3 Things to Know About BlackBerry's "Secret Weapon"

By Markets Fool.com

Over the past year, BlackBerry CEO John Chen has steered the fallen smartphone maker away from premium phones and toward three areas of potential growth: cheaper phones for emerging markets, the expansion of BlackBerry Enterprise Service in the mobile device managementmarket, and the monetization of BlackBerry Messenger, or BBM.

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Of these three initiatives, monetizing BBM seemed like a long shot. Making the service available to iOS and Android last year was a step in the right direction, but the app still had only 91 million monthly active users, or MAUs, as of September 2014 -- a gain of just 11 million MAUs since last October.

BBM. Source: Google Play.

By comparison, MAUs for Facebook'sWhatsApp doubled from 300 million in August 2013 to 600 million in August 2014. Facebook's own Messenger app, which the social network unbundled from its main app in August, had 500million MAUs as of early November. Tencent's WeChat, the top messaging app in China,has 600 million MAUs.

Faced with these massive competitors in mobile messaging, can BBM realistically offset BlackBerry's losses in hardware (handsets) and services (subscriptions), which posted respective year-over-year sales declines of 46% and 41% last quarter? Let's look at three key things that could determine the future of BBM as BlackBerry's "secret weapon."

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1. New partnerships
Late last month, BlackBerry announced two new partnerships to expand BBM's global reach.

Blyk, a free ad-supported phone network from Finland, will represent BBM globally with sales representatives in Chicago, Toronto, London, Dubai, and Singapore. BlackBerry also partnered with Habari Media, a South African multimedia sales company, to add sales representatives in South Africa, Nigeria, and Ghana. Habari Media recently unveiled "Free-Fi," a free ad-supported Wi-Fi network.

Partnering with companies that offer free Internet connections is clever, since it could encourage the adoption of BBM in countries where average citizens can't afford mobile data plans. It might encourage the adoption of BBM by younger users as well, since Blyk mainly targets 16 to 29 year olds. The partnerships also complement BlackBerry's plans to sell lower-end devices such asthe Z3 in emerging markets.

2. Learning from its rivals
BlackBerry's advertising initiatives integrate several of its rivals' main features. Like Facebook, BlackBerry blends "sponsored" News Feed ads into BBM. Like Naver's LINE and Tencent's WeChat, BBM offers sponsored sticker packs, which give users cute, company-sponsored stickers to use in conversations. Additional stickers can also be purchased in the BBM Shop.

BBM Channels. Source: BlackBerry.

Paid stickers have been a huge source of revenue for Naver's LINE. LINE generated $338 million of revenue in fiscal 2013, with 20% ($68 million) coming from sticker sales. By comparison, BlackBerry's entire software division -- which houses BBM, BlackBerry Enterprise Service, and QNX -- generated $113 million of revenue in the first six months of fiscal 2015.

BBM also has sponsored BBM Channels, which encourage users to follow different businesses, brands, and people. Advertisers pay for featured placements within these channels. LinkedInoffers a similar Channels feature, which was introduced at the same time as BBM Channels last May.

BBM's most unique feature is "sponsored invites," which let advertisers send channel invitations to users based on age, location, and interests. These invitations are marked as "sponsored," and if declined, future invitations from that channel will automatically be blocked.

3. A secure messaging platform
BlackBerry states that "at no time is personally identifiable information about any BBM user viewable by channel owners or advertisers," and that it only uses information provided by users when they initially set up their accounts.

This is a stark contrast from Google, which builds targeted ads based on a user's actions within the Google ecosystem, and Facebook, which lets companies create ads based on its gold mine of dynamically changing user data.

Since BlackBerry has built its reputation on enterprise security, it must ensure BBM remains a trustworthy platform while being monetized. But as BBM enters this new phase, maintaining that balance could become increasingly difficult.

The road ahead
BlackBerry's BBM upgrades are encouraging, but the app remains a tiny part of the company's overall operations. Ninety-two percent of BlackBerry's revenue still came from its ailing hardware and services divisions in the first half of fiscal 2015.

Another key question is whether expanding BBM to iOS and Android will convince users of other mobile messaging apps to switch over for their daily communication needs. Moreover, newer enterprise-grade messaging apps such as Slack, Confide, Tiger Text, and Eko could be preferable for businesses with relaxed BYOD policies.

On the bright side, BlackBerry has integrated some of its rivals' best features into BBM and could piggyback the app on free Internet services for developing and emerging nations. For now, investors should wait to see if BBM's MAUs continue to increase, and if it can help BlackBerry Enterprise Serviceincrease the software segment's share of BlackBerry's top line.

The article 3 Things to Know About BlackBerry's "Secret Weapon" originally appeared on Fool.com.

Leo Sun owns shares of Facebook. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and LinkedIn. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.