The Canadian Investor - Lessons From 4 Market Leaders That Destroyed Their Moats

Episode Date: October 5, 2026

What causes a dominant company to lose an advantage that once looked almost impossible to disrupt? In this episode of The Canadian Investor Podcast, Simon and Dan look at four companies that were once leaders in their industries but made strategic decisions that helped erode their competitive advantages. From AOL failing to adapt to the open internet and BlackBerry reacting too slowly to the smartphone revolution, to Mylan aggressively raising EpiPen prices and Nike pulling back from the wholesale relationships that helped make its brand ubiquitous.  They break down the management mistakes behind each decline and, more importantly, the warning signs investors can watch for when a successful company begins taking its moat for granted Stocks discussed: NKE, BB, VTRS Subscribe to our Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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and a lot of what looked like customer loyalty was really dependency and just switching friction. And once that dependency disappeared, customers really started asking, like, why am I paying 20 bucks a month for this? Since acquiring EpiPen, so they acquired it in 2007, the company's actual sales of pens doubled, but their revenue more than five-xed.

They thought tens of millions of subscribers meant it owned the customer, but customers often state because AOL was how they accessed the internet. Once broadband removed that, a lot of their modes started eroding. I think the direct-to-consumer versus the wholesale is primarily the troubles that Nike is in today. I think that's actually, for the majority part,

why the moat and the company just overall is fallen off a cliff. Welcome to the Canadian investor podcast. I'm Simon Belanger and back with Dan Kent. We had a really fun episode. We recently talked on our earnings and news about FICO, how in our view, FICO management shot themselves in the foot with increasing their prices too high for those credit scores and then really putting themselves in the target of regulators and essentially some bad decisions taken by management that could impact negative. the company. We'll have to see the outcome with FICO. Maybe it's not as bad as the stock is showing right now being down 30% since that announcement. But we'll be looking at four

example of companies that were really on top of the world or a leader in whichever industry they had. And some bad management decisions led to the downfall, I would say, for the most part of these companies. So for various reasons. But I think it's good because you might be able to take some lessons from that and look at companies or investments that you have right now and say, you know what, this company is doing really well. But now that I'm looking at these historical comparison, I can see there might be some great clouds in a few years down the line. There are some warning signs coming up. Yeah, at least on the two that I have, one of them was just kind of a shift in strategy that turned out to be very bad. And then the other one,

is at least in my opinion just complete kind of a FICO situation where they knew they had you know kind of the industry the grasp on the industry so they kind of took advantage of it and raise prices a bit too much but yeah it's kind of a list of self-inflicted moat blowups I guess I would say yeah so let's get started here with the first one on the slate for me so it's America online I will refer it to to it as AOL so for those of are a bit younger, let's say you were born, let's say, 2000s or later, maybe even 9095 or later, you probably aren't very familiar with it, but in the 1990s, for millions of Americans, AOL was basically the internet. And for those on YouTube, you can see some, like what the pages

actually look like. It looks like the dark ages of the internet, but it is what people were using. And essentially how it would work is AOL would send out these floppy disc or CDs and CDs is basically like think about it like almost like an older version of a DVD or a Blu-ray so it just had less capacity. I think it was 600 megs if I remember correctly around that for CD. Yeah, maybe. And essentially they would put those out. You had them in magazines.

They would mail them out to you. And the intent was that people would get it. And then they would essentially sign up for AOL. And this was plugging your computer into a phone line. So your computer had a modem. You would put it, plug it with a phone line, dial an AOL access number, which was just dial-up internet. So it's not just specific to AOL.

