2014-01-31

Co.Labs

Is BlackBerry Actually Going To Turn It Around?

We talk to CEO John Chen about the changes he's made, which appear to be uncharacteristically (for BlackBerry) wise. What does 2014 hold?



This story could easily have been about the breakup and buyout of BlackBerry. Having hung up a “for sale” sign, lost its CEO Thorsten Heins, failed on plans to go private, and announced a quarterly loss of $4 billion--all within less than six months--guessing that BlackBerry wouldn’t make it into 2014 wasn’t much of a stretch. In early December, BusinessWeek even published an oral history called “The Rise and Fall of BlackBerry” at a time when BlackBerry employees were still turning up to work.

Since then something remarkable has happened.

Under the new stewardship of CEO John Chen, BlackBerry stock increased by more than 60% from its $5.44 lowest point--and many people are now talking about the company as one of the potential comebacks of 2014.

“When I took this role I knew that BlackBerry was an iconic company, and that it had a lot to offer, but everything wasn’t lined up to take advantage of the opportunities in front of us,” Chen says. “I saw that it would take time, discipline, and tough decisions to reclaim BlackBerry’s success, but I believe it is possible.”

So how did Chen do it? And what does this mean for BlackBerry over the long haul?

An Iconic Company

If there is one thing that BlackBerry’s dramatic stock recovery demonstrates it is how beaten down and undervalued its stock actually was. It’s easy to criticize Wall Street’s “what-have-you-done-for-me-lately?” mentality regarding tech companies playing the long game (see: Apple) but in BlackBerry’s case it’s also tough to argue that they were totally wrong.

BlackBerry 10 was out and--despite being the mobile OS most BlackBerry users had wanted for years--proved a flop. Particularly painful was BlackBerry being forced to write off $934 million of unsold inventory, after failing to move enough Z10 smartphones.

Put simply: If a smartphone manufacturer can’t sell smartphones, there aren’t a whole lot of positive ways to spin the story.

As John Chen was keen to point out early on, however, BlackBerry was no longer simply a “smartphone company.” His frank December 20 call to investors was all about repositioning BlackBerry: no longer a business making handsets, but a company with a portfolio of businesses that just happened to include handsets.

The Turnaround

Chen’s strategy for taking BlackBerry forward hinges on four main areas: handsets, enterprise, QNX, and BBM.

Some of Chen’s strategic moves are shorter-term moves designed to free up cash reserves and plug the leak. For instance, BlackBerry sold off a considerable amount of its Canadian real estate--comprising five buildings and much of the surrounding land--to a nearby university for a total of $41 million.

Where previously there had been concerns from the BlackBerry faithful about the company getting out of the hardware market, Chen notes that phones will continue to be part of the strategy going forward.

“People who love their BlackBerry have always appreciated that their device allows them to get things done,” he says. “And central to our productivity focus is our keyboard. BlackBerry has invested years of research and development to create the world’s best mobile keyboard, and that will continue to be a central focus for us.”

To offset the risk of the handset market, Chen agreed to a new five-year deal with Foxconn, the large Taiwan-based maker of electronic products and components. The deal ensures that BlackBerry won’t lose money on phones ever again, since Foxconn is now the company taking the inventory risk.

While these announcements calmed the nerves of itchy-trigger-fingered investors on Wall Street, other changes John Chen has made at BlackBerry are plays aimed at the medium-term.

Instead of plowing money into stunt hires like Alicia Keys as a “creative director,” BlackBerry is returning to its roots by focusing on the business market: essentially flipping its priorities so that BlackBerry Enterprise Server sales are pushed first and foremost.

As Chen points out, this is a balancing act--but one that focuses BlackBerry on an area it has already proven successful at.

“One critical challenge we have been addressing is the company’s broad approach on both enterprise and consumer markets,” he says.

“[This] doesn’t mean we are turning our back on the consumer--far from it--but it’s important we narrow our focus on our core strengths. I believe in the values of this brand and I’ve assembled the right team and strategy with the strong confidence that we will rebuild BlackBerry for the benefit of all of our constituencies.”

BlackBerry’s dominance in enterprise is no longer as assured as it once was, of course. It was briefly reported in mid-January that the U.S. Department of Defense would purchase 80,000 new BlackBerry devices--only for it to later turn out that these figures referred to already existing devices that were simply being supported. On top of this, both Android and iOS are enjoying larger enterprise market share on a constant basis--and Apple under Tim Cook is focusing on the business world in a way it never did under Jobs.

“It’s not to say that [BlackBerry] don’t have challenges in this area,” says Kevin Michaluk, founder and editor of news site CrackBerry. “They need to focus on upgrading their customers from BlackBerry 7 phones to BlackBerry 10 phones, for example, but it’s definitely something that can be worked on. And that doesn’t change the fact that it’s BlackBerry’s most profitable business and something they’re number one in.”

