BSTR/479

IBS Center for Management Research

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Blackberry – Set for a Turnaround? O
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This case was written by Namratha V Prasad, under the direction of G V Muralidhara, IBS
Hyderabad. It was compiled from published sources, and is intended to be used as a basis for
class discussion rather than to illustrate either effective or ineffective handling of a management
situation.
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 2015, IBS Center for Management Research. All rights reserved.

To order copies, call +91 9640901313 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,
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Blackberry – Set for a Turnaround?

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“We will survive as a company and now I am rather confident. We’re managing
the supply chain, we are managing inventories, we are managing cash, and we
have expenses now at a number that is very manageable. BlackBerry has survived;

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now we have to start looking at growth.”1
– John Chen, CEO of Blackberry Ltd., in January 2015.
“He’s (John Chen) done quite an impressive job, better than expected coming in,
providing clear guidance in terms of direction of the company and taking action
immediately. It’s been well received in the marketplace, and that’s reflected in the

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stock price.”2
– Philip Petursson, Managing Director at Manulife Asset Management3,

INTRODUCTION O in March 2014.

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In the fourth quarter of fiscal 2015, financially struggling Blackberry Ltd. (Blackberry) reported a
narrow net profit of US$ 28 million or 5 cents per share. Though the company experienced a
serious fall in revenues from US$ 793 million in the previous quarter to US$ 660 million, its
second-straight quarter profits drove its stock price up by around 5%. John Chen (Chen), the CEO
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of Blackberry, believed that the continuing profits were an indication that the company was on its
way to making a successful turnaround. He said, “Our financial viability is no longer in question.
We’re now turning our attention to revenue stabilization.”4
Blackberry, founded in 1984, played the role of a pioneer in the evolution of the global smartphone
market. It introduced the first mobile device capable of sending and receiving messages wirelessly
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in the late 1990s. By 2008, the company was its peak with a market capitalization of US$ 82
billion and was market leader in the global smartphone market, with a market share of 44%.
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However, the introduction of Apple Inc.’s (Apple) 5 iPhone drastically changed the smartphone
market and Blackberry failed to keep up with the redefinition of the mobile market. Blackberry,
which mostly catered to business users, failed to meet the requirements of the new smartphone
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1
Mike Wheatley, “Blackberry Is Poised to Make a Stunning Comeback In 2015,” http://siliconangle.com,
January 15, 2015.
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2
Hugo Miller and Cornelius Rahn, “BlackBerry CEO Chases BBM, Server Growth as Stock Surges,”
www.bloomberg.com, March 6, 2014.
3
Manulife Asset Management is the global asset management arm of Canadian insurance company and
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financial services provider Manulife Financial. It has operations in 17 countries and its assets under
management were US$ 277 billion, as of 2014.
4
Euan Rocha and Alastair Sharp, “Blackberry Posts Fourth-Quarter Profit; Seeks to End Revenue Slide,”
www.reuters.com, March 27, 2015.
5
Apple, Inc., founded in 1976, is a global multinational company engaged in the design and sale of
consumer electronics, computer software, and personal computers. Some of its well known products are
the iPod, the iPad, the iPhone, and Mac notebooks.

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 Blackberry – Set for a Turnaround?

market that had become more consumer focused. Though the company responded to the changed
market situation with a string of devices, the phones did not make a mark as they were either late
to the market or failed to impress consumers.
By 2011, Blackberry had become a miniscule player in the smartphone market. Its products
remained unsold causing its inventory to pile up and losses to build up. In 2013, the company was
put up for sale. However, it failed to find a proper buyer, which prompted one of its shareholders --
Fairfax Financial Holdings Limited (Fairfax)6 to infuse funds of around US$ 1.25 billion into the

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company to keep it afloat. Fairfax also brought in a change of management at Blackberry when it
appointed Chen, considered a turnaround expert, as the CEO.
Chen devised a new strategic direction for the company with heavy focus on enterprise mobility
and security. In order to cut operation costs, he outsourced the design, production, and distribution

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of Blackberry phones – targeted at developing markets – to Foxconn Technology Group
(Foxconn)7. Besides, he focused on building up the company’s services offerings such as
Blackberry Messenger (BBM) and the QNX Operating system, apart from making rapid inroads in
the Internet of Things (IoT) space.
In 2015, Chen claimed that he had successfully completed the first stage of Blackberry’s

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turnaround plan and was now focused on returning the company to profitability. However, analysts
were still not convinced. They remained skeptical about the company’s growth prospects and

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expected one of the major IT companies to make an offer to acquire it within the next two years.