If you had another dial-up provider, it was the same kind of thing. You had to use a phone line. And then when you were using it, it made some weird noises. You were not able to use your phone line. So back then, people didn't really have cell phones. So if your landline, a call was coming. in. It would not come in. You could not make a outgoing call either. And essentially with AOL, it would connect it to its platform. So that was the biggest difference where the rest of the providers

had essentially gave you access to the World Wide Web, which AOL was more of its close ecosystem. But eventually they gave access to the broader World Wide Web. And you had things like emails, chat rooms, instant messaging, news, sports message board, entertainment news. game shopping, surge directories. So it was kind of in that closed ecosystem. And it wasn't the only one providing this access, but it was the only one that had kind of that closed ecosystem here. And think of it as the internet, as we know it today,

as an open source internet where you can navigate billions of site and build what you want versus AOL model, which really was that closed ecosystem. So those are the two difference. And yeah, you'll see how they got to the top and then their downfalls and what they bet on. So I'll go over that. Anything you wanted to mention here before I continue? Nope.

So essentially AOL grew extremely aggressively by mailing out huge numbers of free trial floppy disk or CDs like I was mentioning. So the goal was really to get the software into as many homes as possible and convert users into paying subscribers. In 1996, AOL shifted towards unlimited access for about $20 a month, and demand really exploded so quickly that AOL initially didn't have enough modem capacity in customers, frequently got busy signals trying to dial up and get on the internet through AOL's service. But by early 2000, AOL had roughly 26 million subscribers and represented about 40% of online subscribers in the U.S. And the core problem that they started facing was broadband. So broadband, think of it as cable internet or DSL. So that really started happening, I think, late 1990s, early 2000s.

And it was a big change because dial-up internet was really slow. Like loading a page that was text only, basic text could take minutes. Downloading an MP3, I remember, could take like overnight, like just an MP3. Yeah, sometimes. Exactly. So when cable or broadband cam, it was really a game changer. And broadband on top of that, what changed is that you were, you didn't have to dial up. You were automatically on the internet through like when you open your computer right now, right? Yes, you have Wi-Fi, but you are automatically connected. And that was the same. So they, they were facing with customers that could go on get broadband that did not need to get on the AOL platform to get online. And that was a huge weakness in AOL's moat. And a lot of what looked like customer loyalty was really dependency and just switching friction. And once that dependency disappeared customers really started asking, like, why am I paying 20 bucks a month for this? So.

And that's that's 20 bucks in 96 too, which would probably be what, 45, 50 bucks today? Yeah, exactly. Yeah. Just on rough inflation mat. And then you had the time Warner marger. So AOL new broadband was coming and tried to solve the problem through the massive time warner merger. That closed on January 11, 2001. And I want to show here, there you go.

No, I don't have the right thing. But essentially, the announced value was approximately $164 billion. It's just approximate because there was a lot of stock involved in the deal as well. So you have to take that in mind. And the idea was pretty logical. So AOL had internet users, email, messaging, digital distribution. And they also owned a bunch of leading platforms, including an instant messenger ICQ that I used when I was a teenager. I did do.

I was very young, but I did use it. Yeah. Yeah. Yeah. That was like, yeah. I think, yeah, the things, it was pretty big. It had MapQuest, had a bunch of different things. I think it even owned some like Netscape portals as well.

So the Netscape the browser. So it owns a lot of stuff. And Time Warner on the other end, they had HBO, CNN, Warner Brothers, magazines, and cable infrastructure, which was crucial here for broadband. So the thesis was AOL owns the internet customer. Time Warner owns the content and broadband pipe and combine them and you dominate the entire ecosystem. But the timing was terrible. So I said, yes, January 11, 2001, that was essentially the peak of the dot-com bubble. So AOL's highly valued sock was being used on an acquisition currency and the internet valuation collapse.

So AOL's advertising business weakened as well because of that. And dial-up subscribers base started declining. And this here, you can see for people on YouTube, you can see the decline. a pretty crazy chart where AOL is like dominant until like pretty much like 2002. And then 2003, it's about equal with total broadband subscribers. And then broadband just goes through the roof in the years following that. And you can just see AOL's market share like decline rapidly. It's wild that people still had AOL in 2007.

Yeah. I mean, I guess some rural areas, right? Like where it wasn't. Yeah, I think that was, and living in the outskirts of Gatno near Ottawa when I was younger, it took a while until we got broadband, even though Gatno had it like years before. So I think it was probably more rural areas that were, yeah, like outside the city. But yeah, no, I agree. They didn't have Starling back then.

