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For months I have argued that it was premature to draw conclusions about BlackBerry Ltd.'s prospects until we saw how its keyboard-equipped Q10 smartphone fared in the U.S. Even the earlier, disappointing launch of the touchscreen-based Z10 device should be discounted, I argued, because it was a play for consumers, not traditional BlackBerry users. The Q10 launched in June, after the end of its last quarter, so the company had yet to indicate how it was doing.
That is, until Monday, when BlackBerry announced it is exploring a possible sale of the company. Things are apparently not going as well as hoped, and the board is throwing in the towel.
So, mea culpa. I overestimated the appeal of an elegant yet expensive suite of devices in a market dominated by an open-source one that is now a juggernaut: Android.
With Android's launch on mobile phones in 2008, Internet superpower Google Inc. created an operating system that could turn feature phones into smartphones, and gave it away for free. Suddenly, the world's fading cellphone makers – notably Samsung, but also countless low-cost upstarts – had a business plan. Within two years, Android was the leading smartphone platform. And BlackBerry, which had edged out many of those hardware makers years earlier, saw its sales bleed away.
It is hard to compete with free. Apple is still trying, and though customers still love its platform and products, margins have been squeezed. The entire handset business has become commoditized thanks to Google. It no longer matters how beautiful your new $700, keyboard-driven handset is when rival products sell for less than half that amount, and are getting cheaper.
Incredibly, many at BlackBerry were aware of the seriousness of the Android threat several years ago, and even hatched a bold plan to pivot the company away from handsets entirely.
The shift would have seen the company license out its popular BlackBerry Messenger (BBM) messaging service, packaged together with other offerings, including social media capabilities it picked up in its 2011 purchase of NewBay Software, Ltd. The plan was to offer the package to carriers, to be used on any device but to route the services through its own network. Industry sources say several major carriers in the U.S. and Europe were onside. But then-new CEO Thorstein Heins wasn't, nor ultimately were co-CEO Mike Lazaridis and the rest of the board of directors. Ultimately the licensing plan was rejected by the board in early 2012, and BlackBerry sold NewBay at a loss. Many of the plan's proponents, including co-CEO Jim Balsillie, left.
In retrospect it looks as though, by doubling down on handsets, BlackBerry pursued the wrong strategy. The firm was earning $1-billion in quarterly revenues from services, almost all of which was profit. Falling back to a business that earned an estimated $3.5-billion-plus annual profit would have given BlackBerry a stable position from which to rebuild, moreso than depending even more heavily on its faltering handset business.
Earlier this year, the company decided to finally make BBM available to be used on other platforms. By then, however, so many others were in the game that BlackBerry only found takers by offering it for free. Meanwhile, Mr. Heins has let services revenue slide as the company retools its offerings. In its most recent quarter, service revenues were down by more than 20 per cent year over year.
Good luck to any potential buyers. At this point in the company's history, they'll need it. The handset business will never will be what it once was – and now the services business doesn't look nearly as hot, either.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.
Sean Silcoff