BACKGROUND NOTE
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In 1984, Mike Lazaridis (Lazaridis) and Douglas Fregin, engineering students at the University of
Waterloo8, established a company called Research in Motion (RIM). The company worked on
small engineering projects and made a few electronic devices to order. In 1988, RIM became the
first North American wireless data technology developer, when it came out with connectivity
products for wireless packet-switched data communications networks of Mobitex9.
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In 1990, the company introduced a digital-barcode reader called the ‘Digisync’, which drastically
reduced the editing time for a film editor. Over the next decade, RIM introduced several Mobitex
products including the Mobitex protocol converter (MPC), Mobitex point-of-sale solution, the first
general purpose Mobitex X.25 gateway – RIMGate, the first Mobitex mobile point-of-sale
terminal (MPT), and the first Type II PCMCIA radio modem – Freedom.
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In 1992, Jim Balsillie (Balsillie) joined RIM and went on to invest US$ 160,000 of his own money
in the company. RIM then implemented a unique corporate culture with two CEOs – Lazaridis and
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Balsillie. While Lazaridis was in charge of the engineering, product management, and supply chain
aspects at RIM, Balsillie managed sales, finance, and other corporate functions.
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6
Fairfax Financial Holdings Limited, founded in 1985, is a Canada-based financial holding company that
has operations in property, casualty, and life insurance and reinsurance, investment management, and
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insurance claims management.

7
Foxconn Technology Group, founded in 1974, is a Taiwan-based multinational company, which is the
world’s largest electronics contract manufacturing company. With revenues of US$ 131.8 billion, as of
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2013, it was the world’s third-largest IT company by revenue.

8
University of Waterloo, founded in 1956, is a public research university located in Waterloo, Ontario,
Canada. It is a member of the U15, a group of research-intensive universities, with a focus on innovations
in Canada.
9
Mobitex is a wireless network architecture that provides that the framework of the fixed equipment
should be designed to manage all the wireless terminals in a packet-switched, radio-based communication
system.

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 Blackberry – Set for a Turnaround?

Lazaridis believed that there was great market potential for wireless devices. In 1995, RIM built a
radio modem to enable wireless email. In 1996, it introduced the Inter@ctive Pager, the first two-
way messaging pager that allowed users to both send and receive full-length, error-free,
alphanumeric messages. Users could create custom email, faxes, alphanumeric pages and text-to-
voice messages. However, the device was considered bulky and suffered from various glitches.
The low salability of the device prompted RIM to look for partners who would help it refine the
pager. RIM got into an alliance with Intel Corp.10, to supply a chip which could help reduce the
internal components of the pager. In 1997, it got access to funds for its projects when it became a

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publicly traded company on the Toronto Stock Exchange (TSX)11 and raised US$ 115 million.
In 1998, RIM was able to launch the ‘RIM 950 Wireless Handheld’, which was smaller than the first
two-way pager and had a compact keyboard. The new device ensured that the user always had access
to email and it was also synchronized to a PC. In 1999, RIM released the next version of its wireless

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device, which though small and portable, had a bigger screen and better components. It hired US-
based marketing firm Lexicon Branding Inc., (Lexicon) to help name the new product. Lexicon came
up with the name ‘Blackberry’ – “Black” for the black color of the device and “berry” for the
rounded physical keys of the device that resembled the seeds of the blackberry fruit.
RIM received rave reviews for its new device and the sales took off, which prompted several
leading technology companies to enter into a partnership with it. In 1999, RIM was listed on

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NASDAQ12 and was able to raise US$ 250 million.
The company later released the BlackBerry 5810 with voice calling capabilities (using a headset)

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in 2002. A year later, it released its first Blackberry with a color screen. By 2004, RIM was a
market success with more than one million Blackberry users worldwide. In 2006, RIM made a
strong move into the consumer market with the launch of the ‘Blackberry Pearl’ devices with
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several consumer friendly features such as a digital camera and multimedia capabilities.
By 2007, RIM was lauded as the most valuable company on the TSX, with a market capitalization
of around US$ 67 billion. The same year, the company launched the ‘Blackberry Curve’ targeted
at both the consumer and business markets. In 2008, the stock price of RIM reached an all time
high of US$ 149.90 and it had a market capitalization of US$ 82 billion.
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THE FALL OF RIM

The 2007 launch of Apple’s iPhone brought about a sea change in the global mobile market and
spearheaded a chain of events that led to the gradual downfall of RIM. Within a short period of time,
Apple’s iPhone received an overwhelming response from mobile users the world over. It brought in
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the era of the consumer focused smartphones on which users could play games, take photographs,
watch videos, and do a range of other tasks, which were not possible on Blackberry phones.
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In the early days, RIM’s top management did not believe the Apple iPhone was much of a threat;
they thought that the device had several shortcomings such as a short battery life, minimal security
features, and lack of ability to send e-mail (in the early versions).
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RIM also failed to utilize an opportunity to put up a fight against Apple. In June 2007, Verizon
Communications Inc.13, which had been severely impacted by the exclusive partnership between
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10
Intel Corp., founded in 1968, is a US-based multinational corporation and is one of the world’s largest
semiconductor chip makers based on revenue and the inventor of the processors found in most PCs.
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11
Toronto Stock Exchange, founded in 1861, is the eighth largest exchange in the world by market
capitalization (US$ 2.575 trillion, as of June 2014).
12
NASDAQ, founded in 1971, is the second-largest exchange in the US and world by market capitalization
(US$ 8.5 trillion, as of July 2014) and trading volume.
13
Verizon Communications Inc., founded in 1983, is a US-based broadband and telecommunications
company. It was the largest US wireless communications service provider with annual revenues of US$
127 billion, as of 2014.

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 Blackberry – Set for a Turnaround?

