A sorry BlackBerry Limited, at a possible $75 billion discount

Sep 26 2013, 17:42 IST
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SummaryHow the hardware innovator lost the plot as a software developer as well

Finally, BlackBerry Limited has signed an agreement to sell to a consortium led by Prem Watsa’s Fairfax Holdings. The timing of the announcement is ironic because over the weekend the world’s incredulous eyes were on BotchBerry as the former leader, which has floundered for years as a hardware innovator, lost the plot as a software supplier as well. The launch of the BBM messenger to competing mobile platforms had to be rolled back when an unauthorised app on Google Play brought unexpected traffic to BlackBerry Limited's servers. What, BlackBerry didn’t know that Android has an open ecosystem?

Briefly, the company tried to snatch dignity from the jaws of ignominy with the ‘thank you for crashing our servers’ manoeuvre, which used to be popular with start-ups in the 1990s. If you couldn’t scale up and your service flaked out, you claimed an overwhelming response to your product. But, in 2013, when server farms, multiple redundancies and the cloud are behind every product, such petty deceptions are underwhelming.

But thanks to the BBM release drama, BlackBerry Limited did not have to face some curious questions which were in the air. The company had released its second quarter results on Friday, a time-honoured strategy to dilute coverage, since business readers are less attentive over the weekend and publications show their softer side.

There was much to hide here. Revenue stood at $1.6 billion, half of what analysts expected. Costs are to be halved by 2015, trammelling growth, and the Wall Street Journal has reported 40% job cuts. About 5.9 million smartphones were sold. In contrast, Apple shipped 9 million units of two new iPhone models within the first weekend of release and reported 200 million devices upgraded to the new iOS 7.

Research in Motion had been a hardware leader with a firm grip on the enterprise segment. What does it say about BlackBerry Limited's conviction of its competence in hardware when it is willing to release its software products to users of other hardware platforms? Of course, the BBM would be snapped up, especially by people who have never used BlackBerry and want to know what the mystique was all about. But can a messaging service be monetised to any great extent? After the Whatsapp and Facebook Messengers, well after every operating system, for mobile and PC, has unified messaging, do you really need BBM? Besides, with its USP heavily eroded, not by technological progress but by geopolitics, BBM is not what it used to be.

The USP of BlackBerry Limited was the promise of watertight, airtight security in messaging, email and file transfers. Once upon a time, this worked as advertised—almost. The whole world’s BBM traffic ran through secure servers in Canada, with the company claiming that even its own machines could not snoop on traffic, never mind governments or hackers. The promise of end-to-end security made BlackBerry Limited indispensable for the enterprise—transnational corporations, research organisations, government. But the promise of cheap, private, real time communications worldwide also made it indispensable for terrorists, contraband traders, money launderers and gangsters, and governments seeking to enforce the law and protect their civilians began to demand access to traffic. India was the turning point in 2010, with the government prepared to shut down BlackBerry Limited services if it was denied access. Other countries like Algeria, the UAE, Lebanon and Indonesia had also set up a clamour but India was the decisive market.

Research in Motion capitulated to save one of its most promising markets of the time but how much access Indian agencies enjoy remains unclear, amidst claims and counterclaims. It appears to be a compromise—setting up a server in India to comply with regulations, thus avoiding having to share encryption keys which BlackBerry Limited claims it does not have—and a pall of smokescreens may be useful for both parties.

Interestingly, while this step was read as a compromise on a core aspect of service quality and everyone with access to a word processor harangued India for wanting to snoop on its citizens, they missed an even bigger elephant in the room. The US, which has reason to be the most security-obsessed nation on earth, has never demanded anything of BlackBerry. This suggests that it has always had the technical, legal or contractual ability to read traffic. Or, to put it another way, perhaps BlackBerry Limited traffic has never been secure from all eyes.

How will the Fairfax-led consortium steer BlackBerry Limited, which it is buying for a tiny fraction of its possible value—with a $75 billion discount, by one reckoning? Assuming that the buyers knew about the proposals to slash jobs and overheads in Friday’s report, they may want to focus on services rather than hardware. The returns would be limited, but so would the risk be limited. What next, a Whatsapp buyout?

pratik.kanjilal@expressindia.com

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