A booming population and growing middle class are developing world trends that many corporations are leaning on to pitch their growth prospects, but when it comes to the market bet on a turnaround at BlackBerry, emerging demographics seem to be an afterthought. In fact, there are two D's in the BlackBerry story—devices and demographics—that should be essential, but instead another D has sprung to the forefront: the dilemma the company and its investors face in trying to figure out how to value the struggling smartphone maker.
The demographic disconnect all boils down to Africa or, rather, if new CEO John Chen is to be successful in engineering a BlackBerry comeback, its dominant market position in Africa isn't likely to matter.
In the past week, BlackBerry shares have risen more than 11 percent based on the Facebook acquisition of WhatsApp and a deal to feature its messaging system on Windows-based phones, and another deal—at Microsoft's expense—with Ford Motor Co., which reportedly chose BlackBerry's QNX for its future in-car "infotaintment" system.
Investors are buying into BlackBerry—hedge-fund activist Dan Loeb of Third Point recently purchased a 2 percent stake in the smartphone maker—but the exact story they are buying into is less clear.
"The CEO is making all the right moves. ... You can't bet against this guy," said Andrew Left of Citron Research, a stock research firm arguably most notable for its bets against companies—Citron was among the most vocal short sellers of Chinese reverse-merger stocks a few years back.
All the right moves for BlackBerry, at least lately, is pulling the guts out of its devices. Chen's strategy for BlackBerry's future focuses on four pillars: handsets, enterprise, QNX (the OS reportedly picked by Ford) and BBM (the messaging service that has now been linked to the $16 billion Facebook paid for mobile messaging service WhatsApp).
In a recent interview with Fast Company, Chen said, "[This] doesn't mean we are turning our back on the consumer—far from it—but it's important we narrow our focus on our core strengths ... with the strong confidence that we will rebuild BlackBerry for the benefit of all of our constituencies."
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Bring your own BlackBerry
"BYOD [Bring Your Own Device] hurt BlackBerry quite a bit," said Infonetics mobility expert Godfrey Chua, referring to corporations starting to let employees choose iPhones, for example. But Chua said BlackBerry's enterprise system could be extended to work with numerous other mechanical devices. Given that virtually all companies have smartphones now, many are beginning to consider what else they might want to connect to their networks, such as a fleet of company cars, cash registers in retail outlets, temperature sensors in storage units or cameras in warehouses, all of which can be monitored remotely. "I think there's a huge opportunity for BlackBerry there," said Chua.
BlackBerry is even now pitching itself as a potential money-transfer service of the future, and that raises an interesting parallel, because the market in which mobile money has grown the most rapidly is Africa, which also happens to be one of the last places in the world where people still yearn for a new BlackBerry.
A recent survey by South African research firm World Wide Worx showed that BlackBerry now owns 23 percent of the cell phone market in South Africa, up from 18 percent last year. The company also owns 40 percent of the smartphone market in Nigeria, where the company recently announced its first "official" branded retail store on the African continent.
With sales there second only to Nokia, BlackBerry remains the most popular smartphone on the African continent, with 29 percent of those responding to the survey saying they plan to buy a BlackBerry next year.
Even college students have jumped on the BlackBerry bandwagon. According to another study of the South African market by World Wide Worx, 57 percent of college students own BlackBerrys, possibly because of the company's low-cost data packages and free messaging service, which make the smartphone an affordable status symbol for that age group and potentially a transition market for BlackBerry device growth as their spending power grows and BlackBerry continues to expand its upgraded devices.
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Given that Africa has both a burgeoning middle class and more young people than anywhere else in the world—50 percent of Africans are 19 years old or younger—a brighter future positioned around the African opportunity would seem to make sense.
According to research by the Praekelt Foundation, 50 percent of Internet connections in Africa are exclusively on mobile. "This is a sizable opportunity for any mobile vendor, and BlackBerry is proud to be one of the first mobile companies to identify the opportunity in Africa," said Yudi Moodley, managing director, Africa, at BlackBerry. "BlackBerry will continue to meet the needs of users across fast-growing markets, including those in Africa, as figures show the continent's mobile market is expected to reach 1 billion users by 2015," Moodley said.
BlackBerry does not break out its Africa revenue, but revenue from its Europe, Middle East and Africa (MENA) segment is its biggest sales channel—though all are in decline. MENA revenue was $4.5 billion, or 40.7 percent of revenue in fiscal 2013. Eleven percent alone is from the U.K.—the only MENA market for which revenue is broken out—but BlackBerry has noted that South Africa is among the larger markets comprising the MENA region, and South Africa and Nigeria are among the countries where the company still has high hopes for handsets, including the BlackBerry 10, which flopped in the U.S., and the less expensive BlackBerry 7.
