BlackBerry CEO Thorsten Heins told a German newspaper on 25 February that the company’s newly launched Z10 smartphone is selling faster than expected. In Germany, Vodafone’s unsubsidized price for the device is €599.90 (US $791), while in Italy, where it will be available from all major operators, the suggested unsubsidized retail is €699 (US $923). In India, the Z10 is reportedly selling on the black market for the equivalent of US $1060, a very high price by any standards, and all the more so when one considers that it actually represents a 25 percent discount to suggested retail.
Canadian-based BlackBerry (formerly Research in Motion) may be pleased with its out-of the-gate sales results, but we see some fissures beneath the surface of this promising picture. Notwithstanding the seemingly robust sales, we still view BlackBerry as a wounded brand that will need many things to go its way in order for it to once again be considered a legitimate and serious contender in the marketplace alongside Samsung and Apple. It is likely that the main reason Z10 sales figures are better than expected right now is because they are to current BlackBerry users who are upgrading. BlackBerry may be getting its subscribers to re-up by offering a significantly improved product, but that is hardly the same as taking business away from the makers of iOS and Android phones.
Therefore, we think BlackBerry needs to get more aggressive with its pricing in order to meet the challenge of its competitors. We believe it is not in the company’s interest for prices to be as high as they are, and they should lower them. The Indian example reveals that there is plenty of room for the price to go down, in terms of pent-up demand. It is also not in mobile operators’ interest for the device’s price to be too high relative to other alternatives, and we feel they should be trying to force the issue a little bit.
We’ve read reports recently indicating that the total cost of the components in a BlackBerry Z10 amounts to $154, which seems like a reasonable estimate to us. Granted, there are numerous other non-direct costs, such as R&D and admin, but that still leaves plenty of margin in the Z10 for Blackberry to lower prices and thereby induce more sales.
Ultimately, we think once the conversion of old BlackBerries to the new Z10 is complete, sales may slow dramatically. But if BlackBerry and the operators can get enough of the new devices into enough hands, it could start a new virtuous life cycle for the Z10 and for BlackBerry itself. We are by no means BlackBerry detractors; as we stated in our 24 October Story of the Week, we believe the company has built a strong base and still has plenty of possibilities, but in order for those to be realized, Blackberry needs to be more price-competitive. Launching a fancy new phone is simply not enough.