There's this thing about antibiotics, that resonates with what's happening to Blackberry Ltd.
The way most bacteria work is by producing substances that damage certain parts of our body. On taking antibiotics, we selectively "poison" bacterial cells, but not the cells of our body. Antibiotics don't directly eliminate the bacterial cells, but do so by inhibiting any of the processes necessary for the survival of the bacterial cell. For example, a certain antibiotic might inhibit the formation of a cell wall in bacterial cells, and that might in effect lead to the cells dying a natural death, owing to our immune system. A very neat process, indeed.
In 1944, however, the first mutant strains of bacteria that were resistant to antibiotics were found. What was observed here, was that upon taking an incomplete course of antibiotics, or leaving prescribed medications earlier than recommended, the bacterial cells "learnt" the action of the antibiotics and developed resistance against it. So you'd either have to take the antibiotic through the course of illness, or not take it at all. An incomplete course would lead to complicated problems in the long run.
Once valued at $83 Billion dollars, Blackberry Ltd. recently stated it almost reached an agreement for a $4.7 billion buyout by a group led by Fairfax Financial Holdings Ltd, its biggest shareholder. While this deal collapsed just hours before the deadline, and the company announced that CEO Thorsten Heins will be replaced, on an interim basis, by John S. Chen, and that they were looking to raise $1 bn in investments instead. Fairfax will purchase $250 million of the convertible debentures.
The demand for Blackberry phones is plummeting, as they reported a net loss of $85 million for the previous quarter. At the end of the second quarter, total cash, cash equivalents and investments is estimated to be approximately $2.6 billion. The company has no debt, but is losing users and cash reserves at a very fast rate. Some say, it'd take Blackberry only 6 more quarters to burn down the reserves, at its current rate.
But everything isn't as grim as you'd imagine. Blackberry made a surprise profit on its Z10 devices, and in the three months (up to the start of March this year), BlackBerry made a profit of £65 million. This, added to the fact that they have no debt.
To quote Robert Baillieul from The Motley Fool :
"But once you dig beneath the headline, the company's financials are surprisingly good.
First, the fact that the company is still relatively near profitability shows how successful management was at cutting costs. Through its CORE program, the company slashed over $1 billion in operating expenses.
Second, the company generated $630 million in cash flow from operations increasing its cash balance to $3.1 billion. Given that the stock now has only a $5.5 billion market capitalization, the cash should put a floor underneath that stock price assuming you give it no value for the company's patents, its remaining service business, or any possible success of BB10.
But those are only two raisins in a giant loaf of bread."
— The Motley Fool
The biggest holdback, however, is their stale-hearted approach to innovation, and outdated product lines, closely related to the incomplete-antibiotic analogy I proposed earlier. This is the behemoth problem for Blackberry.
Almost everyone interested in news knows that something is wrong with Blackberry. But most can't put their finger down on exactly what is wrong. To better understand where Blackberry went blue, I've analyzed the numbers and broken them down into quantifiable problems.
I often use market volume graphs as an index to visualize the problem with any financial system. It's not always accurate, but it works most of the times. The graphic below, upon inference, tells us that Blackberrys most "dynamic days" were around early 2007.
In his interview with the guardian in March 2007, then CEO Mike Lazaridis confidently dismissed Apples Presence in the market. And why wouldn't he? It's always a smoother ride when you're atop profit margins of more than 30% of revenues.
It was around that time that Blackberry had moulded its brand into one that reflected security and the corporate lifestyle. But this wasn't an enterprise company only about email. It included things like custom apps that would transmit user data securely over the internet, messages, and of course email too. It would fit over existing companies' requirements like a charm.
Blackberry fell off Interbrand’s trusted annual ranking of the most valuable consumer brands. This is a PR disaster. People don't relate with the brand like they used to in the past, or don't enitrely trust it.
This has severe implications, and aftermath.
Customer loyality is a direct product of the amount of trust users put into a brand. Brand value is often scarred by major disruptions in service (PSN outage, for example) or trust (E.g: Adobe password breach)
Why Blackberry Fumbled
There isn't one reason for this apparent fumble. The situation Blackberry has gotten into is an aggregate of multiple overlapping incidents. There will obviously be a lot more reasons that contributed in this direction, but I've listed out four major reasons. This fumble has cost Blackberry, not just a decrease in its baseline, but also things like customer trust, momentum, and to a certain extent, its "mojo" factor.
