NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Sunday, September 22nd, 2013

The tech pundits are wrong: BlackBerry may be struggling, but it’s not a doomed company

On Fri­day, Black­Ber­ry Lim­it­ed (for­mer­ly Research in Motion) announced that it expect­ed to lose some­where between $950 mil­lion to $995 mil­lion in the sec­ond quar­ter of its cur­rent fis­cal year, and plans to lay off forty per­cent of its work­force in an attempt to con­trol costs and adjust to the decline in rev­enue.

Inevitably, this news was report­ed or received by many tech pun­dits as the lat­est sign that Black­Ber­ry is dis­in­te­grat­ing, crum­bling, dying.

(The com­pa­ny pre­vi­ous­ly announced a few weeks ago it was con­duct­ing a “strate­gic review”, which could lead to a sale of the com­pa­ny).

While it’s true that Black­Ber­ry has not been far­ing well late­ly, this news — bad as it is — does not mean the firm is doomed. Black­Ber­ry is not in bank­rupt­cy, nor is it on the verge of col­lapse, even though it may seem like it is thanks to end­less rounds of unfa­vor­able and neg­a­tive media cov­er­age, much of it unde­served.

While the job cuts Black­Ber­ry has acknowl­edged are com­ing will be very painful, they are need­ed to bring down its oper­at­ing expen­di­tures. Black­Ber­ry does­n’t dom­i­nate the smart­phone mar­ket like it used to, and there is far less demand for its hand­sets. The com­pa­ny has no choice but to down­size, as Chris Umi­as­tows­ki writes:

Let’s look at the job cuts. Almost always, cuts like this hap­pen in a reac­tive man­ner. Things aren’t going well in the busi­ness, and senior man­age­ment responds with cost cut­ting. If that was all there was to this I’d be over­ly neg­a­tive also. But when I think back to how quick­ly Black­Ber­ry grew in the two years pri­or to the busi­ness peak, it is my obser­va­tion that they let hir­ing get way out of hand. Just con­sid­er how many hand­sets they were pump­ing out each year. Each hand­set required a hard­ware design team, sup­port­ing soft­ware ver­sions, mar­ket­ing, car­ri­er teams, sup­ply chain man­age­ment, and sup­port from account­ing and legal.

Nowa­days, Black­Ber­ry has a much small­er prod­uct port­fo­lio. So far this year it has intro­duced just four hand­sets run­ning its new BB10 oper­at­ing sys­tem: the Z10, the Q10, the Q5, and the Z30. The “Z” series con­sists of slate touch­screen phones, while the “Q” series phones have tra­di­tion­al QWERTY key­boards.

I have and use both the Z10 and Q10, and they are excel­lent devices, but they have not been well mar­ket­ed. I con­tin­ue to meet peo­ple who own old­er Black­Ber­rys, but have not heard about Black­Ber­ry 10, let alone seen it in action.

That sug­gests there is a sig­nif­i­cant aware­ness prob­lem. Peo­ple don’t know that the new hand­sets run a new and pow­er­ful oper­at­ing sys­tem that is much more sta­ble and reli­able. They don’t know that the new hand­sets can run Android appli­ca­tions. They don’t know the new hand­sets have the incred­i­bly use­ful Time Shift cam­era or (in the case of the Z10 and Z30) the amaz­ing­ly pow­er­ful pre­dic­tive vir­tu­al key­board.

Black­Ber­ry acknowl­edged that sales have been well below expec­ta­tions in its press release. In fact, unsold devices are the rea­son for the loss:

As a con­se­quence of the more intense com­pe­ti­tion the Com­pa­ny is expe­ri­enc­ing in its hard­ware busi­ness, it expects to report a pri­mar­i­ly non-cash, pre-tax charge against inven­to­ry and sup­ply com­mit­ments in the sec­ond quar­ter of approx­i­mate­ly $930 mil­lion to $960 mil­lion, which is pri­mar­i­ly attrib­ut­able to Black­Ber­ry Z10 devices.

Empha­sis is mine.