Apple and AT&T Inc.14 to sell iPhones, approached RIM with an offer. It asked RIM to develop
the ‘Next iPhone Killer’ which would have a touchscreen phone with no physical keyboard, and
promised to support the phone’s US launch through a large marketing campaign. RIM grabbed the
opportunity and released the ‘BlackBerry Storm’. However, the new device was panned by mobile
analysts for its sluggish performance and the glitches in it. Blackberry Storm’s poor sales created a
negative impact on RIM’s stock price, which fell to US$ 50.
However, all was not lost for RIM. In 2008, the year the successful iPhone 3G was launched, RIM
introduced the ‘BlackBerry Bold’ with faux leather back. The device was targeted at the premium

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segment and it was lauded for its design. Moreover, in 2009, Fortune Magazine15 recognized RIM
as the world’s fastest-growing company16.
In the meantime, with the market failure of ‘Blackberry Storm’, Verizon shifted its focus to
promoting Google Inc.’s17 new operating system, Android. Subsequently, Verizon launched a

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massive marketing campaign around Motorola Inc.’s18 Droid phone based on the Android OS in
2009. As the Android OS became more popular, several mobile manufacturing companies brought
out a slew of phones based on it.
Instead of eating away into the sales of iPhones, the Android phones became a tough competition
for Blackberry phones. According to comScore19, at the end of 2010, in the US mobile market, the

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share of Android based phones had grown to 23.5% from 5.2% in the previous year. During the
same period, RIM lost 10% market share and was left with just 31.6%. The situation deteriorated

RIM’s market share fell to 16%.

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further in 2011 with Android operated phones commanding 47.3% share of the market, while

One of the most critical reasons for the success of the iPhone and Android phones was the apps
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market space that spurred the demand for the devices. Keeping that in mind, RIM launched its
‘App World’ in 2009. However, RIM’s collection of apps paled in comparison to the massive
number of apps on offer at Apple’s ‘App Store’ and Android apps at Google’s ‘Play Store’.
The primary reason for the dearth of Blackberry apps was that independent software developers
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found it difficult to develop apps for the technically complicated Java-based system of BlackBerry
phones. This was in stark contrast to the ease with which developers could create new apps for
Apple’s iOS and Android systems. Moreover, Blackberry was very strict with the developers
before it signed off on the apps they developed for the Blackberry. This stifled their creativity and
enthusiasm.
Analysts pointed out that while the dual leadership setup at RIM worked in the early years of the
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company, as the mobile market changed dramatically, it led to delayed decision making and
inability to accurately understand customer requirements. RIM failed to see the large scale
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potential of the consumer market for smartphones. It struggled to cater to the diverse needs of its
14
AT&T Inc., founded in 1983, is a US-based multinational telecommunications company. It is the second
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largest provider of mobile telephone and the largest provider of fixed telephones in the US. As of 2014, it
had revenues of US$ 132.4 billion.
15
Fortune Magazine, founded in 1930, is a US-based business magazine published globally by Time Inc. It
publishes annually the Fortune 500, a ranking of companies by revenue, which is very popular.
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16
Fortune magazine selected RIM after it considered its revenue growth, earnings-per-share growth, and a
three-year annualized return to investors.
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17
Google Inc., founded in 1998, is a US-based multinational corporation specializing in Internet-related
services and products. Google is considered the world’s top brand in terms of value. As of 2014, the
company had annual revenues of US$ 66 billion.
18
Motorola Inc., founded in 1928, was a US-based multinational telecommunications company. In 2011,
after a period of continuous losses, it was spun off into Motorola Mobility and Motorola Solutions.
19
comScore, founded in 1999, is a US-based Internet analytics company that offers marketing data and
analytics.

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 Blackberry – Set for a Turnaround?

two market segments – individual consumers and business users. Individual mobile users wanted
more functionality and apps in their mobile phones and were not too bothered about battery life or
security features. Corporate users, on the other hand, prioritized security and easy communication.
James Moorman (Moorman), an analyst with S&P Capital IQ Equity Research, said, “They were
always slow to market, and there were always delays in launching. It was compounded by
miscalculating the speed at which the consumer market changed.”20
In 2011, when tablets began to gain popularity in the market, RIM launched its own tablet called

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the PlayBook. However, the release came after a considerable delay and mobile analysts panned
the device for its inferior features, clunky interface, and absence of a wide variety of apps. The
sales of the PlayBook failed to take off even after the company offered high discounts on it during
Christmas 2011. This triggered a market slide for RIM, leading to the company cutting almost
2,000 jobs.

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To compound its problems, in October 2011, RIM faced a four-day service outage, which
prompted mobile users to question its service standards. In 2012, the continued decline of RIM
caused both Lazaridis and Balsillie to step down from their posts of Co-CEOs and Thorsten Heins
(Heins) took over as the CEO. The company also eliminated 5,000 jobs.

