Industry Landscape

Internet of Things

The Internet of Things (IoT) is the interconnection via the Internet of computing devices
embedded in everyday ob- jects, enabling them to send and receive data. IoT has the
potential to be the next great computing era overlapping and extending the mobile era and,
of course, the PC era, which still clings to relevancy. BlackBerry’s software aims to provide
the embedded intelligence to secure the Enterprise of Things so that the Internet of Things
can thrive.16 451 Research, a preeminent information technology research and advisory
company, breaks IoT down into four subcate- gories: consumer, enterprise, government, and
vertical- specific uses. The enterprise segment of the IoT concerns the integration of IoT with
the full support of enterprise IT tools, platforms, processes, and organizational alignment.
Some vendors have taken to branding this important submarket as “The Enterprise of
Things.”17 BlackBerry de- fines the Enterprise of Things as the network of smart- phones,
computers, vehicles, sensors, equipment, and other online devices within the enterprise that
communicate with each other to enable smart business processes that span across people,
connected endpoints, and their data. The vulnerabilities in the Enterprise of Things has
opened a plethora of cybercrimes and has given a way for hackers to access enterprise
networks. This has resulted in an in- creased requirement in the Endpoint Security Software
In- dustry. The Endpoint security market is projected to surpass $7.5 billion in 2025. 18 Some
of the key players in the end- point security market include McAfee, Microsoft, and
Symantec. BlackBerry’s enterprise software portfolio in- cludes leading unified endpoint
management, secure busi- ness productivity, application containerization, secure
collaboration, and digital rights management capabilities.

Unified Endpoint Management (UEM) occupies a larger part of BlackBerry’s portfolio. UEM
revolves around securing and controlling computers, laptops, smartphones, and tablets in a
connected manner from a single console. Quite popular in the industry today, many
companies are opting for UEM. “We feel that UEM will be the best prac- tice for organizations
with diverse endpoints in their envi- ronment,” said Jason Lendvay, Assistant Vice President
of M&T Bank. “We are working towards our move to UEM in conjunction with our Windows 7
to Windows 10 migration. We see the Windows 10 OS and modern management capa-
bilities are a key enabler for our move to UEM, which is a primary reason why we are looking
to move towards UEM at this time.”19 In the Forrester Wave Report, they evaluated the 12
most significant UEM providers in the market. On a scale of 0 (weak) to 5 (strong),
BlackBerry got a 4.32 in market presence, and 5 in both Application and Network security.
One of the other leaders in the market, IBM, got a 3.68 in market presence, and 5 and 3 in
Application and Network Security, respectively (see Exhibit 3). Customers frequently cite the
security benefits of BlackBerry’s Secure Connectivity service as well as the strong app and
data-level security features included with the platform.20

Cylance, BlackBerry’s recent acquisition, shifted the nar- rative from BlackBerry’s
homegrown services to those orig- inally developed at Cylance. Cylance grew at a 92
percent year-over-year (YoY) rate during 2018 (see Exhibit 4). In its Q4 2019 Earnings
report, Chen praised Cylance, stating that in joining forces with BlackBerry Spark, it “will
make our endpoint management and embedded software prod- ucts stronger and more
essential for enterprises to generate value from the Internet of Things.” 21 Cylance uses AI
such as algorithmic science and machine learning to protect mo- bile devices, tablets and
other Internet-connected devices from cyber-attacks. Over 20 percent of Fortune 500
compa- nies use its solutions.22

BlackBerry’s QNX real-time operating system enables automakers to build secure and
scalable software solutions for connected and autonomous cars. Audi, BMW, Jaguar Land
Rover, and Toyota use the software for infotainment systems, acoustics, and dashboard
functions. QNX is em- bedded in 125 million vehicles today. The road ahead for BlackBerry in
2019 requires successful execution of strate- gies that support embedded operating
systems, Internet of Things platforms, and security solutions. 23

