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BlackBerry Ltd. executive John Wall had an epiphany about two years ago after listening to a colleague in the auto industry complain about the high costs of developing basic software — what he called “the underwear.”

If the automaker wanted out of the business of developing this underwear, then Wall saw a golden opportunity for his company to step in and do it for them.

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Today, as BlackBerry’s head of Internet of Things (IoT), he travels the world to sell auto executives on his vision of creating a basic software operating system for vehicles. If his plan takes off, it could provide a lifeline for the Waterloo-based company, which has struggled in the past decade and is now trading near an all-time low. But there are obstacles to overcome.

One kink in Wall’s plan is that many auto executives believe software could open up future revenue streams, so they are reluctant to cede control of it to a third party. To many of them, BlackBerry’s failed smartphone business stands out as a prime example of what can happen to a company that underestimates the importance of controlling its software ecosystem.

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“BlackBerry was not able to survive from a handset perspective because they did not have the (software) ecosystem,” said Wall. “I think the car companies are concerned that if they miss the boat on software, and they aren’t able to generate recurring revenue around software, then somebody else will.”

But he said vehicles have become so cluttered with software and controllers that many executives recognize they need a solution, a solution he believes he has.

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As a result, BlackBerry has high hopes for its IoT business. Last year, it told investors it expects the addressable market for IoT software to experience a compound annual growth rate of eight to 12 per cent for the next few years, reaching more than US$1.75 billion by 2026.

So far, the company has captured only a fraction of that market. Last quarter, the IoT business posted $55 million in revenue, about 70 per cent of which is derived from auto-related sales.

That figure is tiny by BlackBerry’s historical standards, given that it was once Canada’s most valuable company. In 2011, the company posted $19.9 billion in annual revenue when its smartphone business reached its peak, and in 2008, its market capitalization topped $84.5 billion, according to Bloomberg data. Its revenue last year was about US$650 million, and its market cap has now dwindled to around $2.2 billion.

Nevertheless, Daniel Chan, an analyst at TD Securities who covers BlackBerry, described the IoT auto software business as the company’s “crown jewel” because it already dominates a specific niche: safety-certified, real-time embedded operating system software in vehicles.

“There are few competitors in this space that do what they do,” he said.

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Wall said the auto industry has a unique and complex software market: most vehicles use multiple operating systems, whereas smartphones operate just one.

Although he likes to say BlackBerry has relationships with every single automaker except Tesla Inc., his challenge is convincing them that his company is best-suited to unify all those different operating systems into a single system.

There are few competitors in this space that do what they do

Daniel Chan, analyst, TD Securities

Internally, that initiative is known as Project Green, and Wall said he’s pitching the idea that BlackBerry can build a “non-differentiating” operating system for vehicles, one that would function without glitches, so that automakers and their suppliers can focus on building the software applications that matter to their customers.

Under this plan, he said BlackBerry, which already has software in more than 230 million vehicles, would essentially manage the software in any vehicle. It would also make sure it works with any hardware, and it would buy software from outside suppliers, oversee the integration and sell it back to automakers.

“It’s not necessary that we would create all the software in this vehicle (operating system) platform,” Wall said, “but we would be kind of the channel for it.”

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Of course, there are many headwinds for BlackBerry to achieve that dream.

In November, its chief executive and executive chairman John Chen retired after a decade at the helm, during which time the company’s revenues slipped as its smartphone business declined, and the company frequently posted losses.

In January 2022, Chen officially decommissioned BlackBerry’s smartphone business, saying that the company had reinvented itself and was now focused on cybersecurity and IoT.

But he repeatedly told analysts last year that the cybersecurity business was losing money and had not achieved the growth he wanted. The company subsequently hired bankers and announced plans to create a separate business for its IoT business via an initial public offering planned for around this June.

Separating IoT from the cybersecurity business would increase shareholder value, Chen said in a call with analysts last year, though he added that BlackBerry intended to keep an ownership stake in the IoT spinoff.

Ultimately, Chen retired, BlackBerry in December hit pause on the IPO idea and appointed John Giamatteo — head of its cybersecurity business — as its new chief executive. Now, the company is separating its two businesses into standalone units, leaving the door open for an IPO down the line.

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“A key focus is to return BlackBerry to profitability,” Giamatteo said in one of his earliest comments to analysts.

Prior to his appointment, the company posted a US$21-million loss in its third quarter compared to a US$4-million loss a year earlier. In January, its shares plummeted nearly 20 per cent and have yet to recover after the company announced a US$160-million private-debt offering, which was then increased to US$175 million. And on Feb. 13, the company announced it would close six of its 36 global office locations, and is planning additional layoffs — having cut 200 jobs last quarter — in its cybersecurity division.

