BlackBerry-Fairfax takeover dies; Thorsten Heins out | Hacker News Reader

BlackBerry-Fairfax takeover dies; Thorsten Heins out

theglobeandmail.com

58 pointsjmacd66 comments

I find it quite incredible that these days a company can go from a position of almost unassailable strength to total collapse in a few years. That too in a market that is booming rather than falling. Blackberry had over 50% market share back in the mid to late 2000's, and now is defunct. In India back in 2008 Nokia was king. Pretty much every phone was a Nokia phone, and now Nokia too is trying to claw back.

Now that the smartphone market seems to have matured, do we expect to see the current market situation to remain relatively stable over the next decade or so?

That depends on if there's any more massive paradigm shifts, and if those shifts are created by new players or not.

My guess is that, due to Apple and Google's expertise in touch screen and motion capture software, you won't see any new players coming out of the woodwork with a new phone everybody wants.

That said, the crowdsourcing of Firefox and Ubuntu phones could potentially disrupt things a little longer come 2014.

> My guess is that, due to Apple and Google's expertise in touch screen and motion capture software, you won't see any new players coming out of the woodwork with a new phone everybody wants.

What does that have to do with anything? Samsung is the largest smartphone maker and you didn't even mention them. Xiaomi is likely to be a huge force in the next couple years. I'm sure there will be more.

Samsung primarily make phones which run Google software, and unless Samsung want to do an Amazon and ditch the Google Play Services infrastructure for all intents and purposes they are Google phones.

Samsung sells lots of phones: how many of those phones are running Tizen (né Bada)?

I think the point the OP was trying to make is that it's highly unlikely we'll see a company collapse to the extent that RIM/BlackBerry did unless there's a major paradigm shift in mobile technology. Are Xiaomi going to be driving that? I'm not sure.

Exactly. I don't see current companies (including Samsung and Xiaomi) making enough of an impact to dethrone Apple or Google from their places unless one of these smaller companies can literally rival the touchscreen shift in market disruption.

> for all intents and purposes they are Google phones

... Except in profits.

Shift happens.

There are plenty of hardware players in the Android space. Samsung is ahead, it seems, but the last two Nexus devices are LG, and we probably haven't seen the full extends of what Google will do with Motorola yet. At the bottom end of the market, China is overflowing with dirt-cheap Android devices.

In the software (App-store) space, Amazon is pretty aggressive about taking on Google. I can't say that I've heard of any of them, but Wikipedia list another dozen live third-party Android app-stores: http://en.wikipedia.org/wiki/List_of_mobile_software_distrib...

It's hard to predict where the iOS ecosystem is going. It's definitely got momentum, but controlled, mono-culture ecosystems are vulnerable and iOS devices are definitely fashion-devices with all the fickleness that comes with that territory.

"you won't see any new players coming out of the woodwork with a new phone everybody wants"

Exactly. You WILL see new players coming out of the woordwork with a new, post-phone device everybody wants.

I'm not claiming I know what it is. But its emergence is a certainty.

You should read The Innovators Dilemma. This is a fairly common pattern - a company optimises for an existing customer base, what they value the most, and ends up with happy customers and good revenues/profits. http://en.wikipedia.org/wiki/The_Innovator's_Dilemma

Some disruptors come in, and they are worse by the same things those existing customers value. They are often more expensive by the same measures. The existing company doesn't really do anything about it because the disruptors aren't of interest to the customers, nor is there sufficient profit to be made. But what those disruptors do different does end up being valued by some and eventually it becomes the mainstream market, and it is too late for the original company to catch up.

The book uses hard drives as an example, and repeatedly the disruptors are smaller form factors with lower electrical consumption, with less storage space and higher $/mb costs.

Blackberry was good at email, battery life and minimising mobile data traffic. The iPhone was none of those, and more expensive. But what it did better (especially web browsing) turned out to be more valuable.