In oth­er words, Black­Ber­ry man­u­fac­tured too many Z10s ahead of the Z10 launch, expect­ing that the Z10 would sell bet­ter than it did. The com­pa­ny appar­ent­ly learned from this and did not repeat the same mis­take when it launched the Q10 or the Q5. (The Z30 was just announced and is not on sale yet).

With­out the inven­to­ry write­down, Black­Ber­ry would be report­ing a much, much small­er loss. Remem­ber, the total loss is expect­ed to be between $950 and $995 mil­lion; the inven­to­ry write­down will be in the neigh­bor­hood of $930 mil­lion to $960 mil­lion. It accounts for nine­ty-six per­cent of the total loss.

In a nod to mar­ket real­i­ties, Black­Ber­ry also announced it intends to refo­cus on the enter­prise and “pro­sumer” mar­kets. That sug­gests the com­pa­ny has defined a nar­row­er and more sen­si­ble tar­get mar­ket for its hand­sets.

“Going for­ward, we plan to refo­cus our offer­ing on our end-to-end solu­tion of hard­ware, soft­ware and ser­vices for enter­pris­es and the pro­duc­tive, pro­fes­sion­al end user,” said Black­Ber­ry CEO Thorsten Heins.

“This puts us square­ly on tar­get with the cus­tomers that helped build Black­Ber­ry into the lead­ing brand today for enter­prise secu­ri­ty, man­age­abil­i­ty and reli­a­bil­i­ty.”

Black­Ber­ry’s abil­i­ty to retain its enter­prise cus­tomers is key. Right now, Black­Ber­ry is stuck in a Catch 22 sit­u­a­tion: In order to bol­ster Black­Ber­ry 10 adop­tion, the com­pa­ny needs to con­vince its exist­ing enter­prise cus­tomers to switch to Black­Ber­ry Enter­prise Serv­er 10 (BES 10) and deploy BB10 hand­sets.

But if exist­ing cus­tomers aren’t con­fi­dent the com­pa­ny won’t be around to take care of them down the road, they’ll be hes­i­tant to invest in Black­Ber­ry 10.

The com­pa­ny absolute­ly needs to break out of the down­ward spi­ral that it’s in if it is to sur­vive as a going con­cern. Though news reports have sug­gest­ed the board is look­ing at sell­ing Black­Ber­ry, it’s not clear who would buy it. The Cana­di­an and Amer­i­can gov­ern­ments are almost cer­tain to object to a sale to a firm based in Asia, even if any are inter­est­ed, and Microsoft, some­times men­tioned as a buy­er, has no need for Black­Ber­ry, hav­ing just bought Noki­a’s hand­set busi­ness.

Rather than try­ing to sell itself, Black­Ber­ry ought to:

  • Take on an enter­prise-focused equi­ty part­ner like IBM, Ora­cle, or Cis­co like Chris Umi­as­tows­ki says. This should be the out­come of the “strate­gic review” the com­pa­ny is con­duct­ing. Per­haps the biggest rea­son to do this isn’t even to improve the bal­ance sheet (the com­pa­ny has $3.1 bil­lion in cash and invest­ments) but rather to shore up investor and cus­tomer con­fi­dence. If peo­ple think Black­Ber­ry is stick­ing around, they’ll feel more com­fort­able choos­ing Black­Ber­ry 10 or migrat­ing to Black­Ber­ry 10.
  • Com­plete­ly rethink its mar­ket­ing strat­e­gy. Aware­ness of Black­Ber­ry 10 is low, even among the “pro­sumers” the com­pa­ny wants to tar­get. The com­pa­ny’s adver­tis­ing for BB10 devices needs to be total­ly redone, as it has­n’t been effec­tive. A new approach is need­ed, led by a new mar­ket­ing exec­u­tive. The com­pa­ny should also look at encour­ag­ing BB10 adop­tion through prod­uct place­ment in tele­vi­sion and Inter­net shows, tar­get­ing “pro­sumers”.
  • Improve its exe­cu­tion. Black­Ber­ry announced a few months ago that it would bring BBM (Black­Ber­ry Mes­sen­ger) to iOS and Android by the end of sum­mer. The world­wide launch was sup­posed to begin yes­ter­day, but there were so many hic­cups and com­pli­ca­tions that it has been paused. There’s just no excuse for this. Black­Ber­ry needs to show it can deliv­er, and so far, the launch of BBM has been an embar­rass­ing fail­ure.
  • Diver­si­fy into new mar­kets. Com­pa­nies like West­ern Union, Intel, and IBM have rein­vent­ed them­selves when they need­ed to. Black­Ber­ry needs to devel­op oth­er lines of busi­ness besides smart­phones. With QNX, it has a strong pres­ence in auto­mo­tive com­put­ing. It should work to expand that and look at oth­er mar­kets it can com­pete in with QNX.

