[peter9477]

One thing I haven't seen mentioned for ages, and not since the infamous "service fees are going away!" panic from December, is the impact BlackBerry World sales may have on BlackBerry's bottom line.

I'm wondering if anyone has spent any time attempting a realistic analysis of this. I don't care for pure speculation... if you want to participate, please think about contributing by spending at least a few minutes with your calculator and brain cells and see if your ideas might be better than someone else's. Links to something I overlooked would be equally welcome.

My own analysis hasn't progressed yet past the thought that I might be close to an average user in the sense that I don't buy a LOT of apps but I also don't shy away from buying any. I've also rented a few movies and purchased one so far. I haven't bought any music through the store because I'm fine with my collection of MP3s ripped from my personal CD collection.

Even so, I think since BB10 came out I've already spent more than $25, and if I extrapolate that over a year, RIM's getting a decent extra chunk of (ultra-high margin?) revenue from my BBWorld activity. I hand-wavingly assume they get a similar percentage (30%) from movies and music as well, and I also assume the overhead of running the store isn't that high (which might be a big mistake on my part).

Does the math somehow show that this is still a drop in the bucket? Considering that this could go on every year I own the phone, I could see it equalling the money they made on the hardware. If it's true, how can that be ignored by all the analysts and estimates?

[Sith_Apprentice]

Well, and while I havent looked at the current numbers, but Apple makes a RIDICULOUS amount of revenue from app sales. They take a similar percentage as well. While they are a MUCH larger provider, you could make a reasonable assumption that RIM/BB will be on the same path. It has been stated all along that BlackBerry users spend more on average than Android and iOS users (RIM has said it, not I).

So if you take 75 million (assuming still a loss) users, $5 a month, thats an extra > $1.1 BILLION a quarter ($375m/mo) in revenue that SHOULD be very high margin.

Now we need to subtract everything RIM does to support BlackBerry World, plus their costs to pay out to the devs (port a thon credits, $10k challenge, etc), but you can easily see that it could be HUGE.

I think we can assume the average to be safely above $5 per month, perhaps even double that as BB10 sell through increases.

[missing_K-W]

@Peter9477 how have your apps been doing in Blackberry World? Has the z10 given yourself greater exposure due to the device being an app appealing device. If you decline to comment i understand May Peter be blessed with prosperity on the BB10 platform

[Sqoon]

iTunes barely makes any money, this topic occasionally pops up and the last estimate that I saw was 170 million in profit compared to billions in revenue.

Posted via CB10

[cjcampbell]

iTunes barely makes any money, this topic occasionally pops up and the last estimate that I saw was 170 million in profit compared to billions in revenue.

Posted via CB10

Where did you see that estimate? I was just on a site that "estimated" that they make 15-17% margin from iTunes. Now of course, there's no solid facts behind it but it is a fairly new and thought out article, numbers wise

Counting stool legs | asymco

[Sith_Apprentice]

Where did you see that estimate? I was just on a site that "estimated" that they make 15-17% margin from iTunes. Now of course, there's no solid facts behind it but it is a fairly new and thought out article, numbers wise

Counting stool legs | asymco

Are you talking about iTunes on the desktop with music, or are you talking about iTunes apps? Apps I know Apple takes a good amount of money, I believe they set it at 30% (someone correct me if wrong).

[peter9477]

@Peter9477 how have your apps been doing in Blackberry World? Has the z10 given yourself greater exposure due to the device being an app appealing device.

I'll keep this on topic by saying that it's too soon to say. Since we have no real idea yet how many phones have been sold, I can't compare between the tablet and phones to see whether I'm getting greater penetration and if so, whether it's because of the different form factor or the different OS. I don't think we'll be able to say anything conclusive about that for at least one full quarter, probably two, after we get reliable figures for the number of phones sold. My gut always told me the phones would lead to a higher percentage of sales, at least for certain types of app (e.g. White Noise), but I don't have evidence to say one way or the other yet.

(Regarding the iTunes revenue thing: I read something recently that said that too. I believe it was around $150-175M in profit from iTunes, with Apple (Cook?) noting explicitly that they aren't really trying to make money at it yet, but rather keep making it a top-notch store with lots of content etc. I don't know if BlackBerry's taking the same approach... if so, it certainly won't help the bottom line any time soon.)

[Sith_Apprentice]

I saw the report saying ~150mil in profit from it, and I am quite surprised that it is so little. I wonder where the bulk of their money goes, since that massive datacenter is done (or close to being done), and they host it all themselves.