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RIM believed that its new mobile operating system – Blackberry 10 – would help it regain lost
market ground and serve as a critical element for its survival. However, the company faced a
considerable delay in the market release of BlackBerry 10. Meanwhile, the stock price of the

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company continued to take a beating, plummeting to US$ 6.10 by the end of 2012.
In mid-2013, the company renamed itself as Blackberry Ltd. It also finally launched the
BlackBerry 10 OS and the first two smartphones to use the operating system, namely, the Z10 and
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Q10. Moreover, the Z10 had a touchscreen, which was expected to appeal to the consumer market
that preferred touchscreen devices. The Z10 was also expected to land Blackberry the third place
in the smartphone market behind market leaders, Samsung Electronics Co., Ltd.21 and Apple.
Previously, the touchscreen feature was vehemently opposed by Lazaridis, who felt that it did not
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offer a clear differentiator against phones from the competition and that Blackberry needed to play
to its strengths. However, Heins and the other Blackberry Directors were in favor of the
touchscreen feature and the company went ahead with incorporating the feature in its new phones.
Some analysts endorsed Lazaridis’ opinion and thought that the one advantage that BlackBerry
could have had over its rivals was a physical keyboard. In 2012, a survey conducted by an app
development company, ‘The Jared Company’, discovered that 68% of Blackberry users said that
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they preferred using a physical keyboard rather than a touchscreen. There were also several
Blackberry users who continued to use Blackberry for email purposes, as they felt it was easier to
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type on that device, even though they owned other touchscreen devices. Moorman added, “The
only people still clamoring for a new smartphone from BlackBerry were in it for the keyboard.
Then they come out with a touchscreen. Anyone who wanted a touchscreen was already gone.”22
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The new phones failed to impress the mobile market and resulted in a large stockpile of unsold
phones. Most analysts felt that the phones were launched at a time when the mobile market was
saturated with cheap touchscreen mobiles with sophisticated operating systems. In addition,
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previous Blackberry users were disappointed to discover that the new mobile phones lacked
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20
Sean Silcoff, Jacquie Mcnish And Steve Ladurantaye, “Inside The Fall Of Blackberry: How The
Smartphone Inventor Failed To Adapt,” www.theglobeandmail.com, September 7, 2013.
21
Samsung Electronics Co., Ltd., founded in 1969, is a South Korea-based multinational electronics
company. It is the world’s largest manufacturer of mobile phones. As of 2013, the company’s revenues
stood at US$ 20.6 billion.
22
Sean Silcoff, Jacquie Mcnish And Steve Ladurantaye, “Inside The Fall Of Blackberry: How The
Smartphone Inventor Failed To Adapt,” www.theglobeandmail.com, September 7, 2013.

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 Blackberry – Set for a Turnaround?

several of the distinguishing features that were present in old Blackberry phones. Moreover, the
company was sluggish in catering to the needs of its business users, such as helping them transfer
apps written for the old Blackberry system onto the new OS. The unsold inventory created a
financial burden on the company. To counter that, the company laid off around 4,500 employees
(40% of its workforce).

REINVESTMENT OF RIM AND ENTRY OF JOHN CHEN

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In mid-2013, Blackberry’s market share in the global smartphone market fell to 2.9%, from 4.9%
in the previous year. Moreover, in the third quarter of 2013, the company made a net loss of US$
4.4 billion, or US$ 8.37 a share, on revenue of US$ 1.2 billion. The company then announced that
it was looking into various strategic alternatives including the option for sale.

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However, Blackberry rejected offers from several leading tech companies who expressed interest
in acquiring certain parts of the company. Blackberry stated that splitting up the company for sale
was not in the best interests of its stakeholders. According to sources, Blackberry’s assets (devices,
network assets, software, and patents) were so heavily intertwined that they would lose
considerable value in case of a company split. Moreover, Blackberry had to consider the

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possibility that the Canadian government could closely scrutinize any deal involving foreign
companies, and that this lead to further uncertainty and customer losses.

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In November 2013, BlackBerry was set to be acquired by a consortium led by Fairfax, which
already had about 10% stake in the company, for US$ 4.7 billion. However, the deal fell through
and Fairfax instead opted to purchase debentures to the tune of US$ 1 billion and bring in a
management change. If the deal had gone through, Blackberry would have become a private
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company. Afterward, Fairfax purchased additional debentures worth US$ 250 million, which
increased its stake in Blackberry to 17%. Blackberry also sold most of its real estate holdings in
Canada in order to further raise cash of around US$ 550 million.
The company then replaced Heins with Chen, the former CEO of Sybase Inc. (Sybase)23. Chen
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was very keen to achieve a turnaround of the company and immediately set about making strategic
changes. Chen said, “BlackBerry is an iconic brand with enormous potential – but it’s going to
take time, discipline, and tough decisions to reclaim our success. I look forward to leading
BlackBerry in its turnaround and business model transformation…”24
Raised in Hong Kong, Chen completed a bachelor’s degree in electrical engineering at Brown
University25 and afterward acquired a master’s degree at the California Institute of Technology26.
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Chen had a reputation for being a turnaround specialist for technology companies in trouble. He
was responsible for bringing about a turnaround at Sybase after he became the CEO of the
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company in 1998. At that time, Sybase was in the midst of a US$ 7 million restructuring, its shares
were trading at the lowest price in its history, and it had removed 10% of its employees.
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Chen brought in a strategic shift at Sybase when he moved the company’s focus to mobile-data
management from database software. Within a year, Chen managed to cut costs and put the
company on the path to profitability. Over a period of time, he increased the company’s per share
earnings by three times, with the stock price going up by six times and finally managed to sell
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23
Sybase Inc., founded in 1984, was a US-based software company that offered enterprise infrastructure
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and integration of platforms, databases, and applications. In 2010, Sybase was acquired by SAP SE.
24
“Blackberry Receives Investment of U.S. $1 Billion from Fairfax Financial and Other Institutional
Investors,” http://press.blackberry.com, November 4, 2013.
25
Brown University, founded 1764, is the seventh-oldest institution of higher education in the US, a
member of the Ivy League, and has many prominent alumni, known as Brunonians.
26
California Institute of Technology, founded in 1891, is a private research university that focuses on
offering courses in science and engineering.