BlackBerry In A Post-Snowden World

Perhaps helping BlackBerry in this sector is its reputation as a security-conscious company: something increasingly important in a post-Edward Snowden world conscious about data protection and “leaky apps.” In December last year President Obama admitted to still using a BlackBerry (a phone that, ironically enough, was used to signal him out as cool when he first ran for office), because other phones were deemed too easy to hack. “I’m not allowed for security reasons to have an iPhone,” he noted.

“[BlackBerry is] a company that puts security front and center, and they are likely going to think of ways to capitalize on the current climate, with public concern over hacking and the NSA,” Michaluk says. “This isn’t a new area BlackBerry is working in--security is in their DNA and it's something they have done better than everyone else for the last 15 years without much fanfare. With these recent concerns, it [places] them in the spotlight again and in favorable position.”

“BlackBerry is synonymous with security,” says Chen. “It is built into everything we do, and we have been doing it longer and better than anyone else in the industry. Nothing is more secure than the BlackBerry platform and security will continue to be central to our strategy. As more confidential data is taken beyond the walls of organizations and into mobile devices, it is vital to ensure that mobile communications are not compromised. BlackBerry is the most reliable end-to-end secure communication platform, from the device, network to the server level.”

The Long Game

Longer-term still is BlackBerry’s focus on BBM and QNX. The decision to open up its BlackBerry Messenger client as an app for iOS and Android, in addition to BlackBerry, was first announced in May 2013--although it took until October for it to be rolled out. While BBM is currently losing money (the team is being run as a startup inside the company) it opens up one of BlackBerry’s most popular applications for a broader audience, and hints at a potentially lucrative future for the company as a cross-platform developer. As John Chen puts it, for the first time ever users can be an iPhone or Android customer, but also a BlackBerry customer.

QNX is Chen’s other long-haul business area. First and foremost QNX is the software that powers BlackBerry 10, but it’s also an embedded OS with possible applications in a number of industries--particularly automotive. Chen points out that as the Internet of Things becomes increasingly pervasive, so too does QNX become a more important field for BlackBerry to be working in.

“BlackBerry is focusing on several key areas to capitalize on our traditional strengths in security and enterprise while we also leverage our QNX Embedded Business to focus on future growth opportunities in machine-to-machine communications,” he says. “I believe machine-to-machine computing is the computing model of the next decade, and we are well positioned to lead.”

“The importance of all of these changes can’t be overstated,” says Michaluk. “It really does paint a very different picture of what it is that BlackBerry’s doing as a company. [People are realizing that] BlackBerry’s not over as a company. They have $3 billion in the bank, they have enough money to execute on their strategy in all of these different areas, and these strategies are going to be perceived differently in different markets and geographic locations, based on how BlackBerry operates there.”

A Focused Strategy?

One question that remains is how well these different businesses will sit together. To put it another way, is this an example of one integrated strategy, or a company grasping at straws trying to hold on to whatever market share it can find?

As a comparison, it could be argued that Apple also operates in a number of different markets: be those desktops, mobile, streaming services like iTunes, and other newer, more experimental tech like iBeacons and iOS in the Car. But all of Apple’s separate divisions--despite being sectioned off within the company so that the team working on the iPhone don’t know what the iOS in the Car team is doing, and vice versa--exist to drive hardware sales. They also coexist in Apple’s own ecosystem, so that sales of the iPhone drive use of the App Store, which drives sales of the iPad, which drives sales of content via iTunes, which drives sales of the MacBook, and so on.

The different branches that make up BlackBerry’s business model, on the other hand, are connected less obviously: united by a desire to grow BlackBerry as a company, but not necessarily with each area feeding into each other in the way that Apple’s do. In this way, BlackBerry’s strategy is perhaps more similar to a collegiate company like Google, which can run many different research projects under the same banner without necessarily worrying how one each interacts with the other.

But the unassailable success of Google’s advertising--which represents around 96% of the company’s revenue--also means that Google can afford to run open-ended research projects without worrying about corporate cohesiveness and a lack of laser-sharp focus geared toward monetization.

Back In Black(Berry)

Ultimately, predicting the next year for BlackBerry is difficult. Despite these questions about whether a perceived lack of focus could prove a negative in the long run, it is inarguable that the most positive quality about having a portfolio of businesses under one banner is that you’re not reliant upon just one to succeed. This fact alone makes BlackBerry’s current situation different to years previous--even when things seemed promising.

“The BlackBerry 10 launch, for example, was very different to [the present situation] because there was this idea that it was the single biggest event that was going to change where BlackBerry was going--and that it was going to change the game overnight,” says Michaluk. “With John Chen, it’s different because there’s no single event for people to look at, or for the BlackBerry community to rally around. 2014 is going to be a year in which the company rolls up its sleeves and gets to work.”