I highly recommend reading http://asymco.com which follows the mobile industry and related spaces. It is strongly data driven with lots of graphs (ie a constrast to "opinion" sites). His research is that mobile companies suffering their first loss tend to die or get bought out in about two years http://www.asymco.com/2013/10/04/estimating-htcs-post-trauma...

Everyone should read The Innovators Dilemma (link to cheapest used Amazon merchant copies, the printing I read: http://www.amazon.com/gp/offer-listing/0066620694/ref=tmm_pa...) And as a matter of fact, his strongest example of disk drives, for which he had the best data, is a field I followed for most of the period he discusses, and he nails it as far as I can tell. But he also has other examples, e.g. hydraulic excavators defeating steam shovels---and at the denouncement you'll viscerally understand why--- or how Honda came over here trying to compete with e.g. Harley-Davidson and ended up taking a very different path.

One thing to emphasize, and it's true for all these examples, is that the disruptors got their start serving new markets that the established companies couldn't, wouldn't or didn't even see a need to.

But I'm not sure that's entirely to blame here: hasn't Blackberry suffered some terrible technical execution failures lately? Multiple well publicized crashes of their backend email systems? A tablet that couldn't do email without a nearby Blackberry cell phone, an amazing lapse who's cause is strongly rumored to be from being unable to write the necessary working software in time?

See also some handset screwups elsewhere in this discussion: https://news.ycombinator.com/item?id=6669481

The things Blackberry thought mattered most about their product were battery life, "security", email (keyboards, data backend for that) and minimising data usage (makes the carriers happy). The iPhone is a terrible product along those lines. Heck it runs a full blown Unix, compositing graphics, and is positively profligate with data consumption.

Asymco covers this in detail, but what happened on the carrier side was they found that iPhone users were prepared to pay more for large data plans (by Blackberry standards) and hence the carrier could subsidise the iPhone price because of that. (Many carriers moved over to the handset subsidy model for the iPhone.) RIM thought carriers were trying to make maximum usage of their network, when in fact they were trying to maximize revenues. Consumers valued full blown Internet access highly and then apps. That led to the iPhone taking off.

Blackberry had a platform that was all about economy (use minimal memory, cpu, network etc). They did react hence the QNX acquisition. But Apple and Android both had a head start on them. RIM had to bootstrap a new platform, redevelop most apps, and try to catch up, all in a shorter amount of time than Apple and Android had, also while changing core values (minimalism/efficiency). It would be a rare organization indeed that could pull that off.

Globe and Mail have a good long article with the insider details http://www.theglobeandmail.com/report-on-business/the-inside...

Thanks for the link, although I can't justify spending more time reading it than getting to the introduction of the Storm, which per my last link, supports my point about technical execution.

It's one thing to find it difficult to figure out how to fight a disruptive innovator or a paradigm shift---and the iPhone was mostly the latter, I think, only partly a disruptive innovation since it only did a few things worse than the Blackberry, and the lack of a keyboard was deliberate.

It's quite another to make your first product to answer that challenge, that addresses the company's "most important strategic opportunity since the launch of its two-way e-mail pager" and have it fail to work (well). Probably damaging the brand while they were at it, certainly displeasing Verizon Wireless.

Companies fail for many reasons, and often for multiple reasons. I'm just pointing out that RIM started to fail in technical delivery, in new products such as the Storm and that silly "can't do email by itself" tablet, and in its core existing business (e.g. email system outages ... and poorly handled ones at that, and probably more as well).

I don't think the execution failures are specific to them. They were having to sustain an existing business, plus do accelerated development of a new platform and devices, plus the core apps and libraries on top of that, starting from a laggard position with the competitors having a several year head start, and all the time spent doing this the competitors continue to move ahead.

I'd expect the majority of companies to fail at trying to pull that off. Much of it is the kind of work where adding more people will be of no benefit.

The surprise isn't that they failed - it is that anyone expected them to succeed!

It happens.

It's happening increasingly quickly now as compared with 20, or 40, or 80 years ago.