Smartphones

Apple, Inc. entered the smartphone industry in 2007 when its CEO, Steve Jobs, introduced
the world to the company’s new- est innovation, the iPhone. Apple had a completely
different strategy from that of BlackBerry; Apple’s strategy was to cater to all the
smartphone customers and not just the corporations. Steve Jobs and management at Apple
believed that the indi- vidual consumer would drive the next surge in the market. Clearly,
RIM’s management did not believe that the market was shifting, and BlackBerry continued
to enhance what it thought made its product great: battery life, security, and e-mail. In
2006, corporations accounted for the majority of RIM revenues, and the company intended
to keep enter- prises as its main target market. Lazaridis believed that the iPhone would be
a fad and could not understand why any- one would want an iPhone, given its poor battery
life and capacity. He was also extremely skeptical of the touch- screen keyboard. In an
interview in 2007, Balsillie said, “As nice as the Apple iPhone is, it poses a real challenge to
its users. Try typing a web key on a touchscreen on an Apple iPhone, that’s a real challenge.
You cannot see what you type.”24 BlackBerry’s inventor believed that consumers preferred
typing e-mails and messages using a physical keyboard rather than using a touchscreen. Co-
CEO Balsillie declared that the iPhone was “not a sea-changer for BlackBerry.” 25

With further developments in touchscreen phones, con- sumers cared more about iPhone
and Android phones’ ac- cess to applications rather than battery life, security features, and
QWERTY keyboards. The touchscreen smart- phones also gained traction among suppliers.
Software de- velopers found it easier to work with Android and iPhone systems as compared
to BlackBerry’s complex Java-based system. Consequently, iPhone and Android phones
experi- enced rapid growth and market acceptance, which created internal tensions within
RIM.

When it was unable to acquire a license to sell iPhones, Verizon contacted RIM with an offer
to collaborate on de- veloping an “iPhone killer,” which meant a smartphone with
touchscreen capabilities and no QWERTY keyboard. The result of this partnership was the
“BlackBerry Storm,” which unfortunately did not gain popularity among con- sumers
because the Storm’s touchscreen was not easy to use, and the device was slow and full of
bugs. RIM tried its luck with a touchscreen phone once again in 2010, when AT&T contracted
with the company to make a competitor to the iPhone. This could help AT&T to differentiate
itself from Verizon, which now had obtained licenses for the sale of the iPhone. The result
was the “BlackBerry Torch,” but this too was not a commercial success.

Even though iPhone and Android phones were gaining market share rapidly, Lazaridis
remained optimistic about the BlackBerry’s sustainable advantage. He warned his fel- low
RIM directors in a board meeting that trying to sell all- touch smartphones in a crowded
market would be a huge mistake. Lazaridis maintained full confidence that RIM would catch
up to Apple and Google (Android) with their newest device, the BlackBerry 10. While
developing the BlackBerry 10, Lazaridis decided to acquire QNX Software, a leading-edge
software maker. QNX had the technology that the BlackBerry 10 operating system needed.

Despite RIM’s diminishing position in the industry, its management continued to remain
optimistic. Andrew MacLeod, former managing director for the United States and Canada,
stated, “I am heartened by the fact that we have tons of assets-IP assets, technology assets.
We have a culture that at its core is about innovation and are in an industry that moves
incredibly fast.”26 This signaled that there was a belief internally at BlackBerry that its core
competencies could redefine the industry with new innovations. Lazaridis solidified this
notion in an interview to the Globe and Mail: “Many companies go through cycles. Intel
experienced it, IBM experienced it, and Apple experienced it.” He went on to say, “People
counted IBM, Apple, and other companies out only to be proven wrong. I am rooting that
they are wrong on BlackBerry as well.”27

To generate revenue for RIM, Balsillie saw great poten- tial with the BBM messaging service
as well. The BBM messenger was developed as an application for the Black- Berry in 2005,
and it enabled users to communicate by us- ing their devices’ PIN numbers. The BBM was
innovative and is credited with being the first instant messaging ser- vice on wireless
devices. Among the BBM’s key strengths were its reliability and the fact that users could
send an un- limited number of messages without any extra cost, unlike standard SMS text
messaging. Further, the messaging ser- vice was very secure and gave users the privacy
they sought. With increasing competition and the decreasing sales and market share of
BlackBerry, Balsillie wanted to make the BBM platform available on all devices. He
envisioned that telecom carriers could integrate BBM as their own en- hanced version of
SMS text messaging. This could generate additional sales for the carriers, which would get
RIM a per- centage of the carriers’ revenues.

