Amazon (NASDAQ: AMZN) has invited the press to a “device launching” event at its Seattle headquarters on June 18, 2014, where it’s widely assumed the company will announce plans to release a smartphone after years of rumours.
It seems like whatever it touches, Amazon has success selling it. It has already built and sold e-readers and tablets, growing them into some of its best-selling items. Its streaming video platform — which is included for free with a subscription to Amazon Prime, a $99/year service that gives customers free two-day shipping — competes with Netflix, the behemoth in the space. The company is also planning a foray into groceries, pretty much the only thing you currently can’t buy from it.
In the smartphone space, Amazon would essentially have four competitors. Both Apple and Google are dominant players, controlling the vast majority of the market. Microsoft is also a player, with its recent acquisition of Nokia’s handset business. Microsoft is a distant third in the market, but also has pockets deep enough to sustain losses for years.
And finally, there’s the most vulnerable competitor: BlackBerry (TSX: BB)(NASDAQ: BBRY). The company’s fall from grace has been well documented, going from the only player in the entire sector to just a 2.5% market share in North America. It is, without a doubt, the company with the most to lose when Amazon enters the space.
CEO John Chen isn’t nervous about Amazon’s attempts to steal market share. In fact, he recently upgraded his chances for BlackBerry’s survival from 50% to 80%. Why exactly is the CEO so confident?
First of all, the company’s smartphone division is counting on developing markets for its growth, not North America. It recently launched the Z3 in Indonesia, a touchscreen phone with many of the features of more expensive models, for a price tag under $200. This is far cheaper than anything the competition offers in the region.
BlackBerry’s messenger service is very popular in the developing world, since it lets users send text messages to other BlackBerry phones at a fraction of the cost of normal texts. We don’t think about this in North America, but it’s an issue in other parts of the world.
In North America, the company’s future rests more on its QNX division than it does on smartphones. QNX software is mainly found in vehicle in-dash entertainment systems, a mainstay in today’s new cars. Companies using BlackBerry’s software include Acura, Lexus, and most recently, Ford. Because QNX uses cloud technology, it allows for wireless updates. This is a huge plus for auto manufacturers. Even Apple uses QNX software in its CarPlay device.
Additionally, BlackBerry still has a huge portfolio of patents. As part of its deal to acquire Nokia’s handset business, Microsoft paid the Finnish company more than $2 billion just to license its patents for 10 years. Currently, BlackBerry values its patents at just over $1.4 billion. Many observers speculate that the company’s patents are worth much more than that. This hidden value just adds to BlackBerry’s strength.
Since BlackBerry is such a small player in North America, it’s likely that any market share that Amazon’s new phone gets will be stolen from Apple or Android devices, not from BlackBerry. The company has taken smart moves by partnering with Foxconn for all its production, and focusing its handset business in developing markets. If the company continues to execute, investors who get in at these levels could be rewarded with nice returns.