While there may not be the single unifying event in 2014 that BB10 was last year, there is certainly a lot on the horizon for BlackBerry in the coming 11 months: from the arrival of a low-cost BlackBerry handset and BBM variant aimed at developing markets, to an enterprise push toward cloud-based solutions designed for businesses.

And despite initially taking the job as an interim CEO, Chen has now announced that he will stay for as long as it takes to turn things around.

It’s going to be an exciting, and fascinating, year to watch unfold.

[Image: Flickr user Kārlis Dambrāns]






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11 Comments

  • Santhosh Amber

    I'm using blackberry 9900 and its good and I love it because it has great battery life and its very fast, easy to type also and for the future of blackberry will grow higher!!!

  • Nobody cares that BlackBerry has the best security, that's not going to sell phones. Tell us why it's the best!, real world experiences of how it saved a company from data leaks or whatever.

    Example: I could tell someone "I have the best dog in the world, with the best training and best personality!" Is that person going to go buy that breed of dog based on that? No probably not. Give that person an experience you had with the dog.

    "This one time I was walking way in the bush with my dog and I fell, broke my ankle and couldn't walk. There was no one around, I trained my dog to bark on command. He barked for 20min and nobody came. He didn't want to leave me, but I got him to run and get help. Hour took off running and barking till I couldn't hear him anymore. Over an 2hours past and he had still not come back. I started to get scared, I crawled around looking for a stick I could maybe use as a crutch, but nothing.....and then low and behold after 3 hours here comes my dog....

  • ......with another fellow man and his dog, The man pulled out his BlackBerry ;) and called for help, I was saved all thanks to my dog.". "What breed of dog is that?

    Do you see the difference?

  • THIS IS HOW THEY SHOULD MARKET BBRY:

    They would need to provide a shock factor, much like the Apple advertisement from 1984 where the athlete throws the hammer through the giant screen of Big Brother (very ironic). I would like to see an athlete in 2014 through a hammer through a giant screen with an Apple logo and an Android bot. This idea is FULL OF WIN!

    They could also define what the word "LIBERTY" really means, and then explain why it is important (and how BlackBerry helps you maintain your liberty). Maybe show some on-the-street interviews of "knuckle-head" iPhone and Android users that shrug their shoulders saying, "I have nothing to hide" and "What difference does it make?" And follow it up with videos from totalitarian states, and what it looks like to really lose Liberty. It is a slippery slope.

  • Bill Johnston

    A well-written article.

    One cannot deny that the company is evolving from its former self; priorities are changing and new areas (i.e. BBM Channels) are being explored. I'm happy to see this change and I believe this is a company to keep watching in the next 2-3 years.

  • Phillip Townsend

    I could eventually see BlackBerry becoming a major business and mobile communications solutions provider, similar to an IBM-type shift, but still offering hardware. If it can create a strong communications network and support services for businesses that can seamlessly integrate with iOS, Android, and Windows platforms, they could make their devices a necessity in the business world.

  • BlackBerry is still I pain from several years of arrogant leadership who always claimed to know more than the consumer and the market. But they are turning arou.d from that, I've seen it personally. Chen has made it clear that BlackBerry is going to be a different company and that itself has instill some confidence in the market. Now, can they do it without the US market? No. So I think they have rebuild those carrier relationships here which have practically turned their backs on BlackBerry this past year. On a separate note, I have the Z30 and it is absolutely the best handset of any manufacturer I've used. The typing is amazing, and of course it's secure. It's a BlackBerry.

  • Gregg Rogelj

    I feel BlackBerry really should have jumped all over the Snowden/NSA situation and push the fact that BlackBerry has always had the best security and continue to keep security a high priority in BlackBerry 10 aswell. I'm happy to hear that they are talking more about their security now but it would have been such a huge advantage when that situation pretty much fell in their lap. I am a loyal BlackBerry user and find the BlackBerry 10 OS to be unlike any other and far superior and it just keep getting better as it evolves with each update. The most recent release of 10.2.1 is amazing. Those that are not familiar with the new BlackBerry 10 should really take a good look at it. You may be surprised how great it is and how many amazing features it has.

  • Shawn Burk

    What a great well balanced article. I read so many that slam BlackBerry for just the heck of it. Myself, I own a Z10 and I feel BlackBerry 10 deserves to be noticed and respected. Mr. Chen has a long road ahead of him though. People still think BlackBerry is all about bb7 and have no idea about BB10. If he can some how get the word out unlike the old management team, BlackBerry just may have the chance to succeed.

  • “[This] doesn’t mean we are turning our back on the consumer" - With a market share of zero (US) or near zero in most major markets and the majority of sales being cheap legacy handsets, it is more correct to say the consumer has turned its back on the company..