In 2019, Emtek, the company that took over the BBM in 2016, announced that it would be
shutting down the BBM consumer service on May 31, 2019. In a blog post they explained the
unsuccessful efforts to revamp the once popular application: “The technology industry
however, is very fluid, and in spite of our substantial efforts, users have moved on to other
platforms, while new users proved difficult to sign on.” 28

Operations of BlackBerry

Under Chen’s leadership, BlackBerry intended to return to its core strengths that catered to
enterprises with security and efficiencies. Chen’s first task as CEO was to restruc- ture the
operating units. By 2019, the company had four distinct operating segments from which it
drew revenue: Enterprise Software and Services; BlackBerry Technology Solutions (“BTS”);
Licensing, IP and Other, Handheld Devices; and Service Access Fees (“SAF”). 29 Chen believed
this structure would lead BlackBerry to an increased focus on software services. BlackBerry
also continued to remain popular with governments; all seven G7 countries’ govern- ments
were BlackBerry customers.

Chen is highly credited for his turnaround strategy in- volving BlackBerry. Prior to
BlackBerry, he steered Sybase’s trajectory toward financial gains. Chen pivoted the data-
base and business services company into the emerging mobile information sector. The move
proved brilliant. Mobile information generated hundreds of million dollars in annual revenue,
returning Sybase to profitability.30 Sybase was then sold to SAP for $5.8 billion. After he
came to BlackBerry in 2013, his strategy to put aside the mobile hardware business and
shift BlackBerry’s focus to cyberse- curity and embedded software has proven successful for
the company, with the majority of its revenue and growth com- ing from its software and
services.

Although BlackBerry’s revenue had dropped from $19.9 billion in FY2011 to $904 million in
FY2019, its stock be- gan to climb out of a deep dive as revenue and profits beat
expectations, in comparison to the past couple of years. CEO John Chen estimated that
BlackBerry’s current 2020 financial year would see a revenue growth of between 23

and 27 percent.31 (see Exhibits 5 and 6 for detailed informa- tion regarding BlackBerry’s
financial situation).
Competition

BlackBerry’s software security division consists of a long list of companies providing a wide
range of different types of enterprise security. However, BlackBerry Limited specializes in
Mobile and Data Security for Enterprises. Providers of enterprise software solutions that
compete with BlackBerry’s BlackBerry Enterprise Mobility Suite include VMware Inc.,
Microsoft Corporation (“Microsoft”), Citrix Systems, Inc. (“Citrix”), MobileIron Inc., SOTI Inc.,
Sophos Ltd., and IBM Corporation. Providers of endpoint security technolo- gies that
compete with the BlackBerry Cylance platform in- clude McAfee, Microsoft, and Symantec.
Providers of embedded software that compete with the Company’s Black- Berry QNX
automotive business include customized Linux open-source operating system providers,
Wind River Sys- tems, Green Hills Software, Mentor Graphics Corporation and SYSGO AG. 32
Although BlackBerry does not consider itself to be in the smartphone market anymore,
BlackBerry’s two most significant competitors in the smartphone indus- try were Apple and
Samsung Electronics Co.