The “topple rate,” the rate at which big companies lose their leadership positions, has more than doubled, suggesting that “winners” are in a precarious positions. (Quoting Denning). Companies stay at the top of the heap for ever shorter periods of time. Similar statistics on residency in indices such as the DJIA or S&P 500 support this observation.

The long-term decline in ROIC (return on invested capital) 1965-2009. From 6.2% to 1.3%. Though there've been some ups and downs, that's a very long-term consistent slide.

And it's pretty much always been the case that technology companies, especially those that don't have deep and broad connections elsewhere, fall over fairly quickly. AT&T and IBM managed to get themselves deeply wedded into corporate and government fabric. Xerox and Land (the instant photo camera company) not so much. Consumer electronics has been pretty fickle, and Blackberry grossly overplayed its hand in the mid-2000s.

More on the transition of businesses in the Shift Index:

http://www.forbes.com/sites/stevedenning/2012/01/25/shift-in... http://edgeperspectives.typepad.com/edge_perspectives/2009/0...

well, the current market situation for smartphones will be stable...but that likely means the cutting edge of innovation shifts to another frontier (which I think we are already beginning to see, as smartphone innovation plateaus and interest in wearables and IoT speeds up).

I for one think it is entirely feasible that the smartphone itself could become a glorified cellular hotspot (a "dumb pipe" if you will), a hub connecting you and a personal area network of micro-gadget sensors and nearby displays to the Internet at large. In which case "where the value is" will once again shift from today's winners to tomorrow's winners.

All glory is fleeting.

The situation is worse than it looks. Unmentioned in this article is that Fairfax already owns 10% of Blackberry and is the company's largest shareholder.

Canadian papers have circulated rumors the offer was intended to set a baseline price they hoped would be overbid. Which makes sense -- if Fairfax was serious about increasing its ownership it has an interest in reducing the price, or could look to purchase a controlling interest rather than the whole company.

Canadian papers have circulated rumors

Which papers? I've seen no such rumors. You don't flippantly make $5 billion dollar bids -- the problem Fairfax encountered was that in such a deal they need some banks to sidle up with them, and few (or no) banks wanted to.

Also, Fairfax wanted to take the company private. You can't do that secretly or incrementally. It is an all-out endeavor, exactly as they attempted.

I believe their bid was sincere.

To be fair, you don't make a $5B bid without having the capital lined up. It felt really scummy to have them bid up like that then include those egregious breakup fees if BB found a higher bidder.

I think it was the Globe.

Does anyone see a scenario where Blackberry survives? Apple was once 90 days from bankruptcy. Blackberry certainly has its fans. Their keyboard phone is somewhat unique.

It's a tough one. I've got a feeling Blackberry is another "Kodak". File for bankruptcy protection, sell different divisions/assets to different buyers, sell off patents and wait for it to emerge from bankruptcy.

It seems to me like they should switch to Android with their own launcher and compete on hardware. The big fat margins of the past are long gone but I think there is a healthy niche here that they could sit in for quite some time.

I hope not. BB10 is a very nice operating system. I'd hate to see it go to waste.

I find it much more responsive and snappy than Android.

Switching to Android is just a death wish. They need to control the whole stack and cannot be beholden to someone who competes with them in messaging.

How has that strategy worked out for others in the same space?

Pretty well for Samsung. It hasn't for HTC, LG, Motorola...

Samsung controls the whole stack?

How has switching to Android worked out for anyone but Samsung?

Varies from company to company, Sony's doing well, HTC's not. But they're all still in business.

Sony's had one good Q with 2013 Q2 and most think its at the expense of HTC. If they continue to carve a market out of what HTC and LG had then maybe they are doing "good", but one good quarter doesn't make a trend.

LG just had a good Q3. Then there are manufacturers like Xiaomi who are doing well.

There's really only 2 manufacturers doing gangbusters, Apple and Samsung, everyone knows that. But outside of those two companies the only ones still around are those that licensed OSes, everyone who has tried going it alone is out of business or in the process of going out of business. Do you really dispute this?

