BlackBerry crumbles

Once a Canadian national champion, the company is seen as ripe

for a sale after misjudging the smartphone revolution
After starting her career in New York’s financial services industry five years ago, Carrie Sin was
rarely without her BlackBerry. Like millions of white-collar workers around the globe, she felt a
sort of enforced allegiance to it. “I always had it for work and it was easier to stick with one
device. Also, I was used to the keyboard,” she says. But the appeal of her BlackBerry began to
wane as more of her friends bought iPhones. Socially, it was like being stuck at the office while
everyone else was at a party. “I was left off group texts and the running joke when my friends
would email about new apps would include something like: ‘Carrie has a BlackBerry so her only
app is [to use it as a] paperweight’.” So in May, she finally made the switch. The experience,
says Ms Sin, was “life-changing. Really.” She is not alone. In the fiscal first quarter
BlackBerry’s subscriber base fell by 4m to 72m. Its longtime strength – corporate users such as
Ms Sin – has been unable to insulate it from the touch and app-driven smartphone revolution
unleashed by Apple’s iPhone. At the top of its game, BlackBerry seemed almost invincible – an
icon for the 2000s, feted by rap stars, captains of industry, lawyers and even US President
Barack Obama, who famously refused to give up his personal BlackBerry when elected. Those
were the BlackBerry glory days when mobile email was the “killer app”. The company’s
devices, which helped define the embryonic smartphone market, were renowned for their mini-
Qwerty keyboards, reliability and security. Those days are long past. BlackBerry’s share of the
global smartphone market has fallen from about 50 per cent to just 3 per cent over the past 4
years, according to IDC, the market research firm. In the last reported quarter, the Canadian
company reported an unexpected net loss of $84m and forecast more losses to come. Despite the
launch of smartphones built around the company’s new BlackBerry 10 operating system, sales of
the new models fell about 1m units short of analysts’ targets. Stunned by those numbers and a
share price that has collapsed from $230 at its peak to around $11, BlackBerry’s board finally
called time on the company’s nascent turnround strategy on Monday, setting up a special
committee to undertake a ‘strategic review’– a move that most analysts believe will lead to a sale
or leveraged buyout. This is all a far cry from 2008 when the market valued BlackBerry (then
called Research In Motion) at almost $80bn. RIM replaced Nortel Networks, which filed for
bankruptcy protection in January 2009, as Canada’s technology flag-bearer and the company’s
co-chief executives, founder Mike Lazaridis and Jim Balsillie, were treated like rock stars. But
signs were growing that the culture of relying on big corporate sales was running too deep and
that BlackBerry was missing the phenomenon of smartphone apps that would come to dominate
many aspects of customers’ lives. Basil Al-Dajane describes his four-month internship at
BlackBerry’s headquarters in Waterloo, Ontario in 2010 as his time in the “dungeon”. “It was
like working at an insurance company but they’re trying to make technology,” says the 22-year-
old. “It was very corporate – that’s who they were selling to, and that’s the culture they adopted.”