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 Blackberry – Set for a Turnaround?

Sybase to SAP SE27 for US$ 5.8 billion in 2010. Mitchell Kertzman, former CEO of Sybase, said,
“Customers had lost confidence in the company, in the technology. There were big challenges
there, so it was not dissimilar from BlackBerry in a sense that it was a pretty broken company.” 28
Chen believed that there were significant differences between the situation at Sybase and
Blackberry. He pointed out that while Sybase had a faithful customer base, its technology had
become outdated when compared to its competitors. On the other hand, Blackberry had the latest
technology in the form of the Blackberry 10, but had lost its customer base. Chen also observed

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that while Sybase had returned to profits in a year, putting it on the growth path had taken a
significantly long time. Speaking of the prospects at Blackberry he added, “I see us taking a
slightly longer route to get to financial stability, or at least the financial stability I like, and then
growth might be a little faster than my past experience.”29

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Chen stated that the focus of the company would be on enterprise mobility and security.
Blackberry was then reorganized into four categories, namely, devices, enterprise services,
messaging, and QNX embedded business. Chen expected BlackBerry to be operating cash neutral
by the end of fiscal 2015 and to post a profit in fiscal 2016.

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CHEN’S STRATEGY FOR A TURNAROUND

Chen brought in familiar faces from SAP and Sybase to fill in key executive positions at

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Blackberry. He claimed that he had a “one-third” strategy for employee management, wherein he
hired trusted people from previous companies for a third, promoted another third from within the
present company (as they would know the intricacies of the company and what went wrong), and
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ensured that the others were from neither of the first two categories (to bring in new ideas and a
different style of thinking).

DEAL WITH FOXCONN

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One of the first measures that Chen took was to enter into a deal with Asia-based mobile company
Foxconn, to take over the task of design, production, and distribution of Blackberry phones for the
next five years. Foxconn was expected to manufacture the new phones at its factories in Indonesia
and Mexico. However, the phones manufactured by Foxconn were targeted at developing markets.
BlackBerry was expected to design the hardware and software of its costlier phones that were
mostly sold in European and North American markets.
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As of 2013, phones accounted for 61% of Blackberry sales. The company made an annual loss of
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US$ 5.9 billion that was mainly due to writing off unsold phones and spare parts. The deal enabled
Blackberry to alleviate the task of manufacturing hardware, reduce cost of manufacture, share a
certain amount of inventory risk with Foxconn, and gain a higher proportion of the profit on the
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sale of each phone. Chen added, “The hardware business was losing money and was a chokehold.
I’ve relieved that.”30
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27
SAP SE, founded in 1972, is a Germany-based multinational software corporation that offers enterprise
software. Based on market capitalization, it is the world’s third largest independent software
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manufacturer. As of 2014, it had revenues of US$ 17.5 billion.

28
Hugo Miller and Cornelius Rahn, “BlackBerry CEO Chases BBM, Server Growth as Stock Surges,”
www.bloomberg.com, March 6, 2014.
29
Hugo Miller and Cornelius Rahn, “BlackBerry CEO Chases BBM, Server Growth as Stock Surges,”
www.bloomberg.com, March 6, 2014.
30
Hugo Miller, “BlackBerry’s Foxconn Deal Spurs Evolution Into Services Company,”
www.bloomberg.com, December 21, 2013.

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 Blackberry – Set for a Turnaround?

Chen also believed that the deal would help the company concentrate more on software
development and provision of services. Analysts felt that Blackberry would no longer need to
source mobile phone parts on its own and instead would be able to capitalize on Foxconn’s buying
power. In addition, Blackberry was expected to have a more lucid picture of the final cost of
handsets beforehand and to shorten its erstwhile long drawn out development cycles.
One of the first projects that Foxconn executed was the manufacture of the 3G device called ‘Z3.’
The phone, priced at sub-US$ 200, went on sale in Indonesia in April 2014. With the help of the

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partnership with Foxconn, Blackberry was able to develop the phone in just three months.