Now, the write-off started. So in 2002, they took massive write-offs for the acquisition, I think, end the end, the write-offs were close to $100 billion. And they made several mistakes here, which all kind of rifled through fairly quickly, just to make sure this episode doesn't last for two hours. The first was they mistook dependency for loyalty. So they thought tens of millions of subscriber meant it owned the customer, but customers often stayed because AOL was how they accessed the internet.

Once broadband removed that, a lot of their modes started. roading. The second one was AOL was still making billions of dollars in subscription revenue. In 2001, subscription revenue was roughly $5.4 billion. And AOL was generating in excess of $8 billion in total revenues, which included advertising. So it was definitely like still a very good business at that point. It even increased its unlimited pricing to $24 a month roughly. But the problem was that fully embracing the future meant cannibalizing the business that was extremely profitable. So it's really that classic kind of innovators dilemma, right? Like do you, like a bit like Google did, right, with search?

Do we keep search as is or will AI kind of disrupt our search and they decided to embrace it? Whether that was the right decision or not in 10 years, we'll have to see. But that's the classic innovators dilemma. Anything you want to add before I go to the next mistake? Nope. Having cash on hand is essential for any business. Traditional business accounts hit you with high fees while paying little to no interest on the cash you need for day-to-day operations.

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work harder while keeping operations simple. Check it out today at eCubank.ca slash business. I've been thinking about doing a Quebec city trip where I bring my mountain bike and the family tags along. I could spend part of the day riding while my wife and my daughter explore the city, walk around the old streets, stop for ice cream, and burn that energy in a beautiful park. Then at night, we'd all meet back up, go out for dinner, and make it a family trip. And while we're doing that, our home in Ottawa would just be sitting empty. That's when it hit me, listing our home on Airbnb.

be just makes sense. Someone else could enjoy our place while we're away, whether they're here for a summer weekend, visiting family, or coming in for a big event in this city. They could explore the Rideau Canal, take the kids to the water park, catch a CFL game downtown, or just use our place as a home base to experience Ottawa like a local. The extra income could go right back toward our own trip, and we can choose to host only when it works for us. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. So the next mistake is failing to answer why pay AOL.

So once broadband came from a like broadband became very widespread, AOL needed to justify why customers should still pay AOL because you could get. Yet increasingly you could get free email, think about hotmail, search. Google was becoming the dominant search engine then. Browsers were free. Think Netscape, Internet Explorer. Online content was widely available. Messaging had competitors.

I think that's probably MSN Messenger. What was it? Or Skype. That's probably around the time. Skype had one, MSN Messenger. Yeah, yeah, exactly. That's probably around the time that came up. and they had been charging for a bundle that components were increasingly free elsewhere.

So it was starting to get harder for them to justify. And then probably mistake number four, I think that's their biggest mistake is, in my view, is they thought the ecosystem that closed garden was astray because the internet was just confusing for a lot of people. but when it became an open web, it was easier to navigate, people became more comfortable with it, with search engines like Google, with their algorithms, AOL just became really not necessary at all. And they wanted users to stay inside their wall garden, but users were increasingly wanting out of it. And I think not embracing that, I think where it's their biggest issue. And of course, once advertisers start seeing, okay, you're losing users,

while we're not going to pay as much for advertising, and then it's a bit, you know, that's really what started their downfall. They also had, like, pretty valuable pieces that they really didn't capitalize on. I think ICQ is a great, great example. Like, ICQ was D. Like, I remember, like, when I was in early I school. So that would have been, like, 1996, 97. around there, like everyone I knew at ICQ.

Yeah. Yeah. Didn't you just get like a nine digit number or whatever it was? And that was kind of your thing. I can't remember. I think so, something like that. But that's just an example. But they failed to really kind of capitalize on that and monetize it.

And I guess the last mistake here, it's just the merger just added complexity. I think they wanted to do a lot of synergies. And at the end of the day, it would just made a more complex. organization that had different goals depending on where you were in the organization. And of course, you want to maximize your broadband, but that's also cannibalizing some of the AOL business. So they really, I think the merger wasn't really thought through all that well and did not really pan out as they wanted.

