Why BlackBerry and MobileIron Won't Become Qihoo 360
MobileIron and BlackBerry are making big bets on security, specifically the management of mobile devices, or MDM. At this point, the potential market for MDM is speculative, but the hope of investors is that either MoblileIron or BlackBerry can replicate the success of Qihoo 360 in the U.S. with security features that smartphone users deem as necessary. Unfortunately, such hopes don't seem likely to become reality.
What's the problem with MDM?
Both BlackBerry and MobileIron develop software for the purpose of security on mobile phones and applications. This is software that can be purchased by consumers, app developers, or hardware manufacturers to protect stored and shared information.
Ideally, the continued growth of smartphone usage will mean an increase in the amount of personal and sensitive information stored on such devices. At that point, demand to protect information would be high, which would bode well for the likes of BlackBerry and MobileIron.
The problem is that the MDM software remains limited. GigaOm's research director, Cormac Foster, wrote earlier this year that MDMs are not yet fully functional with applications. He said that MDMs are often limited to just email protection and password enforcement because the software is not compatible with applications on a large scale.
If this remains the case, it could pose a significant threat to the future of MDM software, and to BlackBerry and MobileIron's stock. After all, email protection and password enforcement are two functions that iOS and Android have worked out quite nicely.
Qihoo 360 has succeeded differently
Meanwhile, Qihoo 360 has succeeded with a different approach. Rather than selling security software, it has elected to give such software away for free, and monetize its business with additional services that complement its core security products.
While BlackBerry and MobileIron raced into the MDM space in an attempt to monetize an unmet need in the market, Qihoo 360 built a reputation in China by first giving away PC security products. These include 360 Total Security to protect PCs, and 360 Internet Security for protection of Internet browsing. With nearly 500 million total PC monthly active users, Qihoo 360 has entered new markets like mobile security, Android application store, and Internet search.
Qihoo 360's app store has 275 million active users, and its top mobile security application, 360 Mobile Safe, finished the last quarter with 641 million users. While Qihoo 360 gives these services away for free, it creates revenue with games and with marketing/advertising. The takeaway is that Qihoo 360's mobile security success was a result of its dominance in PCs, and Qihoo has since used its overwhelming presence to enter and excel in new product categories.
BlackBerry has 50 million hardware users, and is on pace to have 100 million BlackBerry Messenger users by the end of 2014, but the company has a market share of just 0.5% in global smartphone sales, according to IDC. Compared to the likes of WhatsApp, WeChat, and others, BlackBerry Messenger's user base is also relatively small. Therefore, unlike Qihoo 360, BlackBerry doesn't have a market-leading presence in any of its key segments.
As for MobileIron, it doesn't even have a hardware or software segment. MobileIron is a strict MDM business, making it even further from being like Qihoo 360 than BlackBerry. This means that all of MobileIron's revenue comes from MDM software, while BlackBerry still creates half of its revenue from hardware. This indicates that there is less risk for BlackBerry if, in fact, MDM as an industry does not penetrate the smartphone market on a large scale.
A few more MDM concerns
Aside from the research provided by GigaOm's Foster and the lack of significant market share in complementing businesses, there are other reasons to believe that MDM will never grow to support multibillion-dollar market capitalizations. Specifically, MobileIron's total revenue grew 158% year over year during 2013, to $105.6 million. However, revenue growth for MobileIron has seen a big drop-off in 2014, increasing just 25% year over year during its last quarter.
As for BlackBerry, it has issued 4.6 million software licenses during the last two quarters. While this might seem significant, investors should keep in mind that the smartphone market shipped more than 300 million units in the second quarter alone, according to IDC. Therefore, it's hard to conclude that MDMs are making a significant dent in the overall smartphone space.
The final concern as it relates to MDMs with BlackBerry and MobileIron is that the two companies are competitors. In fact, MobileIron even published a survey showing that more than half of financial services organizations who use BlackBerrys plan to migrate away from the devices by next year.
Meanwhile, Qihoo 360's counterpart, Cheetah Mobile, may be considered a competitor, but in many instances, both produce security-related applications that can be used in conjunction. For example, Cheetah's top app, Clean Master, is used to clean smartphones of unwanted data to boost performance, while 360 Mobile Safe serves as a security function -- so they are often used together.
All things considered, there are just too many reasons for concern as it relates to MDM, making BlackBerry and MobileIron both big investment risks. For investors seeking exposure to the smartphone security market, Qihoo 360 looks like a far better investment option.
Qihoo 360 is expected to grow revenue 100% this year and nearly 50% next year. After stock losses of 35%, Qihoo 360 now trades at just 16 times next year's expected earnings, making it a value opportunity. It's foolish to bet on the unknowns of MDM when Qihoo 360 is presenting such value.
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The article Why BlackBerry and MobileIron Won't Become Qihoo 360 originally appeared on Fool.com.Brian Nichols has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.
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