Microsoft Corporation

Established in 1975, Microsoft initially entered the Operat- ing System (OS) business in 1980
with their own version of Unix, called Xenix. Enterprise Mobility + Security (EMS) is a bundle
of Microsoft products that includes Advanced Threat Analytics, Azure Ad Premium, Azure
information Protection, Cloud App Security, intune, and System Center Configuration
Manager (ConfigMgr).33 Although competi- tors in the Unified Endpoint Management market,
in 2018, BlackBerry and Microsoft partnered to offer enterprises a solution that integrates
BlackBerry’s expertise in mobility and security with Microsoft’s unmatched cloud and
produc- tivity products. Carl Wiese, president of Global Sales at BlackBerry explained the
alliance: “We saw a need for a hyper-secure way for our joint customers to use native Office
365 mobile apps. BlackBerry Enterprise BRIDGE addresses this need and is a great example
of how BlackBerry and Microsoft continue to securely enable workforces to be highly
productive in today’s connected world.”34

VMware

VMware is a global leader in cloud infrastructure and digi- tal workspace technology that
accelerates digital transfor- mation for evolving IT environments. Over the past year,
VMware has invested heavily in helping customers embrace modern management with
AirWatch, an enterprise mobil- ity management (EMM) technology that powers VMware
Workspace ONE. Workspace ONE provides unified end- point management and a seamless
user experience for ac- cessing any app on any device, across knowledge worker, line of
business (LOB), high security, and any other use case in organizations. In 2019, Dell
introduced Unified Workspace, a comprehensive solution to help IT deploy, se- cure,
manage, and support endpoints from the cloud. Dell teamed up with VMware; Workspace
ONE transforms and automates every phase of PC management—from configura- tion to
onboarding to pushing regular updates—and is the backbone of Dell Technologies Unified
Workspace.35

McAfee

A familiar name that comes to mind when we think of cyber security is McAfee. Its products
help secure computers, endpoints, networks, and cloud from viruses, malware, and other
security threats. McAfee was pur- chased by Intel in February 2011 to build Intel’s security
division of online computing. “With the rapid expansion of growth across a vast array of
Internet-connected de- vices, more and more of the elements of our lives have moved
online,” said Paul Otellini, former Intel president and CEO. “In the past, energy-efficient
performance and connectivity have defined computing requirements. Look- ing forward,
security will join those as a third pillar of what people demand from all computing
experiences.”37

In 2014, Intel announced the availability of a family of hardware and software products
called Intel® In-Vehicle Solutions, which were paired with McAfee’s whitelisting technology
from Intel Security to fully secure the con- nected car. CRN, a brand of The Channel
Company, added McAfee to its 100 Coolest Cloud Computing Com- panies of 2019 list, and
its annual Security 100 list.38

Wind River Systems

Wind River is a world leader in embedded software for in- telligent connected systems. In
2018, Wind River an- nounced that it would be acquired by TPG, a global alternative asset
firm. TPG was acquiring Wind River from Intel. Nehal Raj, Partner and Head of Technology
investing at TPG said, “We see a tremendous market opportunity in industrial software
driven by the convergence of the Internet of Things (IoT), intelligent devices, and edge
computing.”39 In 2019, Wind River announced its achievement as the leader in continued
embedded real-time operating system (RTOS) and commercial Linux revenues, according to
VDC Research. The company also ranked as the leading commercial provider of both
embedded hypervisors and safe and secure operating systems. 40

Apple Inc.

A major player in the smartphone industry is iPhone by Apple Inc. The company has core
competencies in product design, software development, application development, and
hardware. Apple Inc. not only targets corporations and gov- ernments as potential
customers but also targets general consumers, academic institutions, and small and
medium- sized enterprises (SMEs). Most of the Apple products are sold through Apple’s own
retail and online stores; however, the company also utilizes indirect distribution channels
such as telecom carriers, wholesalers, retailers, and value-added resellers. Another core
competence for Apple is a continu- ous focus on research and development (R&D), in order
to keep up with and lead technological advancements. Apple Inc.’s R&D expenditure was
about $14 billion by March 2019,41 which is more than most smartphone companies were
worth. A significant source of Apple’s competitive strength is its ecosystem. Apple’s iCloud
service enables us- ers to sync a particular file or data on all Apple devices, so if one edits a
photo on iPhone, the changes show up automati- cally on all other devices. 42 These features
give Apple users an incentive to purchase other Apple products, because ben- efits and
convenience of use bring value to the consumer.