1. Failure to Innovate
Coming back to my antibiotic analogy, Blackberry has failed to provide a complete solution. Ever since its ideation, Blackberry module devices were meant to complement the corporate lifestyle. Don't get me wrong, blackberry devices were aimed at "solving the paradox of modern life" (in the words of its founder, Mike Lazaridis) where they would serve the requirements of an office, but would also fit into a more casual environment, like a lounge or a party. In fact, Mike often compared his products to a Porsche that people would drive around town, even though it was a sports car. Unfortunately, in practice, this never happened for Blackberry. Their products never dwelled beyond meeting office requirements. Features such as a better camera, music player, and even touchscreen devices etc.. never stole the limelight. Every Blackberry release emphasized more or less the same thing.
And by making a product that didn't serve a "complete" solution to the "paradox", just like an incomplete course of antibiotics, their consumers deflected. Blackberry was now branded as a "slow" brand that didn't evolve quite as well. This led to problems for them, when their consumer base drastically shrank. Unlike rivals Apple Inc, they didn't think providing an end-to-end solution was worthwhile, judging by the fact that they never pursued this dogma.
This can be interpreted as their failure to evolve with the market. (Nokia is guilty of the same, but we'll save that for another day)
2. Security breaches
Blackberry has always been known for being obsessed with privacy and security of its users. The global surveillance state has shattered the perception of secure mobile communications, one of BlackBerry's core selling points to customers. Saudi Arabia, UAE, and India threatened to ban Blackberry products on the grounds that they hindered "surveillance".
In August 2010, just before Saudi Telecom almost blocked Blackberry phones, Research In Motion agreed to place three servers in Saudi Arabia, effectively resolving the issue. Al Jazeera later reported that RIM agreed to share a unique PIN and code for each BlackBerry registered in Saudi Arabia, allowing authorities to read encrypted messages.
In UAE too, a ban was prevented in October 2010 because Blackberry services (just out-of-the-blue) became "compatible" with UAE's TRA guidelines.
Earlier this year, Times of India reported that law enforcement would be able to track emails, encrypted BBM messages, and track web-browsing on the devices, sent over Blackberry devices in realtime, hence solving Indian governments' dispute with the phone manufacturer. And while a Blackberry spokesperson claims that this access doesn't extend to Blackberry Enterprise Servers, consumers were left with no reason to trust them.
All this came before the NSA whistleblower, Edward Snowden, revealed that British and American security services had access to encrypted data on Blackberry servers. Der Spiegel also cited a leaked slide, titled "BES collection," showing an email "from a Mexican government agency."
3. Infighting at executive level
Blackberry failed to move beyond its own legacy. Clicky keys were good, in the past. But it was time to move beyond that to what people wanted, or even better — "show people what they wanted". They did neither.
At the senior executive level, Blackberry lacked a uniform direction. A cross platform strategy for BBM would have benefited Blackberry greatly, but Jim Balsillie (co-CEO, back in the day) ran into fierce opposition from senior executives.
As a result, Balsillie resigned. He confirmed:
"My reason for leaving the RIM board in March, 2012, was due to the company's decision to cancel the BBM cross-platform strategy."
— The Globe and Mail
4. Ignoring wake-up calls
Blackberry received many wake-up calls. The introduction of the iPhone (and Samsung so vigorously ripping them off) was one such wake up call that the canadian phone manufacturer chose to ignore. iPhone users enjoyed almost the same features as Blackberry users, but had better designed hardware, more apps, and more or less "the best of both worlds" when it came to the corporate-versus-casual feel.
Unlike Blackberry, their competitors sought innovation and developed more capable and aesthetic software and powerful hardware, while not compromising on features that were common between them and Blackberry.
The iPhone was different from the BlackBerry phones of the time. Research in Motion was catered towards the industry professional only and dismissed and denied Apple Incs presence in the market.
Mike Lazaridis went as far as to call Apples presence "vanishingly small". Six years later, Apple reports to have sold 800 million units of its latest product, the iPhone 5S, whereas Blackberry is raising a debt offering to investors.
Blackberry fell due to its own mismanagement and complacency. They refused to evolve and innovate, and provide their users with what they wanted. Neither did they undertake responsibility to deliver what they once promised their users and proudly boasted off.
They remained dormant while their customers deflected to their competitors who offered them exactly what Blackberry was struggling to, and a lot more. Building a product is like taking an antibiotic to curb a illness. You either do it completely well, or fail in the long run.
I haven't counted them out just as yet, though. In fact, I wouldn't be surprised if they made a surprise recovery. Under their new CEO Josh S. Chen, and their "C.O.R.E" program to regain momentum in the market, there is still a lot of hope for Blackberry. I personally expect some radical restructuring, followed by cleaning up the product line and introduction of some new products.
Theres a lot Blackberry could've done differently to have avoided this, though. But those are just sour grapes. Or sour Blackberries. Wait. What?