It’s not just about the second-quarter earnings which showed a near $1 billion write-down for unsold BlackBerry Z10 phones. It’s not about the fact that the BlackBerry PlayBook, the company’s first and only tablet offering, failed. It’s not about the fact that CEO Thorsten Heins, who took over Jim Balsillie and Mike Lazaridis, was stiff and never resonated with consumers, the media or investors. BlackBerry’s downfall stems from much more than that, going back six years.
In 2007, Apple announced the iPhone, at the MacWorld Conference, with then CEO Steve Jobs introducing the revolutionary phone. At that time, BlackBerry (then Research in Motion) was the darling of the tech industry. With a stock price hovering around $140 per share and BlackBerry smartphones popular all over the world, the term “CrackBerry” entered the English language. People were on their phones, checking email, browsing the web and texting nearly 24 hours a day, seven days a week.
Apple had reinvented the digital music and computer industries, with the iPod selling like hotcakes and the iMac and MacBook computers continuing to gain traction in the PC market. However, the iPhone took an entirely different approach to phones, being catered towards the consumer and not just the professional.
The iPhone, with its innovative iOS mobile operating system, touchscreen display and beautiful aesthetics, was vastly different from the BlackBerry phones of the time. Research in Motion had no touchscreen phones, opted for QWERTY keyboards on all of its devices along with the infamous scroll button, and was catered towards the industry professional.
Co-CEO’s Lazaridis and Balsillie stood by, and continued to reiterate that the iPhone wasn’t a threat to RIM’s empire. They weren’t the only ones. Then Microsoft CEO Steve Ballmer (notice a pattern here?) said the iPhone would never gain traction because it wasn’t appealing to enterprise users. “$500, fully subsidized, with a plan,” Ballmer said. “That is the most expensive phone in the world and it doesn’t appeal to business customers, because it doesn’t have a keyboard, which makes it not a very good email machine.”
Fast forward five years later to 2012. Apple was the king of the smartphone market, having released the iPhone 4S in late 2011, despite losing its iconic CEO, Steve Jobs, to cancer. Tim Cook took over the top spot, and the company’s stock and sales took off like a rocket ship. People were fascinated by Siri, Apple’s personal voice assistant, and the continued improvements made to the iPhone, whereas BlackBerry phones were seen as stale, and unappealing. The company continued to talk up its purchase of the QNX operating system, later to be known as BlackBerry 10, but phones continued to be mired in delays, only further fading RIM into irrelevance.
January 2012 saw Thorsten Heins replace Balsillie and Lazaridis as the company’s CEO, giving investors and the BlackBerry faithful a little hope. The company initiated a CORE program, cutting costs as it tried to remain relevant. Prem Watsa, seen by many as the “Canadian Warren Buffett,” joined the board. However, the company had its ups and downs in 2012, with more downs than up. It finished the year with a slight bit of optimism, as BlackBerry 10 was getting ready to launch.
In January 2013, RIM held a wild press conference, showing off its newest operating system, and unveiling the Z10 and Q10 smartphones, and changed the company’s name from RIM to BlackBerry, to better align the company with investors and consumers’ mindsets. “We have definitely been on a journey of transformation,” Heins said during the presentation.
The new phones had more than 70,000 available apps at launch, including popular ones like Facebook and LinkedIn, and featured the BlackBerry Hub, integrating work and play in one area and allowing people to switch back and forth. People thought BlackBerry was back. The stock price rose in anticipation of sales of the new devices, the company continued to cut costs, and if worse came to worse, its patents, services and security business could be attractive to a prospective buyer.
Then, problems started to hit. The Z10 wasn’t selling well, with rumors that the phones were hard to find in certain stores, and some carrier stores reported only getting a few pieces of inventory, not what would be expected of a new launch. Then, the company’s operating system, BB10, received an update to patch serious flaws before it was released to the public.
Hit by delays, poor reviews, and a laissez-faire attitude by customers towards the new phones, BlackBerry’s sales continued to crumble. The stock price towards the summer of 2013 took a sharp downturn, as markets began to get word that the company was in trouble. In September 2013, the company pre-announced fiscal second-quarter earnings, missing estimates by nearly 50%, cutting 4,500 workers, and accompanied by the news that it was getting out of the consumer business. Shares dropped nearly 20% that day, and the company, which had previously said that it was looking at strategic alternatives to try to shore up its business — either via a joint venture, merger or other — was frantically searching for a buyer.
Just a couple of days later, the aforementioned Watsa and his firm Fairfax Financial Holdings, announced an offer to acquire BlackBerry for $9 per share in cash, despite not having financing already lined up for the deal. That’s a far cry from the roughly $140 share price BlackBerry enjoyed just five years ago, and about 50% below where the shares were trading as recently as the beginning of the year.
The future of BlackBerry is uncertain, with the Fairfax deal still up in the air despite Watsa being confident something than get done. No matter what happens to the company, whether it’s taken private, sold piece meal to strategic investors or worse, the company has only its leadership to blame. Resting on your laurels, watching a new competitor take your product and vastly improve it, then watching others do the same while nothing new comes from your operations isn’t a recipe for success.
That’s not just sour grapes. That’s a poison BlackBerry.