The Decline and Fall of the Blackberry Empire

by Justin McNeil
Senior Editor


During the past few years, the fortunes of one of Canada’s most iconic companies have shifted dramatically downward.  Canada’s Research in Motion (“RIM”)—creator of the Blackberry—has entered economic free-fall, risking the outsourcing of one of Canada’s greatest success stories.  Canadian law allows the government to block a foreign takeover of RIM; yet, if the government exercises this prerogative could Canada be taking an even greater economic gamble?

The ouster, or seeming resignation from leadership, of the company’s co-CEO founders Mike Lazaridis and Jim Balsillie on January 22 highlights the depths to which the firm has fallen.  The move has at least signaled that the board of directors has come to grips with the seriousness of RIM’s current plight, though it is unclear whether this change may be too little, too late.  The elevation of former COO Thorsten Heins as CEO has not assuaged the fears of many analysts and others who had hoped for a more radical shakeup and continued change in order to foster new growth and innovation.  For now, both Lazaridis and Balsillie will remain on the board of directors with the former also heading, somewhat surprisingly, a committee on innovation.  Though continuity seems to be a priority of the board, many predict that without new thinking RIM could fall even further into irrelevance.        

Most point to the 2007 Apple iPhone launch as the clear beginning of the slide which has seen the technological giant’s stock price drop from $76 per share in March of 2010 to around $15 at current quotes.  This article highlights the cumulative effect of poor products, delayed rollouts, stagnant development, and the underestimation of Apple as a competitor in the smartphone industry as the company’s most egregious blunders. 

It didn’t help that amid the errors in trying to move RIM forward, its vaunted strength of network reliability also began to show cracks.  Late last year, a major network outage halted the exchange of emails and messages for tens of millions of users.  Though seemingly just another example of RIM’s recent ineptitude, there may be other consequences as law firms in the U.S. and Canada may file consumer lawsuits against the company over the loss of service.  The potential for a huge settlement remains low, as class-action status is not assured and the damages that can be claimed are limited to those from loss of use.  In the recent U.S. Supreme Court case Concepcion v. AT&T, 131 S.Ct. 1740 (2011), the Court held that the Federal Arbitration Act preempts California law regarding the unconscionability of class arbitration waivers of consumer contracts.  Essentially, the holding limits damages when consumers sign an agreement in which they agree to settle disputes through arbitration or on an individual basis.  Though consumers may still follow through with such suits to obtain favorable judgment on grounds of principle rather than actual damages, adverse decisions against RIM would only serve to further tarnish an image that has already fallen so far.    

The outage also hastened some companies to begin offering iPhones and Android powered devices to its employees instead of the usually required Blackberry handsets that once were so heavily synonymous with corporate culture.  The security of RIM’s enterprise network had been lauded for years, and only last year the Blackberry Playbook became the first tablet device approved for government use in the U.S., while its handsets had been approved to handle official government email for years.  President Obama even received a modified Blackberry that was capable of handling top-secret communications in 2009. 

While there is still time for a turnaround, many analysts believe it must happen in the next 12 to 18 months.  After that, RIM may be ripe for a hostile takeover bid.  But Canada’s Prime Minister rejected such a scenario, maintaining that RIM must “succeed and continue to grow as a Canadian company.”  Harper did not elaborate on how he might respond to any potential inquiries for the firm, but Canadian law gives the government broad powers to deny a foreign takeover bid of a certain size if it is not of a net benefit to Canada.  The term “net benefit” has yet to be adequately defined, even after Canada’s pledge to clarify the term after rejecting Australian company BHT Billiton’s bid for Canadian fertilizer producer Potash Corp. in 2010.

The Canadian government has more than just a sentimental stake in RIM, as it infused the company with C$34 million in 2000.  In any case, the survival of the company and its regaining more than just a modicum of past success seems integral to Canada’s tech industry going forward, even if a foreign takeover of the company is the answer.  Some say the most promising scenarios for a takeover have already failed to materialize though, and that prospects for a future deal may hinge on the government being more transparent about its expectations regarding “net benefit” to Canada.  

Harper and the rest of the government should get serious about stabilizing RIM and revitalizing its future outlook, and should clarify—or replace—the “net benefit” rule, if only to ensure RIM stays attractive to potential buyers.  The government should also be ready to provide close oversight over any potential deals to sell off parts of the company.  Such an active approach to saving a stalwart Canadian company would show that the government learned its lesson after the painful winding down of Nortel and recognizes the vast entrepreneurial benefits that flow from RIM to the Canadian business sector.  Finally, how will Canada’s experience with RIM impact analogous barriers to foreign investment in the United States?

We'll have to wait and see if the Blackberry empire strikes back.