BlackBerry Finally Puts the PlayBook Out of Its Misery

Last Friday, BlackBerry (NASDAQ: BBRY  ) reported worse-than-expected results for the company's fiscal Q1. While sales of the company's flagship Z10 and Q10 handsets fell short of most analysts' expectations, CEO Thorsten Heins also had discouraging news to relay regarding the company's PlayBook tablet.

The BlackBerry PlayBook. Photo: BlackBerry.

BlackBerry had planned to upgrade the PlayBook's operating system to the BB10 OS, which powers the company's latest smartphones. However, Heins determined that the user experience was not up to par and therefore stopped these development efforts. This more or less marks the end of a turbulent two years on the market for the PlayBook.

BlackBerry's decision to jettison the PlayBook is a good one. The device never had a chance at replicating the user experience Apple (NASDAQ: AAPL  ) created with the iPad, because of a lack of developer support. With Android vendors including (NASDAQ: AMZN  ) and even Google (NASDAQ: GOOGL  ) itself selling high-quality 7-inch tablets for $200 or less, it became virtually impossible for competitors (aside from Apple) to make money in this market.

While BlackBerry faces long odds in its attempt to climb back to relevance in the smartphone market, its tablet efforts were already doomed. It was high time for the company to cut its losses and throw its resources into the areas where it still has a chance: productivity-focused smartphones and enterprise software and services.

History of a failure
In early 2011, BlackBerry -- then called Research In Motion -- released the PlayBook tablet, its response to Apple's runaway success with the iPad. The PlayBook was the first BlackBerry device to use the QNX operating system, which is also the basis for BlackBerry's new BB10 OS. The PlayBook's QNX OS is relatively snappy (especially compared with the legacy BlackBerry OS that powered the company's smartphones at the time), and the PlayBook tablets were well-made.

However, the price point was a killer. RIM decided on a starting price of $499 for the 16 GB Wi-Fi PlayBook, identical to the iPad's starting price. However, there was nothing particularly compelling about the PlayBook to justify paying iPad prices. The PlayBook didn't even include a native email client, one of the key features of BlackBerry's smartphones.

It took just one month for rumors of disappointing sales to hit the market. When RIM ultimately reported results for the first quarter of PlayBook shipments, the company had sold just 500,000 units. The worst part was that this was the best result PlayBook ever produced, with shipments quickly dropping off to just 200,000 in the following quarter.

Price cuts: the beginning of the end
The PlayBook took another blow when Amazon began selling its Kindle Fire tablet that autumn for just $199. While the original Kindle Fire was a lower-quality device and lacked features like a camera, its use of the Android OS and integration with Amazon made it a better choice for most casual users.

The introduction of this "bargain tablet" forced RIM to lower the PlayBook's price. In fact, the company briefly matched Amazon's pricing by cutting the entry-level PlayBook price from $499 to $199. That decision allowed the company to move stale inventory off store shelves, but it didn't provide much of a sales boost beyond that. Moreover, the price cuts undermined profitability, forcing the company to take a $485 million inventory writedown.

Foolish conclusion
By the end of 2011, it was clear that RIM's strategy with the PlayBook was a failure. While the company has continued to tinker with its tablet, it was high time for management to admit that BlackBerry is just not cut out for the tablet market.

Google really raised the bar in the "budget tablet" market last summer with its Nexus 7, and Amazon responded with a significantly upgraded Kindle Fire lineup in the fall. With those two well-capitalized companies willing to sell high-quality tablets at or near cost, BlackBerry couldn't hope to earn money in the tablet business, even as a niche vendor.

By contrast, there's a lot of profit to go around in the smartphone market. Right now, Apple and Samsung have a virtual duopoly in terms of profit share, but BlackBerry still has some chance to make money as a niche player there. The situation in the tablet market was hopeless, and so shareholders should be glad that BlackBerry finally put the PlayBook out of its misery.

Learn more
It's incredible to think just how much of our digital and technological lives are shaped and molded by just a handful of companies. BlackBerry may have fallen out of the race, but there are still several competitors vying for dominance in the fast-moving world of consumer technology. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged among the five kings of tech. Click here to keep reading.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 03, 2013, at 6:54 PM, demodave wrote:

    "Right now, Apple and Samsung have a virtual duopoly in terms of profit share, but BlackBerry still has some chance to make money as a niche player there."

    Blackberry a "niche" player? Seriously?!? BBRY's "niche" was being a corporate collar (read: leash). If it can't succeed at that, BBRY is toast. And given the new BYOD MO, no one wants a BBRY for work.

  • Report this Comment On July 03, 2013, at 9:02 PM, marv08 wrote:

    Hm, the headline talks about putting "the PlayBook out of its misery"... which would normally mean: killing it. But nobody did.

    The third sub-heading promises a "conclusion", but does not contain one.

    BB said that the PlayBook will not be upgraded to run BB OS 10. They did not talk about killing it (even if that would, admittedly, make a lot of sense by now), they even promised further support for the PlayBook OS.

    The PlayBook is in bigger misery than ever before. Even the most loyal supporters and developers are jumping ship now. And it is still in agony. Amateur hour is not over yet.

  • Report this Comment On July 03, 2013, at 9:10 PM, Oldfool103 wrote:

    The final straw with my relationship with Scotia Bank was when one of their medium shots from Vancouver required a reduction in my Apple shares--something they only bought because I complained for a year, while watching RIMM, that they loved, drop into the tank--and maintained that the Playbook would run circles around the iToy... Ah, Canadians...

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