During the 2011 Mobile World Congress in Barcelona, Mr Balsillie was asked whether
BlackBerry had lost touch with customers and become jaded. “I don’t think that is fair at all,” he
snapped back. He added defiantly: “We believe the best is still ahead of us.” It wasn’t. Early last
year Mr Balsillie and Mr Lazaridis stepped down after disappointing results and mounting
evidence that many customers, particularly in the US, were abandoning their “crackberry”
addiction in favour of “sexier” smartphones sold by Apple and Samsung. Mr Balsillie and Mr
Lazaridis were replaced by Thorsten Heins, a German-born engineer, who set out to complete the
technology transition that his predecessors started. With the board’s backing, Mr Heins bet on a
new but long-delayed operating system called BlackBerry 10, designed to take advantage of
seismic shifts in the smartphone hardware market including the move to touchscreens. At the end
of January, Mr Heins unveiled BB10 and two next generation handsets, the Z10 and Qwerty-
keyboard-enabled Q10. For good measure, he also formally announced the name change from
RIM to BlackBerry and, in a particularly awkward moment on stage, introduced singer Alicia
Keys as the company’s new creative director. Ms Keys, it was soon revealed, had been a big
iPhone user. Despite its problems, Mr Heins and the BlackBerry board believed BlackBerry’s
system could emerge as a clear alternative to Apple’s iOS and Google’s Android, which is used
by Samsung. Mr Heins said the launch marked a “new beginning” for the Canadian smartphone
maker. But as the company discovered, once BlackBerry lost its “coolness” and both consumers
and companies began to switch allegiance, the trend was almost unstoppable, particularly in the
sophisticated US market. BlackBerry was not alone. Motorola and Nokia had also
underestimated the smartphone revolution. … BlackBerry’s senior executives in particular cast
doubt on whether the iPhone could succeed without a physical keyboard. “They looked at the
iPhone and dismissed it just like Nokia [had done],” says Ron Adner, professor of strategy at
Tuck School of Business and an expert on innovation who believes many of RIM’s problems
stem from this error. “When they finally did take it seriously, they over-corrected. They focused
too much attention and resources on consumers and their app store, and lost their advantage with
their core enterprise clients: company IT chiefs,” he says. When the iPhone was launched,
BlackBerry concluded that without a physical keyboard it would never be widely adopted among
its core business demographic, who sent and received large numbers of emails. “The iPhone has
severe limitations when it comes to effortless typing,” Mr Lazaridis said soon after the iPhone’s
launch. What he and other industry veterans missed was that the iPhone’s virtual keyboard was
adequate and the benefits of having a speedy mobile web browser and access to a huge number
of free or low-cost apps far outweighed its limitations. Finally, “due to the lacklustre BB10
launch, we think the board is actively considering taking the company private or selling the
company,” says Peter Misek, an analyst with Jefferies. The apparent about-face just six months
after the BB10 launch highlights the brutal nature of the global smartphone industry dominated
by Apple and Samsung. However, the company’s bankers are believed to have been shopping
BlackBerry around for at least 12 months, according to people familiar with the market. Among
the companies that are believed to have been approached are Microsoft and its partner, Nokia;
Samsung; HTC; Motorola, which is now owned by Google; Amazon; Lenovo; Dell; and IBM.
Others, including Silver Lake Partners, the private equity firm, have also been contacted but all
are thought to have spurned the advances. Given BlackBerry’s status as a national champion,
some analysts speculate that a “Canadian rescue” could at least buy more time. Certainly,
affection for BlackBerry is palpable in its home town of Waterloo, where many are confident it
will survive its strategic review. Jody Palubiski, managing partner of the Charcoal Group, which
owns eight restaurants in the area, stresses that the company has done far more than simply turn
the region into a tech hub. “I think about all the parks and the hospital that this has helped
create,” he says, pulling out his BlackBerry in his crowded Beertown restaurant in Waterloo. “I
would never buy an iPhone.” The remedies could include the possibility of BlackBerry quitting
the fickle hardware market to focus on software and network services. Speculation about a
Canadian rescuer has been fuelled in part by the decision of Prem Watsa, who runs Fairfax
Financial and is one of BlackBerry’s biggest shareholders, to resign from the BlackBerry board
owing to “potential conflicts of interest”. Mr Watsa, who holds a 9.9 per cent stake, has said he
has “no current intention” of selling, despite the company’s struggles, and is believed to be
trying to pull together a consortium of Canadian banks and pension funds to back a buyout bid.
But even if such a bid were to succeed, many analysts think it may be too late to save
BlackBerry. “Unfortunately for BlackBerry’s remaining loyalists, this looks like the writing on
the wall for the storied devices, as sales of its new BB10 devices do not indicate that the platform
will regain meaningful market share,” says Charles Golvin of Forrester Research. Rather than
returning to its former glory, they fear BlackBerry could follow other pioneers into oblivion.
When a major private equity company was asked this week whether it was interested in
BlackBerry, the reply was: “Remember the Palm Pilot? Need we say more?”