Blackberry 2015 Annual Report Download - page 29

Table of Contents
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The Company may not be able to develop, market and distribute an integrated software and services offering, or
otherwise monetize its technologies, to grow revenue, achieve sustained profitability or mitigate the impact of the
decline in the Company's service access fees.
The future success of the Company depends on its ability to grow revenue, sustain profitability, and mitigate the impact of the
Company's declining service access fees through the development, marketing and distribution of its integrated software and
services, and through the monetization of its other technologies.
For the Company to increase its software and services revenues, it must continually grow its customer base and increase the
depth and breadth of the deployment of the Company's software and services with its existing customers by expanding the use
of the Company's software and services on substantially more devices or for more users throughout such customers’ businesses.
The Company also needs to upsell; that is, to sell additional software and services to the same customers. The rate at which the
Company's customers purchase additional software and services depends on a number of factors, including the perceived need
for such additional software and services, features or functionality, the perceived reliability of the Company's software and
services, and other competitive factors, such as pricing and competitors’ offerings. If the Company's efforts to sell or upsell
software or services as described above are not successful, its results of operations could be materially impacted.
Further, existing customers that purchase the Company's software and services have no contractual obligation to purchase
additional solutions after the initial subscription or contract period. The Company's customers’ expansion and renewal rates
may decline or fluctuate as a result of a number of factors, including the level of their satisfaction with the Company's software
and services or the Company's customer support, customer budgets and the pricing of BlackBerry software and services
compared with the solutions offered by the Company's competitors, any of which may adversely impact the Company's
revenue.
For smaller or simpler deployments, the switching costs and time are relatively minor compared to traditional enterprise
software deployments and a customer may decide not to renew with the Company and switch to a competitor’s offerings.
Accordingly, the Company must invest significant time and resources in providing ongoing value to its customers. If these
efforts fail, or if the Company's customers do not renew for other reasons, or if they renew on terms less favourable to the
Company, BlackBerry's revenue may decline and its results of operations could be materially impacted.
The Company's ability to grow software and service revenue is also dependent on its ability to expand its distribution
capabilities. The Company's software and services distribution strategy includes reliance on non-exclusive relationships with
indirect partners, resellers and carriers. These relationships are complex and require a significant commitment of internal time
and resources. These entities have entered, and may continue to enter, into strategic relationships with the Company's
competitors and may terminate their relationships with the Company with limited or no notice and limited or no penalty, pursue
other partnerships or relationships, or attempt to develop or acquire solutions or services that compete with the Company's
products. If these entities do not effectively market and sell the Company's products, if they choose to place greater emphasis
on solutions of their own or those offered by the Company's competitors, or if they fail to provide adequate support or
otherwise meet the needs of the Company's customers, the Company's ability to grow these revenues may be adversely
affected. There can be no assurance that these entities will act in a manner that will promote the success of the Company’s
software and services. See also the Risk Factor entitled “The Company’s ability to sell, deliver and support BlackBerry
products and services is dependent on establishing and maintaining relationships with network carriers and distributors”.
The Company's software and services distribution strategy is also dependent on building a direct sales force, which requires
significant time and resources, including investment in systems and training. There can be no assurance that the Company will
be successful in implementing its distribution strategy.
Finally, the Company expects the generation of revenue from software and services and its other technologies to mitigate the
impact of declining service access fees. The Company currently generates service revenue from billings to its BlackBerry
subscriber account base that utilize BlackBerry 7 and prior BlackBerry operating systems primarily from a monthly
infrastructure access fee (sometimes referred to as a “service access fee” or “SAF”) charged to carriers or resellers, who in turn
bill the BlackBerry subscriber.
While the Company expects that subscribers using BlackBerry 7 and prior BlackBerry operating systems will continue to
generate service revenue, the amount of those revenues is expected to continue to decline in the coming quarters, particularly as
users of BlackBerry Bold and BlackBerry Curve smartphones upgrade to the BlackBerry Classic or to a competitor's
smartphone. This decline in service revenue could be significant. The Company cannot predict the rate of this anticipated
decline with any degree of certainty as it depends on a number of factors, including the rate at which current BlackBerry 6 and
BlackBerry 7 customers migrate to BlackBerry 10 and use only standard BlackBerry services, the Company's ability to
continue charging SAF for its BlackBerry 6 and BlackBerry 7 products, and the Company's ability to further develop a
compelling integrated services and software offering that generates new service and software revenues.
The Company expects to mitigate the loss of the enterprise portion of SAF revenue by generating revenue from enterprise
customers that elect to utilize BES12 and other new software and services. Customers that require enhanced services, including