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Why BlackBerry's enterprise bet won't work

Monday, 23 Dec 2013 | 8:00 AM ET
BlackBerry's new game plan
Monday, 23 Dec 2013 | 12:00 AM ET
If Blackberry wants its latest business plan to work, it's going to have to make some big changes, starting with a new name. CNBC's Cadie Thompson weighs in.

BlackBerry is making a big bet that the enterprise market will be its saving grace. But the odds don't look too promising.

"I think we had some issues with the handset business, in terms of the consumer world. But the enterprise still loves us," BlackBerry's interim CEO, John Chen, said Friday on CNBC's "Squawk on the Street."

(Read more: Blackberry to be profitable by 2016: CEO Chen)

Chen, though, is overestimating the affection its enterprise clients actually have for the company, industry experts say.

On Friday, the embattled smartphone maker reported a massive $4.4 billion write-down on unsold inventory in its fiscal third quarter. BlackBerry also announced a five-year deal with Foxconn to design and manufacture its lower-end hardware, which would be targeted to the consumer.

Getty Images

(Read more: BlackBerry hemorrhages red ink, but Foxconn saves its bacon)

These moves are part of Chen's plan to refocus the company on its enterprise and government clients and on software and services, while also controlling costs associated with its devices business.

But BlackBerry's most loyal customers, corporate IT departments, have already started abandoning the company's handsets in favor of Apple and Samsung devices and once companies have adopted a new phone, it's unlikely they will cling to services from an old provider, said Rita McGrath, a Columbia Business School professor.

"If they haven't left them already, they are in the process of doing so," McGrath said. "There's a lot of inertia that goes into these things and once an organization has made the decision to switch the device, they've already endured all the switching costs and they are already out the door."

Basically, it's going to be a steep, uphill battle for the company to leverage its other services—including its security, mobile cloud and messaging products—in the enterprise space without IT also adopting their BlackBerry 10 device, said Carolina Milanesi, a technology analyst.

"The device was the hook, which I think is why they are reticent about reminding people the communication devices will still be there. The device was the hook and they were supplying everything else," Milanesi said. "But if I don't want the device anymore, then I move on all together and I get tools that are designed for the new device."

BlackBerry CEO: Foxconn taking on a lot of risk
BlackBerry CEO John Chen discusses the Foxconn deal and how he will persuade enterprise customers not to leave the BlackBerry server. He also weighs in on the security of the network.

Simply put, BlackBerry missed the consumerization of IT trend and now IT heads are straying from their hardware and their services. In addition, the company didn't help itself out by rebranding itself as a company named after its smartphone.

This makes it even more difficult for enterprise companies to just think about BlackBerry as a software and service provider, said Stephen Beck, a partner at cg42, a management consulting firm specializing in technology and telecommunications.

"BlackBerry, in retrospect, made a very poor decision to rebrand the company around the device brand," Beck said. "Given their failure in the device market, changing their name is going to have to be something that is on the table at some point."

Climbing back from that move isn't going to be easy, Milanesi said.

"It's sort of like the last nail in the coffin, it's so identified with the devices now, that it's going to be really, really hard to change that," Milanesi said. "It's like they are reminding everybody everyday they are a hardware company when they don't want to be that anymore."

However, even though Blackberry's enterprise bets look somewhat bleak, it's really the only card the company has left to play, experts said, and Chen seems to realize that.

"What kind of reputation does BlackBerry have out in the market? We are viewed as secure, we are viewed as having very high-quality devices and we are being used by mostly enterprises and so when I look at the situation I think we are going to offer end-to-end security solution in communication productivity that is mobile based ... at least for next couple years," Chen said.

Blackberry lost the consumer market, so it is doing what it can with what it has left, it just should have done it a few years ago, McGrath said.

"The company is looking at the space where it is most credible and to do that it's going to have to become a more niche company. But they need to be looking at new fresh segments of the market and unfortunately, these new segments tend to be small when they start. They don't look too attractive to a company that was once so big and successful," McGrath said. "And to be honest, I'm not sure if they can pull that off. I'm not very optimistic."

By CNBC's Cadie Thompson. Follow her on Twitter @CadieThompson.

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  • Matt Hunter is the senior technology editor at CNBC.com.

  • Cadie Thompson is a tech reporter for the Enterprise Team for CNBC.com.

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.

  • Jon Fortt is an on-air editor. He covers the companies, start-ups, and trends that are driving innovation in the industry.

  • Lipton is CNBC's technology correspondent, working from CNBC's Silicon Valley bureau.

  • Mark is CNBC's Silicon Valley/San Francisco Bureau Chief covering technology and digital media.