BRINGING BACK BUSINESS CUSTOMERS

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Chen listened to the long neglected core customer segment of Blackberry – the business users – to
find out what they liked. According to Chen, the business users of Blackberry belonged to what he
called the “regulated industry” that included banks, insurance companies, healthcare, and
government entities. Due to their high level security requirements, employees in these industries
were expected to stick to their Blackberry devices. Blackberry was the sole Mobile Device
Management (MDM)31 provider that had the ‘Authority to Operate’ on the networks of US

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Department of Defense32.
Chen stated that the interaction with business users made him reintroduce certain popular features

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that had been abandoned by Blackberry in its new OS version. Chen also wanted to bring back
business customers who had shifted to the Bring Your Own Device (BYOD)33 model for their
employees. He sought to do that by enabling them to manage their device software, while
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remaining device agnostic34. He believed that the new BlackBerry Enterprise Server 12 (BES) and
BlackBerry Enterprise Server 10 Cloud would help the company in that endeavor.
Chen’s intention was to make the BES the preferred cross-platform mobile device management
solution for companies that were struggling to manage devices using diverse operating systems
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such as iOS, Android, and Windows Phone. Chen added, “Almost all the enterprises in the world
today are dealing with mobility in one form or another. Most of them are doing this somewhat
piecemeal, somewhat sporadic… There is a need for a very good integrated solution. This is going
to be the next BES – so call it BES 11, 12, 13, 14. But we’ve got to get into how enterprises
manage mobile applications – develop, provision, identify, authentication, and so on down – and
press a lot more on security.”35
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Chen was also quite keen on making Blackberry phones popular among business users. He built
new Blackberry devices such as the Passport and Classic with business users in mind.
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Consequently, both phones had a keyboard with buttons along with touchscreen technology, apart
from other well-loved, but previously abandoned features. Both the phones impressed mobile
analysts who lauded their suitability for reading and editing.
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31
Mobile device management (MDM) as a term defined the administration of mobile devices, such as
smartphones, tablets, laptops and desktop computers.
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32
The US Department of Defense is an executive branch department of the US charged with coordinating
and supervising activities related to national security and the US Armed Forces.
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33
Bring Your Own Device (BYOD) refers to policy of certain companies to allow their employees to bring
personally owned mobile devices to work and utilize them to access privileged company information and
applications.
34
Device agnostic is a description for computing components that work with various systems without
requiring any special adaptations.
35
Brad Reed, “New CEO Chen Reveals Crucial Details of Plan to Save Blackberry,”
http://news.yahoo.com, January 13, 2014.

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 Blackberry – Set for a Turnaround?

Chen clarified that Blackberry would not abandon the mass market made up of more than 60
million mobile subscribers. He added, “I don’t want anybody to think that BlackBerry is walking
away from the mass market. But in order to repair the company, especially on the financial side of
the equation, I need to focus on the enterprise customer first.”36

BLACKBERRY MESSENGER

Another key means through which Blackberry wanted to become more relevant in the mobile

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market and to build its brand value was through the ‘Blackberry Messenger’ (BBM). BBM was a
free service for BlackBerry, Android, and iOS users. Chen wanted to spread the message that one
did not need to own a Blackberry handset to become a Blackberry customer and that mobile users
could still be customers of Blackberry through BBM.

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Chen wanted mobile users – irrespective of the OS they were using – to view Blackberry as a
provider of secure mobile communications services in the industry. Speaking about the rising
popularity of BBM, Chen said, “That was the first time that we de-coupled the brand from the
BlackBerry handset, and as you can see, the results are very exciting. You’ve got 45 million
BlackBerry users, you got 40 million Android/iOS users, so 85 million users for social messaging.

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It’s getting up there.”37 Chen strove to increase the number of monthly active BBM users and
boost the time spent by existing users inside the app, thereby making the service “more sticky”. As
of early 2015, there were 140 million BBM subscribers in the world.

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BBM was not actually a money-making venture for Blackberry, but Chen believed that the service
was valuable to the company as it was creating a positive brand impression in consumers’ minds.
He also thought that the messaging business was like a startup and he expected it to bring in
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revenues in the future. The company planned to begin charging for premium services BBM
Protected (provided secure messaging) and BBM Meetings (used for mobile collaborations).
In addition, Blackberry planned to offer paid subscriptions to customers who opted for premium
features such as ad-free usage. Analysts believed that with money from advertising and services
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such as BBM Banking in India and through customer visits to the BBM shop, Blackberry would be
able to raise revenues of US$ 100 million by 2016.

QNX OPERATING SYSTEM

Chen believed that the QNX operating system was Blackberry’s most valuable asset with high
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potential to earn revenues for the company. QNX was an embedded OS that managed and
connected climate control, navigation, and other functions in vehicles to the dashboard. One of the
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most unique aspects of QNX was that if a particular part of the system shut down or froze, the rest
continued to operate. That kind of stability was considered to be crucial in certain circumstances,
where a system crash could be disastrous.
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As of 2015, QNX was highly popular in the auto industry with almost 40 automakers using it and
the system being embedded in around 50 million cars globally. As of 2013, QNX had 53% of the
embedded vehicle OS market share, while Microsoft came a distant second with a 27% market
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share. By 2016, the global auto infotainment sector was expected to be worth US$ 14.4 billion.
Though the major portion of the money in the market went to hardware makers, software providers
like Blackberry were also expected to do well. Blackberry charged around US$ 3 per vehicle from
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QNX licensing fees and analysts expected the company’s strong market position to help it
negotiate even higher fees in the future.