So, the only two companies doing well have pretty good control of their CPU and supply chain and only 1 is using Android. I think Samsung could switch to FireFox OS and not miss a beat. Android isn't the strong brand to most consumers.

I thought you said they had to control "the whole stack"? You just meant the CPU? There we might actually agree, I think went you look at what has happened in the mobile landscape since smartphones became popular I think what you see if that the companies whose only business is making phones are the ones that have struggled the most. Those that had businesses which feed into smartphones have done better.

I said BB needed to control the whole stack since it would be a nightmare for them to move to Android where the OS provider would be a competitor in messaging. Sadly, BB is not going to build its own CPU. I clarify with meaning the software stack and hardware they can actually build.

BB has a very nice OS, but has done a very poor job of it and spent quite a lot of time backing Adobe's fading tech. There is a lot of room in getting development simpler, but they need to get some more software expertise.

They still have a place if they can start building with a phone at the bottom-end ("free") or low-cost for pay-as-you-go plans. That gets them numbers and then upselling their messaging. Cheap Android lives there (mostly in a poorly implemented non-upgradeable state) and iPhone doesn't.

Samsung makes pretty hardware, BlackBerry doesn't. I'm not sure anyone buys a Samsung device because it's running Android OS.

What do you mean by that? I didn't buy a Samsung because of the hardware alone - first I decided that I wanted an Android phone and picked the one which I thought was the best at the time (based largely on hardware). But the OS came first for me... so Samsung won the competition with an iPhone with the software and other Android phones with the hardware.

Actually, I think that's how a lot of people make their decision. These people decide what OS/ecosystem they like, then whittle down their options from there. But a lot of people probably just walk into the store not knowing what they really want. I'm actually not sure which kind of person is more common.

That you're aware the forum exists tells me you're not an average user of technology. I'd be willing to bet a month's wage that most people reading this post decided on a device in the manner you describe. I submit we are not average users.

When Samsung began their marketing campaign, it wasn't directed at you and I. It had very little to do with the Operating System and more to do with cute features the company had added. See 'bump'. The campaign was directed at average users.

I was thinking more of my parents, girlfriend, and her family who have never heard of this website and are definitely not tech savvy. I think that it's hard to separate marketing/branding from software, though. Her family definitely just assumes that anything not Apple is cheap, while she decided to switch to an Android phone not too long ago - once she made that choice, she went with the phone that looked the coolest (HTC One).

It's hard to say who's average, though. At the end of the day, I think it's probably brand name recognition more than anything else which drives purchasing decisions. I'd like to see what the manufacturers know...

Actually, now that I'm thinking about it what I think drove my girlfriend to Android more than anything else is probably how poorly her macbook aged (although with any laptop you can only expect a couple of good years, so she might be being a bit unfair) - especially how awful iTunes is on that thing. Just opening iTunes completely grinds that thing to a halt.

Because they have a problem with the simplest thing, choosing good brand name.

Among Android companies, Samsung was the first one with consistent brand strategy: Galaxy S1, S2, ... updated each year.

It doesn't require IQ 160 to grasp this: good name and update each year.

But for some reason HTC, each x months created new brand: Hero, Desire, don't remember, One, and the last one: One X/Mega f... I don't remember even after reading Engadget three times a week.

LG tried to copy Samsung and changed the letter to G. So finally we have G1 and G2. Not bad, they are more consisted than HTC.

Sony has letter Z but still doesn't know how to enumerate updates. The last model is Z1 and the previous was Z or Z Zero? I don't know.

Blackberry also uses letter Z, and their last model is Z10?

At least Google coined good brand name, Nexus. Nokia has Lumia series which are selling quite well.

They already kind of have. You can make most android apps work on a Blackberry 10 by simple repackaging and resubmission to App World. They didn't go the whole way, but as protomyth says, losing the control on critical parts wouldn't help them further in the long term.