Pre­dic­tions about Black­Ber­ry’s death are just that… pre­dic­tions. Tech pun­dits are  like polit­i­cal pun­dits. They don’t know what is going to hap­pen, but they speak and act as if they do, and they don’t wor­ry about issu­ing cor­rec­tions or mea cul­pas down the road… unless they’re held account­able and get asked about that pre­dic­tion they made way back when.

(This hap­pened to Fox’s Dick Mor­ris last year).

We could do with more neu­tral and thought­ful report­ing in the tech blo­gos­phere, and less futur­ism and sen­sa­tion­al­ism. As Yoda says to Luke in The Empire Strikes Back when asked to make a pre­dic­tion about Han, Leia, and Chewie’s sur­vival: “Dif­fi­cult to see. Always in motion is the future.”

Black­Ber­ry can turn itself around. It’s not dead and it’s not dying. Strug­gling, yes, but not dying. Again, his­to­ry is filled with exam­ples of com­pa­nies that have rein­vent­ed them­selves in addi­tion to com­pa­nies that have failed.

It seems tech pun­dits have for­got­ten that, once upon a time, Apple was in a predica­ment even worse than Black­Ber­ry’s.

As Wal­ter Issac­son writes in Steve Jobs:

Busi­ness Week ran a cov­er ask­ing “Is Apple Mince­meat?” Red Her­ring ran an edi­to­r­i­al head­lined “Gil Ame­lio, Please Resign”; and Wired ran a cov­er that showed the Apple logo cru­ci­fied as a sacred heart with a crown of thorns and the head­line “Pray”. Mike Bar­ni­cle of the Boston Globe, rail­ing against years of Apple mis­man­age­ment, wrote, “How can these nitwits still draw a pay­check when they took the only com­put­er that did­n’t fright­en peo­ple and turned it into the tech­no­log­i­cal equiv­a­lent of the 1997 Red Sox bullpen?”

On March 15th, 1997, Apple (then known as Apple Com­put­er) told the pub­lic and the press that it would lay off around 30% of its work­force in an attempt to cut costs. The announce­ment bears many sim­i­lar­i­ties to Fri­day’s news from Black­Ber­ry. Here’s the San Fran­cis­co Exam­in­er report on that news:

Apple Com­put­er Inc. Chair­man Gil Ame­lio swal­lowed hard as he laid out his plan to save the belea­guered com­put­er giant — a plan fea­tur­ing few­er prod­ucts and a con­sid­er­ably small­er work force.

The much-antic­i­pat­ed announce­ment Fri­day from Ame­lio and oth­er top Apple offi­cials began with the news of a 31 per­cent cut in the com­pa­ny’s work force: 4,100 work­ers — 2,700 full-time employ­ees and 1,400 con­tract work­ers — will lose their jobs.

“It’s very painful for us to be lay­ing off peo­ple who have been work­ing very hard to bring Apple back to health,” Ame­lio told reporters and ana­lysts in a tele­phone con­fer­ence.

But, he said, the only way to return the com­pa­ny to prof­itabil­i­ty was to slim it down from its present 13,400 employ­ees and to cut its line of soft­ware and com­put­er mod­els.

Ulti­mate­ly Apple’s board lost con­fi­dence in Ame­lio and replaced him with Steve Jobs, although Jobs ini­tial­ly refused to accept the title of CEO. It took many years to rebuild, but Apple went on to become extreme­ly prof­itable and extreme­ly suc­cess­ful by almost every mea­sure, launch­ing the iPod, the iPhone, and the iPad. Today Apple has a mas­sive cash hoard and a high mar­ket cap.