[cjcampbell]

Are you talking about iTunes on the desktop with music, or are you talking about iTunes apps? Apps I know Apple takes a good amount of money, I believe they set it at 30% (someone correct me if wrong).

Seeing as apps, music, and movies are all done from BBWorld, I would group into the same category(not volume wise but content wise). Assuming an approximate 30%, the same as Apple(I believe), take from purchases, and also knowing that the cost in BBWorld is higher, I think the actual profit margins will be a tad higher for BB.

[Sith_Apprentice]

Seeing as apps, music, and movies are all done from BBWorld, I would group into the same category(not volume wise but content wise). Assuming an approximate 30%, the same as Apple(I believe), take from purchases, and also knowing that the cost in BBWorld is higher, I think the actual profit margins will be a tad higher for BB.

Keep in mind only BB10 phones (which have been on sale less than 2 months) can access all content in BB World. PlayBook, for instance, uses a third party service, and BB7 and below also have, sort of, a third party service. But these are all extremely limited for media consumption and likely wont show in any BB World reports.

[BBThemes]

I believe they set it at 30% (someone correct me if wrong).

yup, 30% for apps. what it is for media isn't known of course so that's harder to figure out.

while I think theres a lot of turnover and revenue to be had from app stores (bb world, google play and iTunes etc) the net profit margins probably aren't that high.
lets say your talking the 30% gross figure, subtract all the hardware, maintenenance, staff and physical architechture involved from servers to buildings, and you might put it at a hopeful 10-15% pre tax.

compare that to the profit margins on devices which for the Z10 is expected over 35% and it looks a small figure. don't forget as well that all the architecture gets used for free apps as well as paid, so id imagine the overheads would be rather high, id expect net post tax profits to probably be around 7% or so at a realistic guess.

As for what BB10 has done for sales, well its worth noting that new phone customers always purchase things, be it BB7 or BB10 its not much different, so in reality probably not much difference to any other device BB launches.

[BThunderW]

Revenue is Revenue. Regardless of how much as long as it turns into a profit. Pretty sure it'll help the bottom line if only a little.

[cjcampbell]

Keep in mind only BB10 phones (which have been on sale less than 2 months) can access all content in BB World. PlayBook, for instance, uses a third party service, and BB7 and below also have, sort of, a third party service. But these are all extremely limited for media consumption and likely wont show in any BB World reports.

Yes, I see what you mean but seeing as there is no service fees from anywhere else. This could be making up the difference. I wasn't even considering the PB or legacy devices but more so the new revenue stream on the new device

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[peter9477]

Let's put it differently, in case there are those reading who know the financial analysis side enough to try some math.

What would it take as an average per-user expenditure on BB10 devices for BBWorld revenue going to BlackBerry to make it worth noting in a financial report? (I'd think a few percent boost in earnings would be notable, but what do I know?)

[Shanerredflag]

If it has a number and six zeros behind it (preferably 7or 8 zeros) its notable.

Posted via CB10

[Sith_Apprentice]

Service revenue is somewhere between $3 and $8 per month per user. Lets just take $5 as an average. Assuming 75 million BB OS users worldwide (that is down about 3 mil), we get $375 million per month revenue from users (> $1 billion a quarter). It stands to reason, revenue wise, that offsetting this by app sales (so each user spending $17) would be more than notable. Granted, this speaks nothing of profit, only revenue itself.

[cjcampbell]

Service revenue is somewhere between $3 and $8 per month per user. Lets just take $5 as an average. Assuming 75 million BB OS users worldwide (that is down about 3 mil), we get $375 million per month revenue from users (> $1 billion a quarter). It stands to reason, revenue wise, that offsetting this by app sales (so each user spending $17) would be more than notable. Granted, this speaks nothing of profit, only revenue itself.

I could be wrong but I believe that the average BIS revenue is $3/month. The higher comes from BES and that will, in theory, grow as BES10 is introduced and non BlackBerry devices start to earn revenue

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[peter9477]

Is it safe to assume that, in the past, BES users spent less on apps than regular consumers?

Is it also safe to assume that, with Balance in the picture now on BB10, this will be less true? Many BES users will be doing double duty as regular consumers as well now, where before they might have had another (non-BB) phone.

[Sqoon]

Is it safe to assume that, in the past, BES users spent less on apps than regular consumers?