Samsung Electronics Co.

The other major player in the smartphone industry is the South Korean tech giant Samsung
Electronics Co. Samsung maintains its leadership status across multiple sectors by investing
heavily in R&D. By 2019, Samsung was #1 in the world for R&D spending, with $15.2 billion,
according to the European Commission R&D Scoreboard. 43 Samsung has strategic resources
that competitors find hard to

replicate, such as substantial economies of scale, which drive down per-unit cost. The
company has a very favorable cost structure because of its great efforts in vertical integra-
tion. Samsung has an aggressive pricing strategy and allo- cates a large amount of
resources toward marketing expenditures. The company is a dominant force in the An- droid
operating system. With Android, consumers purchase and download multiple applications,
similar to Apple’s app store. Samsung sells products to authorized distributors, mainly
through mobile network carriers or large electronic outlets like Best Buy. Samsung offers a
wide range of smart- phones with low, medium, and high price points.

Future of BlackBerry

Although BlackBerry no longer calls itself a smartphone company, its licensing partner, the
Chinese consumer- electronics company TCL, introduced a version of the BlackBerry Key2
device. “It’s very important that we don’t detach entirely from the phone; it is part of our
heritage and brand,” CEO John Chen told Barron’s in a March 2019 in- terview in San
Francisco.44 The smartphone industry experi- enced rapid development and high growth
during the past decade. There were over 1.44 billion units of smartphones sold worldwide in
2018 with total sales revenue reaching $522 billion.45 Although that is a remarkable number,
new trends show that the smartphone industry growth rate has started declining. The
biggest driver of the 2017 shipment downturn was the saturated market in China, which saw
its smartphone market decline 4.9 percent year-over-year. Tough times are expected to
continue, as IDC (global market intelligence firm) forecasts consumption in China to decline
another 7.1 percent before flattening out in 2019.46

There is also low growth in North American and Western European markets. Most individuals
in these countries already have smartphones, so growth was driven by replace- ment sales
due to a low number of first-time buyers. Despite BlackBerry’s smartphone demise, and the
end of the BBM platform in 2019, the company still refers to itself as a pio- neer in mobile
messaging. After suing Facebook in 2018, alleging patent infringement, BlackBerry also
sued Twitter for the same in 2019. The suit claimed that Twitter “created mobile messaging
applications that co-opt BlackBerry’s in- novations, using a number of the innovative user
interface and functionality enhancing features that made BlackBerry’s products such a
critical and commercial success in the first place.”47

By moving away from hardware, BlackBerry is focusing attention on company strengths in

software and services. In 2018, BlackBerry announced that its QNX software is em- bedded
in 120 million cars.48 The auto industry is expected to transform through 2030. According to
PwC, there are five main trends that will influence this transformation. The trends are
electrified, autonomous, shared, connected, and yearly updated. 49 As cars get smarter,
BlackBerry will experience more demand in the auto industry.

BlackBerry is playing in both the Internet of Things and enterprise mobility management
segment of the cyber secu- rity market. With its acquisition of Cylance, BlackBerry adds to
its arsenal of cybersecurity solutions that help enterprises intelligently connect, protect, and
build secure endpoints. “BlackBerry . . . and their now approved acquisi- tion of Cylance
makes this a critical game changing mo- ment for the company and the IoT industry. In
today’s hostile world, security isn’t an option, it is a requirement,” said Rob Enderle, a
technology analyst.50

Competing with big players such as Microsoft, Syman- tec, and Cisco in the Internet of
Things market, BlackBerry prides itself on being an ideal fit for lightweight devices while
companies like Cisco and Symantec are geared more toward large networked systems. “I
don’t mind going after a market with a lot of big players,” CEO Chen said. “That means the
market is appealing. Better that than to go after a market with no big players.” 51 Jack Gold,
principal analyst at J. Gold Associates, said, “BlackBerry is ‘a born-again startup’. Their
approach is let’s take what’s left of the DNA, and let’s go after industries that need
heightened security 52 such as health care, Wall Street, and government agencies.”