Blackberry Crumble

On Monday Blackberry announced it had provisionally accepted a bid from the Canadian private equity firm Fairfax Financial Holdings worth $9 (U.S.) a share, only 6% of the peak share price recorded in June 2008. Why has Blackberry, a firm with operations in 175 countries, $2.8bn in cash and whose corporate clients amount to 90% of the Fortune 500 been forced to accept such an offer?

Fundamentally, Blackberry misread market trends and did not follow consumer demand. It stood still while competitors HTC, Samsung and most notably Apple reshaped the mobile handset market. Blackberry isn't the only firm which failed to adapt (remember Nokia?) but its decline is swift and coming to a head. So why did Blackberry become so big in the first place?

Blackberry rapidly gained market share by doing two things really well. It had the best security and the best instant messaging system (BBM). This made it the favourite of both governments and corporate IT departments across the globe, whilst also appealing to young people who quickly became attached to BBM. However, Blackberry neglected three key trends in consumer demand.

Firstly, Blackberry ignored the fact that consumers want something fun, not just functional. It dismissed touch screens as unnecessary, not grasping that people found them alluring and  engaging enough to pay for. Blackberry has now brought out some touch screen models, but they have performed poorly and are too little too late. Blackberry continued catering for those few who saw buttons as indispensible while ignoring the direction of the rest of the market.

Secondly, Blackberry handsets are not sufficiently App friendly. Handsets were incapable of hosting Apps as recent as 2009, and even now there is a greatly reduced variety of available Apps. It almost goes without saying that fans of Apps do not buy Blackberry handsets. Again Blackberry found itself forgetting that consumers expect to enjoy using their phones. Ironically, one of the few Apps available on the Blackberry operating system is WhatsApp, an App that has done more than any other to erode the status of BBM as the best instant messaging service.

Thirdly, the recent trend of bring your own device (BYOD) has wrong-footed the Blackberry business model of appealing to IT departments. With employees often deciding which handset they use, security is no longer king in the corporate handset market leaving Blackberry out in the cold.

In summary, Blackberry had a winning formula but refused to adapt the formula in the face of significant trends in demand. Blackberry is now about to be taken into private ownership where it can be reshaped with less public scrutiny. This reshaping is widely predicted to involve turning Blackberry into a niche handset maker for the corporate world, and with large reserves of cash and intellectual property, there is an opportunity here. If Blackberry can adapt to key consumer demand trends, once again the future could be bright.

A Chocolate Gift

In the post yesterday I received a welcome surprise... a thank you note from the sailing summer camp I am a leader on complete with a chocolate bar!

I was touched, and as I was rather peckish at the time I tucked straight into the chocolate. That got me thinking. Why did I value the chocolate bar so much? If the thank you note had included the cash value of the bar I would have been rather puzzled (it's just not the done thing) and maybe even insulted. I certainly would not have felt as appreciated as I did as I devoured the Milky Way.

Tons of research has shown that material gifts are appreciated more than the cash. This is strange; cash gives us more flexibility. A recent paper by Kube, Marechal and Puppe (2011) concludes that it really is the thought that counts. The more thought that has gone into a gift, the more we appreciate it, almost regardless of how useful the gift is to us.

So there we go; if anyone feels like thanking me in the near future... send a chocolate bar...

Winter Fuel Payment

In the UK everyone over the age of 60 is given the Winter Fuel Payment each year by the government. ('Winter Fuel' refers to heating and electricity costs.) Over the last 10 years the Winter Fuel Payment has varied between £200 and £250 per person over 60, with the payment for those over 80 varying between £300 and £400. The Winter Fuel Payment is usually paid in one lump sum in November or December. There are no legal requirements or official guidelines over how the Winter Fuel Payment should be spent by the recipients.

On average, what percentage of the Winter Fuel Payment do you think is spent on fuel? 

Imagine the hypothetical scenario where everything stayed the same, but the Winter Fuel Payment was called 'The Annual Payment'. On average, what percentage of the Winter Fuel Payment (now called The Annual Payment) do you think would be spent on fuel?

The answers are 41% and 3%, respectively! (according to Beatty, Blow, Crossley and O'Dea, 2011) The label 'Winter Fuel' alone causes 38% of the Payment to be spent on fuel. This is called the labelling effect and it is another example of non-fungibility.

Does this information change whether you think pensioners should receive the Winter Fuel Payment?

Does the Child Benefit?

In the UK all parents receive Child Benefit from the government (equivalent to Child Tax Credit in the US). It's worth £20.30 per week for the eldest child and £13.40 per week for other children. The government spends 1% of GNP of Child Benefit. So it seems relevant to ask how Child Benefit is actually used by parents...

a) Parents spend a greater proportion of the Child Benefit on their children than they do with other sources of income
b) Parents spend the same proportion of the Child Benefit on their children as they do with other sources of income
c) Parents spend a lower proportion of the Child Benefit on their children than they do with other sources of income

(This data is accurate for the years previous to the recent change: all parents got the whole Child Benefit regardless of income)

The answer is c!

Blow, Walker and Zhu (2012) found that parents spent less of the Child Benefit on their kids than they do with other sources of income. Does this mean that British parents are uncaring?

Well, it gets worse... Parents typically spend nearly half of the Child Benefit on alcohol!

Oh dear. That's what children drive you to. 

- My Dad

But, in fairness, upon delving into the data Blow et al. discovered that parents have already insured their children's consumption out of primary sources of income. So an alternative explanation of the data is that parents don't count the Child Benefit when doing their budgeting and then treat it as an extra to be spent frivolously, safe in the knowledge that their children are cared for.

This is non-fungibility, but just not in the expected direction. The label 'Child Benefit' has a rather perverse effect. 

So, what do you think, does this prove Child Benefit should be axed?