So I guess as a whole here, the takeaway for AOL is just that they, they misunderstood why, customers were paying them money. I think that's, they just did not fully appreciate the customer relationship that they had. I think they took it for granted. And when it was, it became pretty clear that the customer was looking to just use the internet as a kind of tool to do whatever they want. They were too slow to adapt and embracing it. And I think that my other one will be similar to that where they were too slow to adapt to changing consumer preferences. Yeah, and I think Google, even if they do adapt, I would imagine Google would have buried them anyway. Maybe not buried them, but as soon as you made the internet easier to navigate, like you said, which Google did with their search algorithm, like you didn't really need an AOL.

No. Because it was just so easy to go to Google and find what you needed. And then the advertising there as well. Like with Google, you're getting direct advertising what somebody is searching so you can serve them a lot better. Yeah, I don't know if Google Ads was really big back then, though. I think that that came in. Yeah, that came in later. But I think the biggest issue, too, is just you had like Yahoo with for content, right?

People were going for Yahoo instead of AOL. So I think if they would have opened the AOL platform and not making a closed garden for their subscribers earlier, I think that, that could have allowed them to capitalize on the free content, but expand their dollars. So I think that's really, yeah, that's really where they had an issue here. Yeah, it would have been a tough area to navigate regardless, but I guess they could, they could have potentially done so. Do we want to get on to my first one? Yeah.

Yeah. So the company I'm going to go over is Mylan. They now trade under the ticker or the company, sorry, they merge in 2020, VATTS. I think it's called. This was a company that owned the EpiPen. So the EpiPen came with a bunch of like generic drugs that they bought up from Merck right before the financial crisis. I think it was in 2007.

So Pfizer would make the pens and then Mylan would sell them. So EpiPen controlled more than 95% of the market. So if your kid was allergic to something, you really didn't have a choice. Parents had to have them. Schools eventually, when I talk about this, had to stock them. It was kind of a situation where they just, they controlled the market. And at the time, they were pretty cheap. So when Mieland bought them, and I don't even know if I'm pronounced, Mylan Mellon, I don't know if I'm pronouncing it right, because I don't really know that company. They were around 45 bucks each when they bought the company. So a pretty cheap price considering the

fact it will save your life. And I think the downfall of this company, is probably the most similar kind of situation we can get to FICO where they just took advantage of the fact that they controlled the market and they raised prices to the point where it just didn't work anymore. And this is probably even more critical

than FICO because, like, these things saved your lives. Like, if you were allergic to whatever, maybe, wasps, bees, whatever maybe, you use these pens. Yeah, he's allergic. Yeah, and they, like, though, you won't have,

what do they call, anaphylactic shock or whatever from getting the allergic reaction. Yeah, it can save your life. Yeah. Yeah. So when the company bought the assets from Merck, the EpiPen in 2007, like I said, it sold them individually for $45. And then by 2016, it was $610 for two of them. So the two packs were also a strategic decision too and kind of a pretty dirty one. So the payment per pen by insurance companies was the same whether they got one or they got two. So every patient would pay $30 for if you had, obviously if you had the appropriate insurance, you would pay $30 and the insurance would cover the rest. And they kind of figured out that whether it was one pen or two pen,

the insurance companies would only, they would cover it and cover the same and give the patient would only pay 30. So they got rid of the single package and made them buy two. So prices went to, let's just say, $90 for two instead of $45 for one, but the consumer still only paid $30. The insurance paid $60 versus $15 before. So it kind of shows you they said it was because, like obviously, I didn't really pay attention to this situation when it existed. But what they had said is that you have to carry two. you should carry two in case the first one doesn't work. But if you look at like the strategy,

they actually had a strategy for this. They called it Project X2. Yeah, they also expire not to like, I think they're good for a certain amount of time and then you have to change it. So if you buy two, then you could be stuck with two expiring one so you're constantly buying more than you actually require.