Sad to see so many technical folks wanting Blackberry and Nokia to join the Android bandwagon. The mobile market needs more competition and diversity, not less, or it will end up like the PC market did. If you want an Android phone, there's an immense variety already out there. It's like recommending that Apple scrap OS X and ship Windows on their Macs.

While I agree that going Android would be bad for BB, and having more diversity would be good for the mobile space, I disagree that there is immense variety in the existing Android handsets.

They're all more or less the same design: thin low-quality plastic slabs of touchscreen phones of varying sizes. Choice is even smaller if you want a decent/high end phone: those just tend to be big. There is no differentiation based on form factors any more, it's basically a game of me-too and playing it safe.

I don't know that Android is a long term winning strategy for them but I could see them staying alive. Many people point to hardware features like the keyboard as things they love about Blackberry.

The conventional wisdom may be wrong in this case. Conventionally, if you wanted to save them you'd look at what they do best, look at their very core best capability and you'd go all in with that and maybe find a winning partner for the other stuff. As an outsider, and maybe because I'm just a computer dork and see the world this way, Blackberry is either a handset company or they're a bbOS company. So I'd say, put the people's platform on their handsets or put their OS on Samsung and other handsets.

The one thing about them putting Android on their handsets, it gives their fans access to their hardware and it gives their customers access to software. BB10 has the same problems Windows Phone has, it may be great but my favorite apps aren't on it. How much better does the platform have to be to get over the missing apps?

I hope they survive and come up with a plan. I don't see them ever being as big or profitable as they once were though.

Everybody I know that was one of those fans is in the process of switching to Android or iPhone.

In The Netherlands a lot have migrated to Nokia Windows Phones. KPN have been doing some very good deals which make the phones free and the contract prices very competitive with a guarantee of a new phone yearly if you migrate from their BlackBerry business packages.

Yeah, they can survive, but its going to take one hell of a CEO.

There is still a rather large chunk of people who buy whats "free" and they can text on. Start with the old BB form factor and get something that plays to that market and pay-as-you-go customers.

If anybody is smart, they'll get bought out for the patents by Google.

This was my immediate thought as well. Their patent portfolio should be immensely valuable, and the Moto patents seem to have proven weaker than Google anticipated. Things look more and more dire for BB's actual business of selling things, so the patent portfolio probably represents a majority of the company's value.

Alternately, MS or Apple could buy them up simply to prevent Google from doing so.

BlackBerry is to the Enterprise what Apple is to the Consumer. Neither knows the other market well enough, or has proven they can be successful in what isn't their expertise.

IMHO, BlackBerry can survive if it refocuses on what it does best; the Enterprise. I get it. The consumer business represents a massive market and even a small percentage of that market can be hugely rewarding. It also takes a toll on expenditure and thus margins.

Software and services! Focus on QNX acquisition, it hasn't been fully exploited as yet.

was to the enterprise. When Gartner, one of the main influencers of enterprise buyers warns them to look at alternatives, they're not really much to the "enterprise" any more. http://www.crn.com/news/mobility/240162203/gartner-blackberr...

Read with a grain of salt. I have yet to visit/hear of/read about a Fortune 500 company that has switched from BB BES environment to something else. IT folks like the path of least resistance. BES10 will be rolled out in most enterprises, if not already.

The editorialized headline for that article would be: "BlackBerry cancels Gartner subscription." Gartner provides very insightful analysis, but I thinks most enterprise customers and vendors maintain a healthy skepticism to anything they read. This report was unusually alarmist, which I don't think is warranted as they still have a long way to fall before they would need to cease operations.

I really hope so. I'm a diehard BlackBerry fan; wouldn't trade the Bold keyboard for anything else.

What BlackBerry needs to do is pull it's ass out of the touchscreen market. It entered late, and it shouldn't have entered at all trailing so far behind. Not only did it suck at touchscreen phones, it isolated the traditional BB fans.

For example, the BB Storm phone that came out few years ago was complete shit because the touchscreen didn't work 1/2 of the time. The new Z10 touchscreen phone is running on BB OS10, which no one develops for. The Q10 phone that's suppose to replace Bold, they took away the trackpad and the traditional BB buttons. WTF?