Lead generation
The market, though, remains skeptical. "If the experience in those markets is anything like what they've seen in the U.S., they sell into viciously competitive markets that are even more price sensitive than the U.S.," said Michael Levin of equity securities research firm Consumer Intelligence Research Partners. "After only a few years, they saw their market share decline precipitously, to the point where in our most recent survey they had a [U.S.] share that rounds to zero percent."
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The smartphone market in Africa will grow—and quickly—driven by improved international connectivity, rollout of mobile broadband networks and greater availability of smartphones (due to a reduction in prices), according to consulting firm Informa. At the end of 2012, 11 percent of mobile connections were on smartphones, and Informa projects more than 400 million mobile connections on smartphones by 2018. Data revenues will exceed $23 billion in 2018, up from $8.5 billion in 2012, with data comprising 27 percent of total revenues in 2018.
Much of this activity will come from heavy data users via smartphones.The average smartphone user in Nigeria today spends 2.5 hours a week browsing the Internet on their smartphone and a similar amount of time using social media. That same consumer will carry out three e-commerce transactions a week on their smartphone.
Indonesia, which has been an emerging market that BlackBerry has highlighted as a strong device market, was most recently highlighted in a Jefferies report as a bright spot where the smartphone market's dominance seems to be eroding: "Recent comments from distributor Ingram Micro point to substantial BBRY share loss in Indonesia in Q4," Jefferies analysts noted, and they referenced additional reports, which have estimated a decline of market share in Indonesia from 40 percent to 14 percent for BlackBerry.
BlackBerry sales in Africa have dropped about 50 percent from 18 months ago. Spencer and Jefferies analysts, among others, pointed to the deal the company recently made with manufacturing giant Foxconn to bring out a more price-competitive model as its developing market dominance slips and it seeks to move the inventory risk to Foxconn and concede lower margins as a result—meaning little help to the bottom line.
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The company's strategy in Africa has been to partner with regional carriers, offering flat-rate unlimited data plans through BlackBerry Internet Services (BIS) that include push email and messaging. This, coupled with BlackBerry's position as the platform of choice for enterprise mobile devices in Africa, leads Spiwe Chireka, IDC's telecom program manager in Africa, to expect the company will continue to enjoy top position in the region in the short-to-medium term.
Beyond that, Chireka believes market share depends on whether or not the features that the competing mobile platforms may offer will match those of BlackBerry Enterprise System (BES).
"The enterprise segment in Africa will be the saving grace for BlackBerry," Chireka said. "In the consumer segment, it will be harder, but BlackBerry Internet Services (BIS) will take the company a long way because of the affordability factor it provides."
Chireka also sees space for BlackBerry in the low-end consumer segment in Africa, especially if features beyond BIS are added. "That would take the company a long way," she said. "I believe it's taking the right direction with a stronger focus on emerging markets."
The major price competition threat to BlackBerry comes from Chinese vendors offering Android handsets that allow consumers some design control over the phones they buy. "Phone manufacturers not using Android can't compete with a reference design manufacturing ecosystem that reaches really low price points," Spencer said.
The demographic opportunity in Africa—and in particular the "youth bulge" and rise of a "digital native" population—are trends that Mike Best, associate professor at the Georgia Institute of Technology, has spent his career studying. Best doesn't care about BlackBerry's stock price, but he is fascinated by Blackberry's preeminent status in places like South Africa and Nigeria.
"BlackBerrys are expensive handsets by Nigerian standards, so mostly they are in the hands of the middle class and up. But across all economic levels, everyone in Nigeria perceives them as prestige items and not just instrumental appliances," Best said. "You can see this in the very successful BlackBerry Babes Nollywood film franchise. In these popular story lines the handset is a fetish item, and both the outcome from and instrument for transactional sexual assignations. BlackBerry handsets as a helpful tool, as a form of transactional payment and as a fetishized prestige item. It's really amazing."
It's not news that "sex sells"—Madison Avenue has been doing that for decades—but will it continue to maintain a dominant position for BlackBerry in a growing market like Africa?
Best was recently in Lagos. Nigeria, and had to purchase a new SIM card. "I went to a Glo phone shop, and there in the shop, straight out of central casting, was a Blackberry Babe in the flesh. She dressed and looked the part: enormous cleavage, three-inch heels and still able to maintain a sales face. Her job was to sell BlackBerry handsets to shoppers in the store. I asked her if she knew [about BlackBerry's financial problems], and she said that she did but didn't see why it mattered. In her estimation the Nigerian consumer was disinterested in RIMs corporate condition. The mystic and prestige of the brand in Nigeria far outweighed any market realities."
Best has no idea if BlackBerry can maintain its prominence in Nigeria and South Africa but said, "That Blackberry Babe at the Lagos Glo phone shop is sanguine, indeed."
—By David Cotriss, Special to CNBC.com, with additional reporting by CNBC Digital's Eric Rosenbaum
