The BlackBerry’s Death Rattle Gets Louder
On Monday morning, BlackBerry’s board of directors announced the Canadian device-maker is going to “explore strategic alternatives to enhance value and increase scale.” This is director-speak for: Our business is faltering. Nobody has approached us about a takeover. We’re worried about the future. And so we’re thinking of doing something, most likely a sale. Any takers?
The company’s stock moved up modestly on the news; shares rose about 6 percent through mid-day, after having risen about 5 percent on Friday. That’s what typically happens when a publicly held company puts itself up for sale. Investors expect a buyer will pay a premium for control. But the fact that the stock rose only modestly, and that it is still trading at about $10 a share, tells a broader story about the fragility of brands in technology—and why BlackBerry may not be so easy to sell.
Research in Motion, which changed its name to BlackBerry recently, was once one of Canada’s hottest exports this side of Celine Dion. But in the space of a few years, the company went from a world-beating juggernaut to a desperate also-ran. At its currently inflated price, BlackBerry is worth about $5 billion. But look at the chart below: a few years ago, with the stock trading at $140, it was worth about 14 times its current value.
BlackBerry’s fall isn’t just a tale of an indebted, overextended, bubble-era firm without revenue hitting reality—its revenue and profits were real, and they were spectacular. But the half-life of a piece of hardware is very short these days. So, too, is the business model of vaunted technology brands.
It may be difficult for youngsters to realize, but BlackBerry was a defining part of the business culture of the past decade. When the BlackBerry 6000 series was introduced in 2003, it was a huge advance in cellphone technology. You could make phone calls (this is back when people made phone calls) and text, but also get emails, swap documents, and surf the Internet. Within the space of a few years, if you were somebody, you had a BlackBerry, and your thumbs were sore from typing on the little keyboard. And BlackBerry held sway over its users through the early years of the smartphone revolution. People who actually used their phones primarily for work, who needed to type a lot (accurately), needed and loved the BlackBerry. The iPhone, with its apps and video capabilities and typo-prone keyboard system, was for play; the BlackBerry was for work. A year ago this week, when my BlackBerry ended up at the bottom of a swimming pool, I thought my world had come to an end. At that moment, the device on which I depended on to tweet, to write, to edit, to read, and to stay in touch, went dark—I was like an addict going through withdrawal. There is a reason they called it the CrackBerry.
The users weren’t the only ones addicted to it. Investors loved BlackBerry, too. The type of growth that Research in Motion posted—not to mention the profits that went along with it—was irresistible. Between 2007 (PDF) and 2009, revenues rose from $3 billion to more than $11 billion, while profits rose from $531 million to $1.9 billion. The subscriber base rose from about five million in 2006 to 25 million 2009. And the growth continued through the deep recession: $2.457 billion in profits on $15 billion in profits in the fiscal year that ended in February 2010; $3.411 billion in profits on $19.9 billion in profits in the fiscal year that ended February 26, 2011 (PDF).
But as the iPhone and other smartphones began to gain traction, things began to fall apart, slowly and then all at once. The company found that sales of its devices slipped at the same time it needed to ramp up spending on research, product development, and sales marketing. The result was a vicious earnings downdraft. In the fiscal year that ended in February 2012, revenue fell 7 percent while the cost of sales rose about 7 percent. That pushed net income down to $1.164 billion, a decline of 66 percent in one year. Revenue fell off a cliff in the most recent fiscal year, from $18.4 billion to about $11.1 billion—down 40 percent. As subscribers began to leave, the company reported a $1.235 billion annual loss for fiscal 2013 (which ended last February.) The most recent quarterly results (PDF) showed a small bounce-back in revenue but continued losses.
It’s facile to say that BlackBerry was done in by Apple and the iPhone. It’s more accurate to say that BlackBerry was done in by what Apple and the iPhone represent—and what BlackBerry represented until a scant 24 months ago. And that is the ability of innovative new products to catch fire, tap into a global marketplace, and gain profitable scale in a short period of time—and then to lose their mojo just as quickly. After all, the pessimists who have pushed Apple’s stock down by one third since last September are noting that Samsung and Google are taking a bite out of the iPhone’s dominance.
At first blush, BlackBerry looks like a decent takeover prospect. It doesn’t have much debt, has a fair amount of cash on its books, and boasts a large paying customer base. But to survive in the long-term, brands need that customer base to remain loyal as the landscape shifts. And that’s the real problem with BlackBerry. When pushed, users and addicts (including myself), have proven willing to drop the BlackBerry cold turkey. Rather than swap my water-logged device for a newer version a year ago, I went for an iPhone, and I haven’t looked back.