Yes, it was, they had mentioned back then that the double pack was because you should carry two. But they had in their, apparently, in their results, this was called Project X2. So that was actually in their financials, whether it be their MD&A or whatever. And it was projected at that time

to add more than $81 million a year in revenue. So it was, like looking back at it, it was a strategy to kind of gouge these insurance companies. I have little doubt about that. So the company first started raising, raising prices every single year. Then it doubled the pace increased annually. So it went from 5% increases a year to 10% increases a year. And then it more than tripled the annual pace of increases by raising it 15% every six months. So just wild increases in price. And there was a federal

law that was being pushed back in 2013 to force schools to stock them. And apparently there was a massive conflict of interest because the CEO's mother was the head of the National School Board Association. So she had massive sway into the fact that these EpiPens needed to be stocked by schools. I don't know if the law ever went through, but there was a lot of conflict of interest there. So they also paid the insurance companies heavy amounts to block competition. So they would pay or they would give discounts to these insurance companies to make sure the off brands didn't get sold. It was only theirs. Avi Q, which was a competing product, was recalled in 2015, leaving again EpiPendamy one of the only ones around at that time. And what did

they do? They raised prices 15% on the news. So it was since acquiring EpiPen, so they acquired in 2007, the company's actual sales of pens doubled, but their revenue more than 5xed. So it was pretty much pure price raises through this. So there, there's a Medicaid situation there as well. So back in 2007, EpiPen was classified as a generic drug, meaning old drugs that can be made by anybody. Think of like acetaminophon, like, what would that be? Acidomenophon is Tylenol. I don't know. So you can get it Tylenol, you can get a no name brand, whatever maybe. And then there was the branded drugs were the ones that they still held the patent on. Nobody else could make them. So EpiPen should have been classified as a branded drug, apparently, but it wasn't.

It was classified as a generic drug. And the reason it did not say anything is branded drugs are punished more for raising prices. So you get charged more for raising prices. And apparently the company like knowingly kept the label, paid the lower penalties, but they eventually got caught. So they paid a fine of $465 million, but apparently the expected losses to taxpayers. over like the pricing increases was like in excess of $1.4 billion. That's what, uh, they should have been charged for the price increases. So yeah, that, that was a little mischievous as well.

And so the blowup eventually came in 2016 EpiPen, as I mentioned. It was $610 for two of them. You could not buy one. You could only buy two. And as insurance deductibles naturally got higher, people started feeling the full cost of it. So because with your medical insurance, let's just say you have a thousand dollar deductible, you don't get any refunds until you exceed that thousand dollars. So once these pens started getting so expensive and deductible started getting higher, parents started getting hit with the full $600 cost for two of them.

And then at that point, it went viral like the parents. Because, I mean, when insurance companies are covering this, you don't really see it. but then when a parent's getting hit with a $600 bill, yeah, it kind of went viral, politicians, parents, all that type of stuff. Yeah. The, go ahead. You know, it turns out that the public and politicians are not a big fan of prize gouging on life-saving medicine. Yeah.

Yeah. No. They're not, you know, that doesn't go over pretty quickly. And what was it like Martin Cabrell or whatever? Like, there was the guy that went to jail because he was like a head of a pharma company. any like just jacked up prices on like these niche drugs, but that were like essential life saving drugs? Well, there was the, I don't know if you know,

Martin Cabrell is a poker player. No, yeah, not my, yeah, I'm probably confusing. So there was, there's a lot of. Yeah, I'm trying to find the name. You keep going, I'll find the name. Yeah. Well, there is numerous pharma companies who have done this. Like they buy, well, there was the one in Canada.

I'm pretty sure. They became the largest company in Canada for a while. I think they buy up these drugs that are, you know, kind of low competition. And then they just jack the prices to no end until they eventually get caught and usually get penalized. So in this regard, Martin Scarelli. Schrelli? Yeah, Scorelli. That's the guy.

