Why Microsoft Shouldn't Buy BlackBerry

Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

BlackBerry (NASDAQ: BBRY) is up for sale and now everyone is speculating as to who might be a potential suitor. Preston Gralla, a contributor to ComputerWorld magazine, has suggested that Microsoft (NASDAQ: MSFT) step up and buy the troubled company. But I actually can't think of a worse use for Mr. Softie's cash than buying BlackBerry. Let's break down his argument point by point. 

2 + 2 = 3

"The latest figures from IDC show Windows Phone with a 3.7% worldwide market share, up from 3.1% a year ago. BlackBerry has 2.9% market share. Buying BlackBerry would give Microsoft a 6.6% market share. Given that it took Windows Phone a year to grow by only .6%, this would be a big increase." Preston Gralla

In theory Microsoft could combine its growing media empire with BlackBerry's hardware expertise to create a power capable of taking on Apple and Samsung. But it's difficult to see this working out in practice. 

First, Microsoft needs Nokia. The Finnish handset manufacturer represents 80% of Windows Phone sales globally, and the company is already concerned about Microsoft's latest push into the hardware space. Like catching a cheating lover, a big push from Microsoft could end this relationship. 

Second, any attempt by Microsoft to combine the two platforms is equally fraught with risks. Assimilating BB10 into Windows might alienate users who still appreciate BlackBerry’s phones and operating system. Trying to integrate the two operating systems could also throw a wrench into the rest of Microsoft's business strategy. Think about Bing, Xbox, and the Surface. How does BB10 fit in with the rest of these?

Microsoft could leave BlackBerry alone. But what would be the advantage of managing two struggling hardware businesses? 

The people

"Microsoft has not primarily been a hardware company up until now, and so it is not rich in hardware engineers. It takes a long time to recruit and hire them. Buying BlackBerry would immediately bring to Microsoft a sizable core of experienced mobile engineers and designers [...]" Preston Gralla

In Gralla's view, acquiring BlackBerry would allow Microsoft to quickly build up their hardware talent.

However, we already saw this movie play out with Google's $12.5 billion acquisition of Motorola Mobility. It turned out the purchase wasn’t about the patents — they actually want to get in the business of building devices. But that was an expensive way to do it. Developing your own talent in-house is a better path than acquiring a huge company with a totally different business model.

And with all due respect to the engineers in Waterloo, it's not like the Playbook has outsold the Surface or the new BB10 has been all that hot. Also given their existing relationship, wouldn't acquiring Nokia's hardware talent make more sense? 

The enterprise play

"Microsoft's core business is in the enterprise -- Windows, Office, servers and tools, Exchange, and more. BlackBerry's core business is in the enterprise as well." Preston Gralla

Gralla points out that Microsoft has been bleeding customers to Android and iOS in the enterprise space due to the BYOD trend. There could be a lot of synergies between BlackBerry, with its 72 million subscribers and secure networks, and Microsoft. 

But it's important to point out the BlackBerry is struggling in the enterprise space as well. Last quarter, four million subscribers dropped the service suggesting that many customers are fleeing the second they can get out of their contracts. Maybe there is some way to combine these operations, but Gralla doesn't provide any details as to how this would be done.

The patents

"In today's litigious tech world, patents can be used to harm competitors and get very serious licensing revenue from them. [...] It's not clear that BlackBerry has any patents that could be used in this way. But it's certainly possible, and growing your patent war chest is always a good thing." Preston Gralla

Patents are actually the strongest argument in favour of Microsoft acquiring BlackBerry. Not only can patents be used to attack rivals as Gralla points out, but they're also an important defense against competitors and patent trolls.

These patents would make a smart purchase if they could be bought individually and at the right price in a liquidation. But why buy the entire company? Microsoft has little use for a crumbling hardware business and a second operating system.

Foolish bottom line

Microsoft has nothing to lose from the demise of BlackBerry. If BlackBerry is swept into the dustbin of history, it creates an opportunity for Microsoft to position itself as the only alternative to Android and iOS. So let's just dismiss this possibility. 

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Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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