Why Companies Fail - How RIM (BlackBerry) Missed the Boat on BBM

by Greg Blumstein, Managing Partner at Onyx Venture Advisors

Oct. 29, 2013

Virtually everyone has written about BlackBerry’s (formerly RIM) decline over the last few years, and recently what it’d be worth if it were sold off in whole or in pieces. With loads of hindsight in mind, I thought it would be interesting to write a slightly different version of what their history could have been, and what might today be one of their biggest assets had they done things differently.

My first exposure to a RIM device was in 1999 with demo units provided by a RIM salesperson going door-to-door through my office building. I was given a two-week demo of the BlackBerry 850 and 950 devices, and I was impressed. Over the following years, RIM was quite successful in the smartphone market, but then Apple and Google showed up on the scene in 2007. I think everyone knows the story from there.

In May of 2013 BlackBerry announced it would bring its BlackBerry Messenger (BBM) to other mobile platforms, after years of pundits urging them to do so. A few days ago, BlackBerry finally released BBM for iOS and Android after a month of technical delays, coupled with a slow-start reservation system, apparently to limit the load of new users. This approach might make sense for a startup like Mailbox, but it’s surprising considering BlackBerry’s size, and the many years of experience they have operating the BBM service.

Now let’s travel back in time. Mirabilis, the company that created ICQ and launched the Instant Messaging category, was founded in 1996. Two years later, Mirabilis sold their ICQ business to AOL for $407 million. ICQ reportedly had “more than 12 million users” in 1998 when it was acquired, and 100 million users in 2001. AOL, in turn divested the ICQ business in 2010 for $187.5M with roughly 32M users at the time. All told, AOL paid around $33 per user when it acquired ICQ and sold it for around $5.85 per user (talk about a value decrease…).

So where am I going with this? In early 2013, BBM had 60M users worldwide. Here’s how it stacks up versus its competitors:

• WhatsApp - 350 million monthly active users (October 2013)
• Viber – 200 million users (May 2013)
• Apple iMessage – 140 million users (June 2012)
• Kik – 80 million users (September 2013)

Why does this matter? Well, BBM was for many years the only real alternative to traditional Text/SMS messages, and the de-facto mobile IM network. In 2009, with the exception of WhatsApp (Nov 2009), the services listed above didn't even exist. 2009 was also the year RIM’s smartphone market share losses started to become alarming - In Q4 2009 Android and iOS' combined market share passed RIM’s. By Q3 2010, each of them had passed RIM individually.

At that point, RIM could have gone multi-platform and built BBM mobile apps for all other mobile OS’s. If it did, it’s likely none of those competing services would be where they are today, or perhaps even exist.

Based on the combined subscriber bases of BBM’s competitors (granted there’s some level of duplicate users), it would be reasonable to assume that by now BBM could have had roughly 500M users. The early-mover advantage, and network-effect would have been significant factors, as was the case with WhatsApp.

Let’s run with that 500M users assumption for now. Doing some back-of-the-envelope calculations, BBM would have had 8x the users they have now. Would those users be worth the $33 per user figure Mirabilis got from AOL back in 1998? Perhaps not, but just for argument’s sake, that would value just the BBM business at $16.5B, or almost 4x BlackBerry’s (BBRY) current market capitalization.

For further comparison, maybe those 500M users would be worth something closer to the $8B Microsoft paid for Skype’s roughly 663M users in 2011 - or about $12 per user - which would value the theoretical 500M-user BBM business at $6B, or approximately 1.4x BBRY’s current market cap. Perhaps if they were really lucky, they’d get the insanely high amount eBay paid for Skype’s 54M users in 2005 - roughly $46 per user - valuing BBM at $23B, or over 5x BBRY’s current market cap. Not likely, but one can dream…

In short, had BlackBerry taken a chance earlier on and opened up the BBM service to multiple platforms, BBM could have had the first-mover advantage and perhaps become the dominant mobile IM platform across all mobile OS’s, and it might have been one of BlackBerry’s most valuable assets today.

Just to put all this in perspective, apparently an analyst from Scotiabank recently estimated BBM alone could be worth about 60% of BBRY’s value today.

Based on publicly available information, WhatsApp, which started out from scratch in late 2009, is the largest and most well known of the mobile IM networks today. Couple that with their strategy of going multi-platform from day one and it’s an example of where BlackBerry’s BBM likely would have been today had BBRY opened up its platform much sooner. With its brand name and existing user base BBRY certainly would've had an advantage and could've grown even faster and larger than WhatsApp did.

BlackBerry recently reported it had over 10M downloads of BBM for Android and iOS within 24 hours of release, so they’re off to a good start, but what could have been if only they hadn’t waited so long?

Disclaimer: Greg Blumstein has never owned RIM / BlackBerry stock, has no intention to purchase BBRY in the near future, and doesn’t believe this very simplistic analysis will cause any change to BBRY’s value.