So, yeah, you went to jail for it. It was. Oh, seven years. Yeah. It was like on a drug that was used for AIDS and cancer patient. they raise apparently prices by 5,000 percent. Yeah. It's just wild.

But they, she, so the CEO at the time was hauled into Congress and interviewed apparently where she kind of used apparently some unique accounting to play down how much they were actually made, how much they were making per pen. So they were using tax rates that the company would never actually be charged to kind of say, hey, we're not really making. making that much per pen. And over that timeframe from 2007 to 2016, her pay had also gone up sevenfold. And I think another executive was like on the on the books to get paid like $98 million or something in in one year. And because of the like just a vitriol from the public and politicians,

they were forced to offer a generic version of it. It was half the price. So sales ended up collapsing by more than 60%. And overall of this like the stock. collapsed by over 80%. And then as I mentioned, it was merged into Viatris in 2020. So, yeah, this is another situation where if they don't gouge the prices as much as they do, they probably got a pretty long runway on a drug to make a lot more. Like, obviously, eventually there's going to be more generic drugs.

But if you don't jack the prices as much, you probably don't need to decrease them all that much to compete with the generics. To go from $45 bucks. a pen to, well, what would it be 610 for 2, so 310? It was just wild amount of increases over that time. And they did it solely because they could. Like, they controlled the entire market. So, yeah, it's a similar situation to FICO, obviously a lot worse because this was pretty much, I think at one point, this was more than half of their profits, the entire business profits.

So obviously when generic comes out and your sales fall 60%, you're going to get wrecked. But, yeah, another pretty unique situation of a company kind of abusing their ability to raise prices. Yeah, the other one that you were referring to was valiant pharmaceuticals. Valiant pharmaceuticals, yeah. So it changed. That was the Canadian one. Yeah, that's changed his name exactly. Now, it's still listed, so I can't.

So Bosch Health. So it got renamed to Boschelt. But I think Bill Ackman was long, that company. And he ended up, I think, taking a loss of several Bosh Health. billion dollars yeah yeah so it's okay bill bill is still fine but he's doing all right he's doing all right so no that was a fun one having cash on hand is essential for any business traditional business accounts hit you with high fees while paying little to no interest on the cash you need for day-to-day operations that was our experience too until we switched to the new EQ bank business account now every dollar

earns high interest with no monthly fees and no minimum balance. You also get free everyday transactions like EFTs, bill payments, mobile check deposits, and 50 outgoing and 100 incoming free interackey transfers. And to sign up quick and fully online, no branch visits because, let's be honest, no business owner has time for that. We use it for our own business and it's the first account that actually helps our money work harder while keeping operations simple. Check it out today at EQBank.ca slash business. I've been thinking about doing a Quebec City trip where I bring my mountain bike and the family tags along.

I could spend part of the day riding while my wife and my daughter explore the city, walk around the old streets, stop for ice cream, and burn that energy in a beautiful park. Then at night, we'd all meet back up, go out for dinner, and make it a family trip. And while we're doing that, our home in Ottawa would just be sitting empty. That's when it hit me. Listing our home on Airbnb just makes sense. Someone else could enjoy our place while we're away,

whether they're here for a summer weekend, visiting family, or coming in for a big event in this city. They could explore the Rideo Canal, take the kids to the water park, catch a CFL game downtown, or just use our place as a home base to experience Ottawa like a local. The extra income could go right back toward our own trip, and we can choose to host only when it works for us. Your home might be worth more than you think. Find out how much at Airbnb.ca.

I'll move on to my next one. So a company that I think most people probably know pretty well, so BlackBerry, so research in motion. And this one is really interesting. So again, for the younger listeners, you may not be as familiar, but this is more recent than AOLs, so maybe the cutoff is more those born after 2000 are not as familiar with it. They would have been... Yeah, I would say you're going to, if you're investing, you're probably going to know the emergence of the smartphones, because you'd be 18 when it started happening. So, yeah. Yeah, so it was, 20 almost, you'd be almost 20. So it was more than just, uh, it was just not, like, it was not just a phone manufacturer. So in the 2000, particularly in business and government, Blackberry was

effectively the default smartphones. If you remember, like, a lot of business people had like a clip on their belt with like a holder for their Blackberry. And it was really the first smartphone to guess mass adoption. So it wasn't the first one. You can argue there was like maybe the I think Palm Pilots had some and some older versions. But really the, what made it so attractive, it was email in your pocket. You had like secure push email. You had a physical keyboard so it was easy to type. Long battery live. You had BlackBerry Messenger that was very popular, especially with younger people. Strong integration with corporate IT departments. And that was probably the last one here that you'll see in the mistakes that probably led them to make some of their most, their biggest mistakes.