If I wanted a phone with touchscreen capability, I'd get an iPhone. I want my BlackBerry the way it's always been, but continue to update it and focus on the minimalist productivity features. BB users are conservative. You don't need to make drastic changes like releasing a new shitty touchscreen phone. Just do what you've always done, but do it better.

> The Q10 phone that's suppose to replace Bold, they took away the trackpad and the traditional BB buttons. WTF?

I've been a Blackberry lover for years, and completely agree that the Storm was hideous (haven't tried the Z10 yet), but for me the Q10, which I moved to a month ago, is a beautiful replacement for the Bold. It took maybe an hour to get used to it, having been using the Bold line since it came out (9000 -> 9700 -> 9900 I think?), and I'm absolutely in love with the Q10 now.

I've only tried it in store, so my opinion may change after using it for a while.

From the time I spent with it, it feels like a touch screen phone with a keyboard, which isn't what BB is _about_. Without the trackpad, you're forced to touch the screen, and use the keyboard only for typing. That's a big no-no for me, as I completely avoid touching the screen on my Bold. I guess it just comes down to individual preference.

That being said, I will still probably get the Q10 when my contract expires.

just speculating but...

- Microsoft is the natural buyer - for patents and to migrate users to Windows Phone with Blackberry Messenger and BES, don't really see anyone else who wants into this business v. Google and Apple, plus of course the enterprise users are all Exchange, rather keep in-house than cede to Apple and Google

- Board decided to sell. Prem Watsa is a big investor, he put out a maybe-not-that-serious $9 per share bid as a stalking horse

- Management did a road show to get a bidding war going (supposedly met with Facebook... you really think Zuck has time for this? probably just weak-ass psy ops v. Ballmer and Elop)

- No bite at whatever they were asking, presumably $10+

- For his trouble Watsa picks up some cheap $10 options on ~16% of the company

- According to Yahoo, they have $4.50 in cash, last price $7, enterprise value < $2b at current share price

- Gotta think at that price Microsoft could buy it in a sec

- Sort of sounds like Watsa saying we got plenty of cash, you gotta pay me at least $10 to go away.

- Not really sure what leverage Watsa and management have if someone decides to go hostile, proxy fight , but that's unusual in tech, nobody really wants that drama

Seems a pretty risky bargain for Prem to put $250m at risk with their cash pile dwindling day by day and likely costs of shutting down various parts of the business. If I were a buyer I'd be just sitting and waiting for them to get more and more desperate.

clearly, the buyer(s) is/are waiting for them to get more desperate.

but Watsa gets paid before stockholders, company has $2.3b in cash per Yahoo Finance.

Might have costs in laying off/shutting down, but also have assets and income streams. Not clear they are hemorrhaging cash, they lay off employees, stop investing, they stem the bleeding.

Google Finance has good cash flow charts - https://www.google.com/finance?q=NASDAQ%3ABBRY&fstype=ii&ei=...

Believe it or not... not all companies need to constantly raise funds or go out of business... legacy companies have positive cash flows. Prem's momma didn't raise no fool.

How long until Blackberry flames out completely? I used to think that they had technology that was worth saving, but this is pretty much Nortel 2.0 now.

QNX?

Good luck trying to raise "fresh financing"...

I think the $1bn is coming from Fairfax, but the article isn't entirely clear on that.

I read (I can't remember where) that Fairfax was $250 million of that $1bn new convertible debt

This PR news release is a little less opaque: http://www.marketwired.com/press-release/blackberry-receives...

Summary: - $1 billion of convertible debentures, $250 million of which is provided by Fairfax. - 6% coupon rate, 7-year maturity. - Convertible to BB shares at a price of $10.00. (If all the debt was converted, it would result in 16% of all common shares outstanding, so a significant potential dilution.)

If they put their patents and stake in "Rockstar" as collateral, Google would certainly offer them several billion.

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