push to control its own hardware production, and to bite into the massive market shares of Apple and Google. Why not pick up BlackBerry for a price substantially lower than that paid for Nokia?
2. It Offers Security.
BlackBerry's ability to provide security is legendary; as Ken Hess wrote for ZDNet, "It's no secret that security issues plague Android, Windows Phones, and even iPhones, but have you heard of any BlackBerry compromises? OK, there have been one or two over the past few years but nothing like their competitors."
BlackBerry has been used for years by the government, corporations, and hospitals because it has excellent enterprise and security functionality. Today, Android and iOS are beginning to creep into government and corporate use with new security technology, but their holds in enterprise, corporate, and government markets still cannot rival BlackBerry's.
Moreover, as Hess wrote, "Businesses trust Microsoft... [the company] develops and supports the operating system. If there's a security breach, there's only one direction that you can point your finger to: Microsoft. They'll fix it, too. And they don't rely on a community of disconnected but benevolent programmers to fix something."
So take a software company that businesses still rely on, add the smartphones preferred by anyone who needs secure communications (yes, President Obama uses a BlackBerry), and you've got something interesting.
For a cheap price, Microsoft could acquire BlackBerry and all of its prized security technology. "Microsoft could use the technology, make the BlackBerry attractive again, and create a mobile device desired by businesses. They would have almost no legitimate competition in that realm," wrote Hess.
3. It Offers Instant Market Share.
According to an IDC press release last month, Windows Phone has a 3.7% share of the worldwide market for smartphone operating systems, up from 3.1% in 2012. In the second quarter of 2013, Microsoft shipped 8.7 million devices, up from 4.9 million in the second quarter of 2012. A full 81.6% of Windows Phones shipped during the second quarter of 2013 were manufactured by Nokia. Now 3.7% is obviously a smaller number compared to Android's monster 79.3% and Apple's 13.2%, but in some key markets like France and the UK, Windows Phone is closing in on 10% of market share.
At the same time, BlackBerry came in with a 2.9% market share, with shipments down 11.7% year-over-year. Though that is disappointing for BlackBerry, if Microsoft were actually to acquire the company, it would immediately bring Microsoft's market share to 6.6% Given that Windows Phone's market share grew only 0.6% from August 2012 to August 2013, that would constitute a substantial -- and immediate -- increase. With an acquisition, Windows could gradually transfer those BlackBerry users over to the Windows Phone platform and continue to develop its third place position in global smartphone sales.
As the icing on the cake, BlackBerry still retains strongholds in overseas markets like the Middle East and Indonesia where the slower proliferation of technology has left its reign still somewhat intact.
4. It Offers Killer Mobile Messaging.
BlackBerry has been developing its proprietary messaging app, BlackBerry Messenger, for both iOS and Android systems. The app, arguably the company's most popular application for consumers, could become a new way of communicating on the currently dominant platforms. Unfortunately, the move to bring Messenger to iOS and Android was delayed, but it will likely soon be back on tract. If Microsoft scoops up BlackBerry, it would possess another fully-fledged way to connect users -- and not just on Windows Phone devices. Moreover, BlackBerry Messenger would offer Microsoft access to the app's interactive consumer data. And Messenger, just like the rest of BlackBerry's platform, is very secure.
5. It Offers a Lot of Patents.
In an article written last month, Michael J. de la Merced and Ian Austen of the New York Times noted:
Though BlackBerry's fortunes have declined greatly, QNX Software Systems, the company that build the OS behind BlackBerry 10, remains a highly stable OS provider for companies as diverse as General Electric (NYSE:GE), Cisco (NASDAQ:CSCO), and General Motors (NYSE:GM).
Analysts generally suggested that BlackBerry's most attractive asset is its intellectual property, including some of its software and its various cell phone patents. Among its most desirable holdings is QNX Software Systems, a company that made the advanced operating system that underpins BlackBerry's new line of BlackBerry 10 phones.
QNX is valuable, and so are many more of BlackBerry's patents. In a world where Apple and Samsung (OTCMKTS:SSNLF) are constantly fighting lengthy legal battles over patent disputes, where patents can be used to raise massive licensing revenue, BlackBerry's portfolio is nothing to shake a stick at. Microsoft already extracts massive licensing fees from the manufacturers of Android devices, as Microsoft owns patents to key elements of the Android system. Those numbers are not public, but estimates ranges from $430 million to $3.4 billion per year.
The BlackBerry patents may not be as strategically valuable, but QNX and other valuable properties would certainly contribute to Microsoft's already impressive stable of patents.
6. It Offers Vital Personnel.
Though he is leaving the company, Microsoft CEO Steve Ballmer's vision for the company is likely to remain intact: He wants the former leader of software to become a devices-and-services company. As Microsoft is very young in terms of hardware production, the acquisition of BlackBerry could also bring valuable hardware engineers to the company. Highly skilled engineers take a long time to recruit and hire, and Microsoft could have a stable of experienced workers instantaneously (that is, if those workers stick with the BlackBerry brand). And not only could BlackBerry engineers help Microsoft in its efforts to begin production of its own quality smartphones, but they could also bring fresh ideas to other Microsoft products, like the Surface tablet.
7. It Offers a Smart Start on Smart Cars.
Remember QNX Software Systems, the OS development company that BlackBerry owns? Well, the company has a strong hold in a currently up-for-grabs segment of the tech market: smart cars. I mentioned that several companies, including General Motors, use QNX software; it is integral to GM's OnStar service, and it is also used for the onboard computer for Audi and BMW.
As no one company fully dominates the connected cars market, Microsoft acquiring BlackBerry could give it a big head-start on taking control of the growing market. As de la Merced and Austen wrote in their Times story, BlackBerry intends to "use QNX's automotive ties and its unique global data network to allow car companies to update vehicle software through wireless networks and to monitor vehicles' mechanical state."
If Microsoft were to acquire BlackBerry, it could do just that -- and more: It could establish Windows as the premium operating system for smart cars. It's somewhat pie-in-the-sky, but a company that is both as troubled and cash-rich as Microsoft should definitely be aiming high.
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Follow me on Twitter: @JoshWolonick and @Minyanville
Disclosure: Minyanville Studios, a division of Minyanville Media, has a business relationship with BlackBerry.
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