36
“Blackberry CEO John Chen on His Turnaround Strategy,” www.cbc.ca, March 28, 2014.
37
Brad Reed, “New CEO Chen Reveals Crucial Details of Plan to Save Blackberry,”
http://news.yahoo.com, January 13, 2014.

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QNX was also used in the unmanned Crusher tank of the US Army and Atomic Energy of Canada
Ltd.’s38 nuclear power plants. Moreover, it was being tested for use in hospitals to connect various
medical devices. Chen had future plans to push for adoption of QNX in new verticals, apart from
building a platform that was cloud based and had machine-to-machine architecture.

INTERNET OF THINGS (IoT)

Blackberry felt that there was a lot of potential in the area of Internet of Things (IoT) – using the

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Internet to connect everyday electronic devices. The company announced that it was in the process
of developing a new platform that would be a culmination of QNX and BlackBerry’s secure
network infrastructure and device lifecycle management.

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Analysts thought that Blackberry was in a unique position to succeed in the IoT space as it already
had the infrastructure in place to cater to the rapid increase in the number of devices being
connected globally. Blackberry’s global data center network had peer connections with over 300
mobile operators and managed 35 petabytes39 of data each month. An analyst said, “BlackBerry’s
solid reputation for security could also provide a competitive advantage as security has been a
concern in the IoT market.”40

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ROAD AHEAD

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By late 2014, Blackberry’s share in the global smartphone market had fallen to less than 1% (See
Exhibit I for Market Share of Blackberry, as of 2014). For fiscal 2015, Blackberry had a loss of
US$ 304 million on revenue of US$ 3.3 billion, mainly due to a fall in phone sales, services, and
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software. However, Blackberry had US$ 3.1 billion in cash and investments. Chen intended to use
the money to further fund the turnaround.
Most analysts gave Chen the credit for the change of fortunes at the company. They pointed out
that the Blackberry stock price had gained 62% from the time Chen began his tenure and specified
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his turnaround plan. However, analysts remained skeptical about the long term prospects of
Blackberry. Brian Colello, an analyst at investment research firm Morningstar, said, “BlackBerry
continues to do a good job controlling operating expenses and eliminating its cash burn during its
business transition, but the total revenue was still a big miss and we still have concerns about the
demand side.”41
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Analysts also had reservations about Chen’s goals of annual sales of 10 million smartphones and
software revenues of US$ 500 million (double the revenues, as of 2014) from the fiscal year
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starting on March 1, 2015. They believed that Blackberry faced an uphill task in getting back to
the road for growth and felt that it would have to eventually be sold. Richard Tse, an Analyst at an
institutional brokerage firm, Cormark Securities Inc. in Toronto, added, “I’m confident that [within
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two years] there’s a likely case for that.”42

38
Atomic Energy of Canada Ltd., founded in 1952, is Canada’s largest nuclear science and technology
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laboratory.
39
A petabyte is a multiple of the unit byte for digital information. 1 PB = 1000000000000000B =
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1015bytes = 1000 terabytes.

40
Mike Wheatley, “Blackberry Is Poised to Make a Stunning Comeback In 2015,” http://siliconangle.com,
January 15, 2015.
41
“UPDATE 3-Blackberry Posts 4th-Qtr Profit; Seeks to End Revenue Slide,” www.reuters.com, March
27, 2015.
42
Jacquie Mcnish and Sean Silcoff, “Blackberry Dismisses Buyers in Favor of Turnaround Plan,”
www.theglobeandmail.com, January 14, 2015.

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Many sources mentioned that Samsung was interested in BlackBerry’s turn of fortunes and was
keen to possess its secure technology. Analysts thought that Samsung would find Blackberry’s
44,000 patents highly valuable to its business. They also pointed out that Blackberry was already
supplying Samsung secure mobile software for its smartphones and the acquisition would make a
strategic addition for Samsung.
Nonetheless, Blackberry continued to maintain that it had no plans for sale. Moreover, the
Blackberry board mentioned that most of the bids the company continued to receive were around

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US$ 7 billion, which it felt was much below its potential value. Giving a clarification on the issue,
Chen said, “I don’t have any offers on my desk. If people would like to talk, I mean, talk is not an
offer.”43
In the near future, Blackberry planned to introduce new smartphones that catered to keyboard

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enthusiasts primarily from its business user segment, who had previously rejected the company’s
touchscreen devices. Chen added, “The focus is going to be very keyboard centric.”44 He believed
that it was the best strategy to reverse the company’s market share losses.
However, analysts pointed out that keyboard enthusiasts formed a very small segment of the
smartphone market and by concentrating on catering to their needs, Blackberry stood in danger of

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losing out on a larger segment of the market. Moreover, several studies showed that there was a
growing demand for touchscreen phones, whose size was five inches and more, so that users could
type more easily. That aspect was expected to adversely affect the future demand for keyboard-
based Blackberry devices.

