BlackBerry (BB 0.34%) once a stock market darling, is now in a pitiable situation. The company was set to go private at $9 per share, but instead took an alternative route by raising $1 billion in convertible debentures. As a result, shares are languishing around $6, destroying even more shareholder value.
The mobile communications company made a number of strategic errors, which have led to dwindling market position. At the end of Q3 2013, BlackBerry's market share of total smartphones shipped plunged to 1.7%, which was 4.1% a year ago, according to IDC. The company has made a number of mistakes, and not going private just might be another one. The company has been a champion in destroying shareholder value.
Not innovating fast enough
Product refresh cycle in the handset business has dramatically decreased, driven by the rapid-fire pace of innovation by Samsung, in particular. But, BlackBerry hasn't been the only company to take heat for its acute lack of innovation. To a much smaller extent, Apple (AAPL 5.98%) investors have questioned the company's ability to innovate.
However, Apple did innovate, notably with its iPhone 5s, and has managed to silence skeptics in the near-term. Unit sales of the iPhone 5s have been robust and more than made up for the iPhone 5c's lukewarm reception. As a result, Apple shares have done very well in the last few months. The company's market cap has now surged past the $500 billion mark once again.
BlackBerry's weak presence in the consumer market has led many consumers to dump their BlackBerry devices for Android and iPhone devices. But recently, as a result of this innovation lag, BlackBerry is even losing ground in the enterprise market.
A Forrester survey of North American and European companies revealed that BlackBerry's share of mobile devices used by employees fell from a high of 57% in 2009 to 21% in 2013. However, all hope is not lost for the company, governments, and numerous other enterprises holding on to BlackBerry devices for security purposes. BlackBerry had more than 25,000 BES 10 enterprise servers at the end of August, up from 19,000 in July.
Delay in making BBM cross-platform
BlackBerry's messaging service, BBM, was one of the earliest and largest mobile social networks, and the number of BBM subscribers had surged to 60 million. But, that extremely valuable asset was only available to BlackBerry users, and not available on other mobile computing platforms like iOS or Android.
As a result, other cross-platform instant messaging services emerged, like Whatsapp and Viber, and reduced the value BBM could have potentially gained from being a first mover in the space. However, when BBM did become available on other platforms, the service got more than 10 million downloads in the first 24 hours, and 20 million total subscribers by the end of the first week, bringing its total user base north of 80 million.
BBM is adding features and is likely to be more valuable to current users as a result. A number of OEMs running on Android OS will feature BBM as a pre-installed service in a number of regions including Latin America, Asia, and Africa. This should help substantially increase usage of BBM.
However, BBM is now well behind the leading cross-platform service, Whatsapp. Recently, Whatsapp disclosed that the service now has more than 350 million monthly active users. If BBM was available much earlier, the total user count of these competing services would have likely been much different.
A product launch gone very bad
BlackBerry's core user base is largely composed of users who prefer the physical QWERTY keyboard, a BlackBerry hallmark. But, instead of focusing on its core strengths, BlackBerry chose to roll out the Z10 device ahead of the QWERTY keyboard version, Q10, when it launched the BB10 line of products.
The Z10 touchscreen phone was largely a disaster because it was primarily competing with more consumer-centric phones from Apple and Samsung. As a result, the Z10 was a flop, prompting the company to take a write-off of almost $1 billion. The company's die-hard user base in the enterprise and consumer markets strongly prefers the physical keyboard, but BlackBerry experimented by venturing into the more consumer-friendly segment of the market, instead of focusing on its core market.
The company's decision to roll out the Q10 months after the Z10 was a big mistake. This holiday season, BlackBerry launched a promotional campaign, offering Z10 devices at a 50% discount to clear out its inventory. The promotion is a limited time offer, and an effort to recoup some of the losses from the overproduction of the Z10.
Going forward
In spite of its mistakes, BlackBerry is trading well below its net assets. The company's newly minted management has stated that it is in it for the long haul. While it might be a long shot based on the current market position of BlackBerry, such a turnaround might just be possible.
The company still holds a sizable patent portfolio, BBM is gaining momentum, and its enterprise business is still heavily used. It might have been better served as a private entity, and being a public company will make it that much harder to turn the once-powerful BlackBerry around.