Is it also safe to assume that, with Balance in the picture now on BB10, this will be less true? Many BES users will be doing double duty as regular consumers as well now, where before they might have had another (non-BB) phone.

That seems reasonable, I just don't think that the profit will be considered significant. I do think that the profit from app sales will skyrocket compared to what it was under the old OS, assuming that it takes in the market.

Posted via CB10

[peter9477]

... I just don't think that the profit will be considered significant.

I don't have an opinion on it, since I'm lacking data. That's why I started the thread... hoping to get more, and build up some sort of picture of it so we can tell whether it will be significant or not.

[cjcampbell]

That seems reasonable, I just don't think that the profit will be considered significant. I do think that the profit from app sales will skyrocket compared to what it was under the old OS, assuming that it takes in the market.

Posted via CB10

I agree, the profit may not be significant, but couple that with the fact that they are finally making a decent profit from device sales, and I think it will calm the worries of the lack of BIS revenue.

Posted via CB10

[ccbs]

I don't think it will amount to any significant revenue until there are significant users. Apple has 500M active iTunes user and account for 35% of the total music sale, 70% of mobile apps revenue in US. Even with that scale, they aren't really making anything more than a rounding error of profit in their financial report. Unless Apple is doing something significantly wrong, I don't really see how BB can hope the BB World to become a significant revenue stream.

[kfh227]

Each phone sale probably gives BBRY $100-$150.

The case I bought wasn't cheap and I think BBRY makes it. If so, they pay China 99 cents to make it and sell it for $40. That's a nice profit margin.

Anyway, if they make $125 per phone, that means 100K sold generates $12,500,000. 1 million is about $125 million.

That's cash in. Cash out is for things like SG&A and advertising among other things. You can use historical norms for most of this. Just subtract $250 million per quarter for advertising ($1B per year the first year then it goes down).

Anyway, if they sell 10 million phones, that $1.25 billion in cash flow. This is hte kind of number that I really want to see just to know they are approaching break even (back of napkin guess). If they start talking 30 million phones, you are going to see some serious free cash flow in the $1-$2B range just for the Z10.

It can get very interesting. Who knows what movies, music, etc will do to drive free cash flow. I actually fear the target audience of business. I want kids buying this thing so they waste money on apps, games and music.

[peter9477]

I don't think it will amount to any significant revenue until there are significant users.

I don't think I agree with this conclusion yet. There are exactly as many users as there are BB10 phones being sold (ignoring non-BB10 users for purposes of this thread). If the money from handset sales is significant (obviously it is expected to be or the stock would be about $5 today), then if app/movie/music purchases per user over some period (say, a year) are some significant proportion of that (define that as at least 3-5%?) then it's significant revenue.

kfh227 says maybe $125 per phone in h/w sales. (I have no idea yet what it is really.) That's a one-time thing. Accessories add some more. Whatever service fees they can get add some more. BBWorld adds some more. I'm just trying to figure out if the latter (and maybe accessories) isn't maybe a large enough chunk of high margin revenue that it doesn't make sense for analysts to be completely ignoring it, as they generally appear to.

[sosumi11]

Well, and while I havent looked at the current numbers, but Apple makes a RIDICULOUS amount of revenue from app sales. They take a similar percentage as well. While they are a MUCH larger provider, you could make a reasonable assumption that RIM/BB will be on the same path..

Apple's intent has been to run iTunes (Music) as a break-in venture. However, since the introduction of the App Store and Apple's 30% cut, the operating costs are spread out more evenly and thus Apple is probably operating on a 2% margin (Apps) and 1% margin on Music. In this case, it's all about scale.

It has been stated all along that BlackBerry users spend more on average than Android and iOS users (RIM has said it, not I).

I would like to know where they got their info. It's well documented that iOS is dominating.
Which mobile platform users spend the most?

So if you take 75 million (assuming still a loss) users, $5 a month, thats an extra > $1.1 BILLION a quarter ($375m/mo) in revenue that SHOULD be very high margin.

Now we need to subtract everything RIM does to support BlackBerry World, plus their costs to pay out to the devs (port a thon credits, $10k challenge, etc), but you can easily see that it could be HUGE.

I think we can assume the average to be safely above $5 per month, perhaps even double that as BB10 sell through increases.

Since Apple has a head start of over a decade, it is quite illogical that BlackBerry will be turning a profit on BlackBerry World in the near future not to mention its an exercise in futility trying to guess with almost zero real data.