BlackBerry (NASDAQ:BBRY) CEO Thorsten Heins made waves recently after dropping a quote that sounds an awful lot like something one of his predecessors at the old Research In Motion might have come up with:
“In five years I don’t think there’ll be a reason to have a tablet anymore. Maybe a big screen in your workspace, but not a tablet as such. Tablets themselves are not a good business model.”
Sounds familiar, doesn’t it?
“(Apple and the iPhone is) kind of one more entrant into an already very busy space with lots of choice for consumers … But in terms of a sort of a sea-change for BlackBerry, I would think that’s overstating it.”
At a glance, Heins comment looks primed to bite him in the rear just like Balsillie’s call against Apple did. But is he completely off his rocker?
The Business of Tablets
The common thread between the aforementioned quotes is an apparent ignorance — willful, or (even worse), genuine — about where the industry is going.
Heins was responding to questions about whether BlackBerry was going to take another crack at the tablet market after the ill-fated PlayBook. What the company was touting as the world’s first professional tablet failed to resonate with the business and consumer crowds alike, becoming a bargain-bin staple and a $1.5 billion mistake.
A few weeks before Heins shared his view on tablets, Gartner announced not only that worldwide tablet sales are not just continuing to accelerate, but that the devices are projected to outsell PCs by 2017. Gartner expects 500 million tablets will be sold worldwide — a 300% increase in five years.
Apparently, Gartner doesn’t expect consumers will run out of reasons to own a tablet in five years.
As for tablets being a “bad business model,” yeah, the PlayBook was a rotten business model. But other tablet manufacturers aren’t complaining.
Apple is swallowing lower margins on the iPad Mini (around 40% for the base Mini, vs. $49% for the base iPad 4), but even that device is profitable at a level most companies would die for. Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) are selling their tablets at or near cost, but then again, both are using them to drive the sale of digital goods through their e-stores, and Google is depending on its Android tablets to help boost mobile ad revenue. Microsoft (NASDAQ:MSFT) is making unexpected inroads in the tablet market, and its Surface RT is estimated to carry a profit margin of over 50%.
That sounds like a couple of different successful business models built around tablets.
It doesn’t take Nostradamus to make the call that tablets will be obsolete someday — everything will be obsolete eventually — it’s just that five years is very specific. So, before completely writing off Heins’ as mad, let’s at least explore the potential ways Heins might somehow be proven right:
Smartphones kill off the tablet: Not likely. Despite the determination of Samsung (PINK:SSNLF) and other Android phone manufacturers to go big, smartphone display size eventually reaches a point where the device is too big to use as a phone. However, you can make calls with many tablets (most people would use a headset instead of holding it to their ear), so maybe the idea is to eventually just refer to every mobile device as a smartphone — therefore, “tablets” go extinct. But that doesn’t help BlackBerry.
A hybrid device like the touchscreen Ultrabook kills off the tablet: Possible. The distinction between a tablet with an optional Bluetooth keyboard and a current Ultrabook with a touchscreen can be minimal. If you can shrink the Ultrabook’s bulk down some more, it becomes very similar in appearance to a Windows Surface Pro tablet. At some point, the decision of whether to call it a hybrid, an Ultra-Ultrabook or a tablet with a keyboard could mean the end of the “tablet” category.
Wearable devices replace the tablet: I don’t think so. I carry a tablet because my smartphone display is too small. Where am I going to strap a 7-inch or 10-inch LCD display? Sure, I can view info on a Google Glass heads-up display instead, but how do I share that with others and interact with it the way I can with a tablet that can be passed back and forth? Maybe this changes, but in five years? And that only helps BBRY if the company gets in that field itself.
An EMP (electromagnetic pulse) knocks out all the tablets in five years: I’m not a scientist, but from what I understand about EMPs, it would take a lot of detonations to fry the circuitry in all the tablets. And an EMP would take out all the smartphones in range too, so if you’re thinking along these lines, your money and product development should be in something analog, like chalkboards.
All joking aside, Heins’ suggestion flies in the face of everything we know and would require a seismic shift in the market. And BBRY would have to be leading in or poised to pounce on the succeeding technology.
I waited a few days to see if BlackBerry’s camp came out with a retraction, a claim that Heins was misquoted or some other disclaimer, but so far there’s been silence. To me, this means one of three things. Either:
- Heins (and BlackBerry) are up to something truly revolutionary and awesome enough to derail the entire tablet industry in the next five years.
- Heins (and BlackBerry) are totally out of touch with the technology industry.
- Heins (and BlackBerry) see no hope of breaking into a very competitive tablet market (especially now that Microsoft has a beach head), and/or see no way for BlackBerry to make money in another attempt. Rather than admit they’re walking away from such an important product category, he’s trash talking tablets in an attempt at distraction.
My guess is No. 3, although it’s possible that BlackBerry is cooking up something and thinks it’s got No. 1 potential (although if so, that could veer dangerously into No. 2 territory).
For investors, none of the choices are great, though if you believe BlackBerry has a blockbuster in waiting, that could mean rolling the dice by purchasing BBRY now becomes the bargain of the century. But if Heins and BlackBerry are out of touch or just conceding the tablet market, this current BBRY resurgence could be a short one.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.