Does the BlackBerry Priv Spell the End for BB10? (BBRY)

BlackBerry (BBRY) didn’t just report its quarterly earnings last week, CEO John Chen confirmed one of the worst-kept secrets in the tech world — the BlackBerry Priv, a slider phone running Android is real and will be released this fall.

Does the BlackBerry Priv Spell the End for BB10? (BBRY)
Source: CrackBerry

The BlackBerry Priv (previously code-named Venice) will run Android — not BB10 — but will incorporate BlackBerry’s famous QWERTY physical keyboard.

The company has even gone so far as to put up a webpage dedicated to the Priv rumors, where it attempts to give the entire leak situation a positive marketing spin that explains why anyone would want an Android-powered BlackBerry, while also riffing on the name:

“Yesterday we awoke to the news that the name of our newest smartphone was leaked to the public prior to its official launch later this year. At a time when your personal privacy is increasingly compromised, we wanted you to know that you are not alone. We found this breach of privacy extraordinary, and at the same time the best demonstration as to why BlackBerry’s products, technology and brand are essential to the world. In recognition of our long history of valuing our customers’ privacy we’ve named our next generation phone Priv, a name that has tremendous value for everyone worldwide.”

Currently, BBRY’s smartphone hardware business continues to struggle. The company sold only 800,000 devices in the second quarter, compared to the 71.9 million Samsung (SSNLF) sold.

According to Gartner, BBRY has continued to lose market share despite devices like the Passport and BlackBerry Classic running BB10 and a deal that gives BlackBerry owners access to Android apps through Amazon’s (AMZN) Appstore. In March, BlackBerry’s share of world smartphone sales had slipped below one-half of 1% and, as pointed out in its earnings call,its market share has dropped considerably since that time.

Going all-in on Android with the Priv means that instead of being limited to the 400,000 or so apps currently in the Amazon Appstore, BlackBerry owners would have full access to the 1.6 million apps on Google (GOOGGOOGL) Play. That eliminates any app gap as an excuse for avoiding the BlackBerry Priv.

But …

The market for Android smartphones is saturated, becoming a model of hardware Darwinism that is taking a toll on established manufacturers like HTC. It’s hardly a soft target for a company that is publicly struggling. Doubly so when its foray into the saturated Android market is marked by a device with a form factor that went out of vogue years ago.

There are hundreds of companies making Android smartphones, including some of the biggest players in the tech industry, and a rising tide of Chinese manufacturers. Despite dominating smartphone sales, virtually no one makes money selling Android devices. Samsung is pretty much the only one making a profit, and it has the advantage of making many of the more costly components — including the CPU — itself. And, under pressure from low-cost manufacturers who keep raising the bar on cheap smartphone quality, even Samsung is struggling.

According to CEO John Chen, BBRY will release the BlackBerry Priv as a premium device. Quoted in The Globe and Mail, Chen said: “I won’t go to the very low-end consumer, because I can’t compete with Huawei and LG on price.”

So that makes the BlackBerry Priv a flagship Android smartphone with what will likely be a “love it or hate it” design that will have to convince consumers to fork over big bucks.

Considering that BBRY has built its reputation on security, Android is a risk. Several high-profile security issues affecting the operating system were identified this summer, including the Stagefright vulnerability that left 950 million Android devices in danger of being compromised by a simple MMS message.

BlackBerry is making an effort to lock down Android (for example, CrackBerry says it’s using the GR Security Linux kernel on the BlackBerry Priv), but the fact remains that Android will never be as secure as BB10.

So selling the BlackBerry priv to enterprise and government customers may also be a challenge.

Speaking of BB10, what happens to BlackBerry’s own operating system and the devices that run it? The announcement of the Priv running Android instead of BB10 has to leave BlackBerry fans a little concerned.

It seems unlikely the company would pursue a long-term strategy of supporting two classes of smartphones, running two different platforms and continue the expense of maintaining one of the operating systems (the one that no one seems to want) in-house.

Interviewed on CNET, John Chen admitted that if the Android-powered BlackBerry Priv was a success he could “replace or merge” the BlackBerry software

BBRY would have everyone believe the Priv is “born from our ultimate mission (of) protecting your privacy.” The reality is more likely that people are still avoiding smartphones running BB10, so now the company is trying a Hail Mary that combines the one thing people like about BlackBerry — the keyboard — with the world’s most popular mobile operating system.

If the BlackBerry Priv has any success, BB10’s days are numbered. If it flops, BlackBerry is running out of big ideas for resurrecting its hardware sales. Look for the BlackBerry Priv to go on sale later this fall.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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