So BlackBerry was very dominant. I think a lot of people don't realize it. But in December 2009, Blackberry controlled 41.6% of the U.S. smartphone market. Now, bear in mind that smartphones were in their infancy back then, regular phones still had most of the market, but it still was very dominant there. And Apple was only 25% of the market back then, and Android was 5%. Apple launched its iPhone in 2007. So it was still very early in that. And I made an interesting chart here for our joint TCI subscribers just to show here the market share.

So just to give an idea. So this is based on it was, I'm just trying to look. So it's basically a company that does analytics here. ComScore. So it's based on their data going back to 2009, 2010. And you can just see that smartphones like BlackBerry was dominant. Like it was top of the list, 29, 2009. and 2010. So even after 2.2.2 and a half years of the iPhone being launched, BlackBerry was still

really the largest smartphone in the U.S. and I think worldwide, this is U.S. specifically. Fiscal 2011 revenue hit 20 billion of 33%. Research in motion that was the name that Blackberry had before changing its name to BlackBerry had shipped a record 52 million BlackBerry smartphones that year. And just for context here, The iPhone, like Apple sells around 250 million phones per year. But the adoption of smartphones and like mobile phones in general was not what it is today. So to have 52 million BlackBerry phones sell back then, that was quite something. And I don't think, you know, sometimes we just forget that it was just, yeah, it was just really big back then.

Anything you want to add before I keep going here? No, just that, yeah, everybody owns a smartphone today. Back then, I don't know if I knew maybe a few people had them. So, yeah, that 52 million is a lot bigger than people think. Yeah, and these are some of the phones that BlackBerry had. So it's just, it looks, I know it looks pretty old, but these are. Top of the line back then. Top of the line, exactly.

So you had the Blackberry Bold, you had the Blackberry Pearl 3G. Yes, now I know we're five. but it's just some examples here on YouTube just to see what they look like. And really what happened is Apple changed the game. So Apple really reinvented the smartphone and

doing research for this, I actually went to the launch. Was it the Apple event where Steve Jobs announced the iPhone? It was in January of 2007. And it was pretty amazing. I mean, you can't really

watch that launch. Like that launch, and not think that Steve Jobs was a visionary. Literally, like he said, like, this will change the world of smartphones. And you know what? It did. Like, it really did. Because before that, it was basically Blackberry with, like, email and instant messaging and basically a phone with a keyboard. And the iPhone just really changed it.

And in the keynote, he said that they had been fortunate at Apple to work on multiple products that changed the world. And that the iPhone would be the next one. and he was right for that. So the iPhone replaced most of the keyboard with a large touchscreen that emphasize full web browsing, media, photos, music application, and just a much richer operating system. So think of it like BlackBerry,

you had something that was really a phone with email, I guess with lack of better words. Yeah. Where Apple really made it almost like a mobile computing platform that you had in your pocket. So anything you want to add to that before I keep going? Nope. Now, a lot of people might wonder, okay, like BlackBerry was still doing solidly in 2011, the iPhone launch in 2007.

So why didn't they react faster? Well, Blackberry subscriber kept increasing. Phone shipments kept increasing. Like I mentioned, they were at $52,000, 2011. Revenues kept increasing. Profits kept increasing. So it's easy to say, you know what, things are going pretty well here. We don't need to do too much.