If the challenges of the cybersecurity division have cast a shadow on the IoT business, it may be old hat for Wall, who has worked in auto software for 25 years.

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He joined BlackBerry in 2010 after it bought Ottawa-based QNX Software Systems, largely to acquire that company’s team of software developers to help build the operating system for its smartphone business.

Wall said he declined to work on smartphones after the acquisition, and continued to focus on auto software, which at the time meant infotainment systems such as stereos inside the vehicle.

“I stayed back and said, ‘No. I want to continue to work on automotive,’ and I rebuilt the team,” he said.

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Over time, however, Apple Inc. and Google’s parent Alphabet Inc., the same companies that created smartphone operating systems that destroyed BlackBerry’s handheld business, also moved into auto software. Today, those companies dominate the infotainment software.

BlackBerry QNX, as Wall’s company is known, successfully pivoted to building safety-certified applications for vehicles, and moved away from infotainment.

That was enabled in part by a rapid transformation taking part in the auto sector that has made vehicles less mechanical and more driven by software. Today, everything from suspension and steering to braking and propulsion, among other many things, is controlled by an array of software programs, controllers and sensors.

Phil Amsrud, associate director for the automotive semiconductor research area at S&P Global Inc., a research company, said the rapid growth of software means that a bevy of different software operating systems and controllers function in any given vehicle.

That decentralized software architecture is seen as a possible headwind for advanced software systems such as autonomous driving, he said.

“The endgame that everyone is playing towards is going from 100 to, at some point, one central computer that does everything,” he said.

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Amsrud said BlackBerry is already positioning itself to help with that transition. The company sells a hypervisor, which is essentially a virtual machine that he described as “a traffic cop,” to manage all the different operating systems in the vehicle.

Auto companies are also grappling with how much, and to what extent they can add software development to their list of core competencies. For example, General Motors Co. chief executive Mary Barra has said she wants investors to think of her 100-year-old company as a tech company.

“We can be a company that not only innovates and grows, but leads,” she said in 2018.

Alongside such bold proclamations, automakers are also spending billions of dollars. In 2021, Toyota Motors Corp. and Volkswagen AG each invested between US$3 billion and US$4 billion into software research and development, while BMW AG, Mercedes-Benz AG, GM and Ford Motor Co. each invested between US$1 billion and US$1.75 billion that year, according to Luke Junk, an analyst at Robert W. Baird & Co. Inc.

That spending is driven by a desire to find new sources of revenue, said Eric Noble, founder and president of The CarLab, an automotive design consultancy in California. All the new sensors on board modern vehicles are collecting rich troves of data, he noted.

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As many North American automakers eye the costs of rebuilding their supply chains for the electric-vehicle transition, they’ve cast their eye on this data as a potentially lucrative asset.

“This is a search for revenue,” Noble said.

He said he had doubts about whether legacy automakers are capable of leveraging data to collect revenue, which would essentially transform them into service providers. For that reason, he said BlackBerry is smart to position itself as a neutral party that would build “non-differentiating” software that wouldn’t necessarily take any data or look to provide services.

“It’s a pretty good strategic idea,” Noble said. “The wildcard is how long does it take the automakers to fail and admit they failed?”

The wildcard is how long does it take the automakers to fail and admit they failed?

Eric Noble, founder, The CarLab

Wall said he thinks some automakers are ready to work with BlackBerry on an operating system. Some automakers, though not all, realize they have wasted too much time and money building levels of software that don’t make a difference to their end customer, he said.

He said BlackBerry’s biggest rival is Linux, an open-source platform that automakers such as Tesla have used to build their safety-certified software.

Wall said BlackBerry is also moving towards making its programs “open source,” though not in the traditional sense. The company plans to show some of its code to the public for transparency purposes, and then it will work with automakers in a more co-operative sense to develop software, he said.

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He said BlackBerry failed to establish a dominant operating system for smartphones before its rivals seized the opportunity, but said its timing is right to do so for the automotive market.

“We’re talking about the right thing at the right time,” he said.

He predicted it would be “a gradual” success, with BlackBerry scoring wins with maybe one vehicle model series at first, then expanding to that automaker’s entire fleet, and then to other automakers’ fleets.

Until then, Wall said he keeps travelling the world, with three trips to Germany planned for the next month, and telling auto executives why it makes sense to allow Blackberry to build their operating system.

In turn, they often remind him about BlackBerry’s smartphone business.

“Nobody ever lets me forget it … to be honest,” he said.

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