Report: Board splits, product missteps led to BlackBerry's undoing

BlackBerry (NASDAQ:BBRY) is trying to save itself by going private in a $4.7 billion deal. However, the road that has led up to this moment in the company's history was paved by splits between board members, poor production execution, especially after BlackBerry purchased QNX in 2010, and a failure to keep up with the changes in the smartphone market, according to an in-depth investigation by The Globe and Mail.

The report by the Canadian newspaper, which is based on interviews with two dozen past and present company insiders, chronicles the decline of one of Canada's most powerful companies, including BlackBerry's ill-fated Storm touchscreen phones for Verizon Wireless (NYSE:VZ) and the PlayBook tablet, which was largely a commercial failure. On Friday, BlackBerry reported a $965 million loss for its most recent quarter, which came a week after the firm said it would cut 4,500 employees, or 40 percent of its workforce.

The report charts BlackBerry's path from innovator to a struggling firm that has essentially written off the consumer smartphone market. Divisions produced by the company's structure, an inability to respond to changing market dynamics and especially the slow rollout of the BlackBerry 10 platform all damaged the company's prospects, the report concludes.

For example, the report detailed how Blackberry CEO Thorsten Heins, backed by Mike Lazaridis, the company's co-founder, killed an idea by former co-CEO Jim Balsillie to turn the company's Blackberry Messenger service into a cross-platform replacement for SMS.

"My reason for leaving the RIM board in March, 2012, was due to the company's decision to cancel the BBM cross-platform strategy," Balsillie said in a brief statement to The Globe and Mail, his first public comments on his departure.

But what seemed to truly undo BlackBerry was the time it took to adapt its software after acquiring software firm QNX in April 2010. The company needed to translate that into the new BlackBerry 10 operating system, which BlackBerry belatedly realized it needed to compete with Google's (NASDAQ:GOOG) Android and Apple's (NASDAQ:AAPL) iOS. The company had to decide how to reconfigure its entire platform, including whether to reuse some of its legacy, Java-based applications or to rewrite its entire lineup of applications for the new platform.

Discussions among the senior leaders in Lazaridis' team dragged on for a year, the report said, which was far too long, according to several insiders. However, when the decision was made to start over from scratch, those who had created the company's original operating system were still working on devices for the legacy BlackBerry 7 platform, thus splitting the company's resources between the legacy BlackBerry 7 platform and the new BlackBerry 10 platform.

"We had bought a powerful operating system and needed to move to it. But the BB7 was late," Lazaridis said. "Every week, I was getting requests for more hires, more resources. The conundrum was, how do I pull resources off the BB7 to rewrite all the apps on top of QNX?"

Then, during a board meeting in late 2012, company executives disagreed over whether to push a fully touchscreen device or one with a keyboard. CMO Frank Boulben and COO Kristian Tear argued the market for phones with keyboards was dead, but Lazaridis said BlackBerry would stand apart from its competitors with a keyboard device.

Lazaridis pointed to a BlackBerry device with a keyboard. "I get this," he said. "It's clearly differentiated." Then he pointed to the prototype Z10, without a keyboard. "I don't get this."

In the end, BlackBerry booked a $934 million charge it took related to unsold Z10 inventory. Right now, a consortium led by Fairfax Financial Holdings, BlackBerry's largest investor, has signed a letter of intent to take BlackBerry private in a $9 per share deal that values BlackBerry at $4.7 billion. The companies have until Nov. 4 to conduct due diligence and in the meantime BlackBerry can shop for another buyer.

Lazaridis declined to discuss whether he is part of the consortium, but said he believes Blackberry has a future. "Many companies go through cycles. Intel experienced it, IBM experienced it, Apple experienced it. Our job was to reinvent ourselves, which we all believed BB10 would do," he said. "The fact that a Canadian company was able to compete in that space with two of the largest tech companies in the world is a big deal. People counted IBM, Apple and other companies out only to be proven wrong. I am rooting that they are wrong on BlackBerry as well."

For more:
- see this Globe and Mail article

Related Articles:
BlackBerry confirms bleak quarterly results, including $965M loss
Fairfax's Watsa says BlackBerry 'will be successful again'
BlackBerry strikes $4.7B deal to go private via Fairfax bid
Can BlackBerry survive as a services company? I doubt it.
Report: Former BlackBerry CEO Lazaridis could try to take company private
BlackBerry to cut 4,500 jobs, expects bleak quarterly results

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