It’s come a long way since 1997.

I won­der what today’s tech pun­dits would have said about Apple had they been blog­ging about the com­pa­ny in 1997. Would they have pro­claimed it on the verge of death? Would they have been root­ing for its demise?

It seems to me that many tech writ­ers are ill equipped to prac­tice busi­ness and finan­cial jour­nal­ism. They may be good at crit­i­cal­ly eval­u­at­ing gad­gets, but they don’t under­stand how to prop­er­ly ana­lyze a com­pa­ny. Sad­ly, they are more emo­tion­al­ly and men­tal­ly invest­ed in see­ing their own pre­dic­tions come to fruition. And many of them have pre­dict­ed that Black­Ber­ry will soon be gone. Kaput. Dead.

It’s pos­si­ble Black­Ber­ry will be sold. It’s pos­si­ble that Black­Ber­ry’s stock price will keep sink­ing and its mar­ket cap will keep declin­ing. It’s pos­si­ble Black­Ber­ry’s for­tunes will get worse before they get bet­ter, or might not get bet­ter at all.

But none of these things is cer­tain. It’s also pos­si­ble Black­Ber­ry will stream­line and refo­cus, take on an equi­ty part­ner, and return to sta­bil­i­ty and prof­itabil­i­ty.

That’s the point I want to make here in this post. Too many tech pun­dits write as if they know for a fact what is going to hap­pen.

But they don’t. They do not have pre­cog­ni­tive pow­ers.

When some­one like Dar­rell Ether­ing­ton of TechCrunch reports on Black­Ber­ry’s prob­lems launch­ing BBM, he ought to leave out com­men­tary like this:

The launch of BBM for iPhone and Android, should it ever actu­al­ly hap­pen, will be a nice escape raft for peo­ple still cling­ing to the sink­ing ship, but that’s about it. The oth­er ship Black­Ber­ry is con­ceiv­ably aim­ing to float here, the one where it builds a com­pet­i­tive cross-plat­form mes­sag­ing plat­form to rival What­sApp and oth­ers, has already sailed long, long ago.

Ether­ing­ton’s sar­casm and dis­mis­sive­ness adds no val­ue what­so­ev­er to his report­ing. In fact, it dimin­ish­es his report­ing. He would been smart to delete the last para­graph of his post pri­or to pub­lish­ing it. Too bad he did­n’t.

Let’s imag­ine what this para­graph might have looked like, cir­ca the late 1990s:

The launch of the iMac, should it ever actu­al­ly hap­pen, will be a nice escape raft for peo­ple still cling­ing to the sink­ing ship, but that’s about it. The oth­er ship Apple is con­ceiv­ably aim­ing to float here, the one where it builds a com­pet­i­tive com­put­ing plat­form to rival Win­dows and oth­ers, has already sailed long, long ago.

The com­pa­ny Ether­ing­ton hap­pens to work for (AOL) has cer­tain­ly had its own prob­lems since being spun off from Time Warn­er. Yet AOL has man­aged to avoid being com­mon­ly brand­ed as a sink­ing ship like Black­Ber­ry has. Maybe it has some­thing to do with the fact that it employs a num­ber of tech pun­dits itself. (AOL owns TechCrunch, Engad­get, Tuaw, and the Huff­in­g­ton Post).

To date, I have refused to buy into the neg­a­tive press and apoc­a­lyp­tic pre­dic­tions about Black­Ber­ry. Fri­day’s news does­n’t change my per­spec­tive. I take a long term view of things. The lay­offs and the loss are a sad devel­op­ment, but not a cat­a­stroph­ic one. I will con­tin­ue to use and enjoy Black­Ber­ry 10, and encour­age friends and fam­i­ly to install BBM when it does become avail­able for oth­er plat­forms.

In my expe­ri­ence, noth­ing beats a Black­Ber­ry when it comes to secu­ri­ty, pro­duc­tiv­i­ty, and mes­sag­ing. BB10 is a fan­tas­tic mobile plat­form and I look for­ward to see­ing it get even bet­ter with the forth­com­ing release of Black­Ber­ry 10.2.

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