BlackBerry’s announcement that it is “exploring strategic options” and has appointed JP Morgan to help it do so illustrates just how quickly it has been left behind by changes in the smartphone market.
Its share price has fallen from ~US$60/share at the start of 2011 to ~US$11 today, including a fall of nearly 40% over the past three months alone – although it’s up by nearly 20% since last Friday, as the market welcomes the start of a solution to the company’s long-running problems.
BlackBerry has been out-paced by the consumerisation of the smartphone market, dominated by iOS and Android and their larger app ecosystems. The two key features normally cited in defence of BlackBerry are:
- BBM, the free messaging service used by teenagers (and London’s rioters) but whose differentiation has been increasingly eroded by copycats like Apple’s iMessage and other free messaging apps; and
- the security and control it offers government and enterprise clients; again, rivals have rapidly narrowed the gap.
But even its loyal users are defecting: the FT reports subscriber numbers fell from 79m at the end of last year to 72m now, as government agencies and large corporates fail to hold back the tide of ‘bring your own device.’
Re-vamped handsets, a new operating system and its unified messaging innovation – together billed as ‘make or break’ – have failed to arrest the decline. Its market share has slipped to 3%, according to IDC, down from 5% in the same quarter last year, while Android is now used by 80% of smartphones sold. Even Nokia’s Lumia line outsold BlackBerry last quarter.
The old HP problem
Fundamentally, BlackBerry has fallen victim to the same difficulty that beset HP: a strong engineering-led corporate culture creating very compelling products finds itself left behind by changes in its core market. For HP, it was the move from technical instruments for specific uses to more general all-purpose computers; for BlackBerry it’s consumerisation.
Despite the market lead and loyalty its early products generated, BlackBerry never really mounted an effective response to the 2007 launch of the iPhone, with its focus on a full-web experience and rich media rather than email alone. The emphasis on engineering excellence within the company meant it spent resources iterating engineering-led enhancements – like minimising bandwidth, maximising battery life, and not dropping calls – that Apple regarded as acceptable tradeoffs for an enriched consumer experience. There are few iPhone users who are happy with their device’s battery life, but far fewer who would switch to a BlackBerry to extend it.
Essentially, BlackBerry spent too long solving the wrong problems – cleverly, elegantly, and pointlessly. While BB10 has – finally – addressed some of these more consumer-focused issues, it felt like too little, too late, and the market clearly agrees.
This mirrors the wrenching changes HP had to go through in a previous tech generation, as it moved from an engineering-led producer of highly-regarded technical products to an also-ran in more general consumer and corporate computing.
HP has sought ever-more dramatic – and unsuccessful – ways to turn itself around in the face of this problem, and BlackBerry is being forced to do the same. While its investors are unlikely to support big-ticket acquisitions, it is now “exploring strategic options.”
Officially, these options include JVs and partnerships to accelerate sales, but it’s hard to see such moves driving a material turnaround. It’s more likely that these are a fig leaf for an exit process –an outright sale of the whole or of part of the business. (BlackBerry has spent US$4.5bn on intangible assets in the past five years, but sources quoted in the FT suggest “its patents may be worth as little as US$1.2bn.”)
In this situation, “exploring strategic options” is effectively an admission that BlackBerry can’t solve its problems by itself, and a plea to the market for time to try something else. But a sale may not be an easy answer: the BBC quotes Francisco Jeronimo at IDC as saying “it’s clear they haven’t been able to find anyone who wants to buy or form a partnership.” Samsung, Microsoft, Nokia and Lenovo have all ruled themselves out, and there is a limited field of other players for whom such an acquisition might make sense. BlackBerry’s tiny (3%) market share and the need for massive investment to turn it around will probably put off most of the others, including most private equity players.