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Chen had specific future plans for Blackberry to put it on the growth path. He stated that the
company had cut costs and was generating cash, which it planned to use to strengthen its software
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development capability. The company’s future plans included introducing new products primarily
aimed at business users and promoting its various services.
Chen stated that Blackberry was increasing the strength of its sales staff, bolstering its distribution
capability through a partnership with Samsung, and developing relationships with wireless carriers
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across the world. He also announced that in order to build the security credentials of its enterprise
device management business, the company was looking to acquire small companies that had
expertise in that field. Chen stated that he was 99% confident that Blackberry would make a
successful turnaround. He added, “As to when it’s going to shore up the top line, it’s probably
going to take a little while, but it’s not going to be a long while.”45
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43
Andrew Trotman, “Samsung ‘Wants to Buy Blackberry for $7.5bn’,” www.telegraph.co.uk, January 14,
2015.
44
Euan Rocha, “New BlackBerry phones to cater to keyboard aficionados: CEO,” www.reuters.com, March
28, 2014.
45
Alex Barinka, “To Keep BlackBerry Alive, CEO Leans on the Internet of Things,”
http://washpost.bloomberg.com, January 14, 2015.

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Exhibit I

Market Share of Blackberry in Global Smartphone Market, As Of 2014

Blackberry
Windows
OS, 0.60%
Phone, 2.70% Others, 0.20%
Apple, 11.90%

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Source: Strategy Analytics
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84.60%
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Additional Readings and References:

1. “Blackberry Provides 9 Lessons in Best Turnaround Strategies,”

www.bizcoachinfo.com, March 1, 2015.
2. “Blackberry: Another New CEO, Another New Turnaround Plan,”
www.biznews.com, January 15, 2015.

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3. Andrew Trotman, “Samsung ‘Wants To Buy Blackberry for $7.5bn’,”
www.telegraph.co.uk, January 14, 2015.
4. Christian de Looper, “2015 Year Ahead: Does Blackberry Have A Shot at Smartphone
Leadership?” www.techtimes.com, December 26, 2014.

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5. Leo Sun, “Blackberry Is Pushing Microsoft Out of This $14 Billion Market,”
www.fool.com, December 17, 2014.
6. Andrew Orlowski, “Blackberry’s Turnaround Relies on a Secret Weapon: Its Own
Network,” www.theregister.co.uk, November 27, 2014.
7. Elyse Betters, “Blackberry Says No New Handsets for Foreseeable Future, But Here

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Are The Ones It Will Focus On,” www.pocket-lint.com, November 10, 2014.

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8. Euan Rocha, “Blackberry CEO Sees Fewer New Devices, Focus On Profitability,”
www.reuters.com, November 9, 2014.
9. David Berman, “Blackberry Battle: Taking Sides On Its Outlook,”
https://secure.globeadvisor.com, September 24, 2014.
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10. Jason Mick, “Blackberry Reinvents Itself, Prepares for Potential Smartphone-Free
Future,” www.dailytech.com, August 18, 2014.
11. Phil Goldstein, “Blackberry’s Stock Surges as Investors Buy into Chen’s Turnaround
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Strategy,” www.fiercewireless.com, July 9, 2014.

12. Sarah Rabil, “Blackberry Market Share to Fall To 0.3% in 2018, IDC Says,”
www.bloomberg.com, May 28, 2014.
13. Larry Dignan, “BlackBerry’s QNX Why It’s So Valuable to Apple, Google, Auto
Industry,” www.zdnet.com, March 11, 2014.
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14. Hugo Miller, “Blackberry’s Foxconn Deal Spurs Evolution into Services Company,”
www.bloomberg.com, December 21, 2013.
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15. Greg Roumeliotis and Euan Rocha, “Blackberry Board Rejected Proposals to Break up
Company,” www.reuters.com, November 8, 2013.
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16. Chris Ciaccia, “Blackberry: Where It All Went Wrong,” http://bgr.com, September 30,
2013.
17. “The Roller-Coaster Ride of Blackberry’s Shares,” www.theglobeandmail.com,
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September 28, 2013.

18. Sean Silcoff, Jacquie Mcnish and Steve Ladurantaye, “Inside the Fall of Blackberry:
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How the Smartphone Inventor Failed to Adapt,” www.theglobeandmail.com, September

27, 2013.
19. “Blackberry Timeline: A Look Back At The Tech Company’s History,”
http://globalnews.ca, September 24, 2013.
20. Sam Gustin, “The Fatal Mistake That Doomed Blackberry,” http://business.time.com,
September 24, 2013.

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21. Simon Hill, “The 11 Moments That Defined Blackberry’s Rise and Fall,”
www.in.techradar.com, September 23, 2013.
22. Tom Taulli, “Lessons from the Fall of Blackberry,” www.forbes.com, September 23,
2013.
23. Omar El Akkad, “Blackberry Puts Up ‘For Sale’ Sign, With Fairfax Emerging As
Potential Buyer,” www.theglobeandmail.com, August 12, 2013.

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24. Allen Tsai, “The True Story behind the Rise and Fall of Blackberry,”
http://2machines.com, 2013.
25. Jesse Hicks, “Research, No Motion: How the Blackberry CEOs Lost an Empire,”
www.theverge.com, February 21, 2012.

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26. www.gsmarena.com
27. http://us.blackberry.com
28. global.blackberry.com

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