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Beckley
Tuesday, October 27, 2020 2:40pm

BlackBerry: Hunting & Pecking (NYSE:BB)


BlackBerry (BB) is set to release new products to complement the capabilities of its Spark platform via its Cyber Suite package. This article explores the strategy behind the new products. I explain why it might not be the game-changer. This article also explores the potential impact of these capabilities on BB’s competitive positioning and market expansion opportunity.

Chart (Source: Forrester)

BlackBerry is set to release a secure web gateway product and a data loss prevention product. Before delving into the new products, it is worth highlighting that BB’s Zero trust strategy is taking shape. BB was featured in Forrester’s analysis of Zero Trust platforms for Q3’20. BlackBerry had high scores in device security and Zero Trust advocacy. It had average scores in attractive segments like network security, data security, workload security, analytics, and security automation. The improved Zero Trust visibility isn’t hard to fathom, given BlackBerry’s experience in endpoint visibility, which benefits a lot from the acquisition of Cylance. The report praised BB’s unique approach to Zero Trust, which leverages its endpoint security capabilities for endpoint visibility and its app security capability for data and access security. BlackBerry’s ability to leverage its UEM (unified endpoint management) capabilities to play into the work from home (WFH) theme has been impressive. However, I remain wary of the positioning of BB’s UEM offering as its remote working solution appears to be gaining more leverage than its UES (endpoint security) offering. This might partly explain the recent goodwill impairment on its balance sheet. It is puzzling why BB isn’t giving its UES solutions more visibility to drive its leadership in endpoint security.

SWG & DLP

A secure web gateway (SWG) is an adaptive appliance designed to protect access to networks and web apps as the traditional security perimeter becomes mobile. Secure web gateways provide secure access to enterprise resources regardless of a user’s location. At the peak of COVID-19, SWG players like Zscaler recorded a massive spike in demand for their employee access and cloud access solutions. Employee access solutions provide secure access to resources owned by enterprises. Cloud access solutions provide secure access to cloud networks and third-party apps. It will be immediately obvious that providing such a solution at scale to millions of endpoints and networks across the globe isn’t something that can be done overnight or in a year. The success of Zscaler and other SWG vendors is a result of years of hard work. I also attribute the success of secure web gateway vendors to the market’s perception of how these solutions should be consumed. Secure web gateways are perceived as adaptive replacements for traditional firewalls. When enterprise CIOs were dusting their business continuity plans off the shelves at the peak of COVID, the glaring problem was how to replace firewalls since most employees won’t be accessing corporate apps beyond the HQ or branch perimeter. This explains the spike in demand for VPNs and VPN replacement solutions. Another reason for the success of players like Zscaler is their ability to solve complex web access problems. Large enterprises demand traffic inspection, content filtering, and remote browser isolation capabilities. Large enterprises also have the budget to pay for these capabilities. As the Secure Web Gateway functionality expands, the line between basic SWGs and CASBs (cloud access security broker) blurs. Therefore, it is more likely that BB releases a CASB and not a web gateway.

We continue to see interest from enterprises seeking to integrate cloud access security broker (CASB) and SWG functionality. SWG vendors are responding to this trend, by either acquiring CASB technology or partnering with CASB providers (mainly Microsoft and its Cloud App Security service) to deliver more tightly integrated CASB and SWG solutions – Source – Gartner

BlackBerry has more of a vertical focused go-to-market strategy, unlike other security players that play by market segment. Wording its marketing message that it will be releasing SWG products makes sense if it plans to offer basic SWG to SMBs. It will be tough for BlackBerry to offer basic SWGs to large enterprises. Large enterprises that want basic SWGs can easily task their existing network security vendors to enable their web proxy module. Network security vendors can leverage their partnership with top public cloud platforms to offer CASB functionality if they data leak prevention solutions.

Given its vertical focus, BlackBerry will most likely design its SWG solution to solve business problems related to data security and compliance. This explains why BB is also working on a DLP solution on the side. It will have been easier to digest its SWG play if BlackBerry states it will offer a CASB with SWG and DLP features. I reckon BB might be perceived as a competitor to Zscaler and Cisco (CSCO) by playing in the SWG space, which isn’t really good for BlackBerry’s competitor strategy.

Source: BlackBerry

As a CASB vendor, BB can leverage existing UEM capabilities for endpoint visibility. This will be complemented by its user and entity behavior technology acquired from Cylance. Providing more granular visibility and data leak prevention management capabilities to popular apps like Microsoft 365 will require partnerships. I reckon most cloud platforms will want to control data and access security for their cloud apps. This will make it tough for a niche player to focus on protecting access to cloud apps solely. This probably is the reason why BB chooses to be perceived as a web gateway player as it sells its DLP solution to highly regulated verticals.

Major data security vendors and tech titans like Google (GOOGL) and Microsoft (MSFT) have expanded their portfolio of capabilities to approach data security in a holistic and integrated fashion. – Forrester

The monetization opportunity will be geared towards improving the depth of BB’s capabilities in highly regulated verticals. BlackBerry now shares a dollar net expansion metric. It will be insightful to watch that number after it releases its SWG and DLP offerings. Driving new customers with its SWG solution will be tough. I expect cloud platforms to keep evolving their data security features to prevent the rise of new DLP players.

Also, evolving a robust SWG capability will cost a fortune. It isn’t clear if BB will be willing to compete in the large enterprise segment, which has players like Zscaler and network security vendors like Palo Alto Networks (PANW). Even it is willing; I am not sure it has the resources. I believe BB should focus on strengthening its UES capabilities to play in the endpoint security space. BB’s endpoint and remote work products were lost in the IoT noise last quarter. Currently, the WFH solution is categorized under the UEM section of its website. The SWG and DLP capabilities risk following the same path as customers demand WFH solutions with strong security features. Given the hot demand for WFH solutions, it is possible BB made this classification because UEM is a better revenue driver than UES. If this true, it means Cylance has been underperforming. This isn’t good for BB’s long term revenue trajectory. Bulls don’t agree with me that the UEM space is getting commoditized.

Microsoft 365 customers are being forced to justify the use and incremental cost of additional endpoint management tools because Microsoft Endpoint Manager is included in most entitlements. – Source – Gartner

Investors should wait for the growth of the software division as we exit the current calendar year. Until the product strategy gives the UES solutions more prominence, I remain neutral on BB’s Spark platform’s new capabilities.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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