So here are the biggest mistake they made. So they really misunderstood what customers wanted. So they thought that customers wanted physical keyboard email security efficiency, and they just assumed that serious users would continue prioritizing that. But consumers wanted more and more as they got used to the new smartphones the way that Apple and eventually Android started presenting it. They wanted those bigger screen, touch interfaces, better browsers, camera, games, media, and eventually apps. The second one was they underestimated the app ecosystem.

Because now we really have a duopoly when it comes to that, right? You have Android and you have iOS. You have Apple Store. And that was probably their biggest strategic error. So once Apple launched the Apple Store, the App Store, and Android, and Android Follow, really, the competition wasn't just simply BlackBerry against iPhone versus Samsung, for example. It became the BlackBerry ecosystem versus the iOS ecosystem versus the Android ecosystem. And it really created a flywheel for iPhone and Android because you have more users,

more developers, more apps, better phones, more users. And BlackBerry started falling behind on the apps, which made them less attractive for developers and even users. So if developers are not coming on it, while users are not going to go there if their favorite app is not available on your platform. The number three mistake here is Android turned like basically an entire industry. So really what Android did is it created this operating system that was available for a bunch of different companies.

So suddenly BlackBerry, was competing against Apple for premium products, but they were also competing for against Samsung, Motorola, HG, and a bunch of other Android phones that were using Google's Android operating system. And Android US smartphone went from only 5.2% share in 2009 and really exploded in the following years. And Android virtually was there at every price point, too. I remember back then if you wanted something a bit more attractive in terms of a price point.

I think it's still the case today. Android has just so many options. You have anything from like super value oriented to like premium phones and anywhere in between. Apple has some more value offerings and they came in with some better value offerings in the mid-2010s as well. But they were definitely more the premium product. So that's and you had someone like. like a Blackberry that was kind of a third fiddle there, did not have the ecosystem in place.

Anything you want to add there? No, yeah, they didn't have any ecosystem, really. I think like the biggest miss here was they didn't really figure out, I think they thought that people would only want that physical keyboard, whatever it may be, because even they themselves didn't really know what the evolution of these smartphones and what you could eventually do from them,

whereas Apple kind of did. Like, you know, whole touchscreen, the whole, well, especially the app store with the games and stuff. Like, even people back then didn't really know what we'd be able to do on our phones today. How, how much they've changed. It's been wild. And they were too slow to react. So they were betting, and that was their fourth mistake, I would say, is they were betting on the enterprise mode,

because especially younger people might not realize that Blackberries were very popular with governments and corporations, because it was really integrated, it was safe from their perspective. but more and more employees were just saying, you know what, like we don't like this phone. Why can't we use an iPhone? Why can I use my own iPhone to do business on it? And when you have more and more employees asking for that, at some point, management takes notice and says, okay, you know what? We'll look at these other options. And eventually that security kind of corporate slash government security part of it started eroding.

And the next one that they did is their response to Apple was just. just not good. So they came out with the BlackBerry Storm, which I will share here for our listeners. So it was their first version, I'll try to make it bigger. So their first touchscreen version. The problem, it was really crappy. So it used the old operating system technology of the Blackberry, but tried to put it into a smartphone. I remember my girlfriend at the time, I had one. And it was like so slow, unresponsive, you had to like push so hard to get like one of the touch kind of apps to work. It was like, it was the worst. And this was, I think this launch in like maybe 2010 or 2011. I can't really remember, but it was just not a good one. And then for whatever reason in 2011,

they started to, you know, they wanted to compete against the iPad and they came out with the playbook. and they ended up having to record a 485 million hit on inventory provisions and basically saying in their statements, I read it where they said, like, we have to discount these to get rid of them. So they were like, instead of focusing on what made their business strong

and trying to be ahead of the curve, they kind of started a battle with Apple on multiple fronts. Head to head, yeah. Yeah, exactly. And you're going to lose that battle. Yeah, yeah. And they definitely lost it. And the biggest mistake, I think it's the last one here, at least in my view,

their good operating system, which was BlackBerry 10, came in years to late. So it was launched and it kept being delayed. I don't know if you remember. It just kept being delayed, delayed, delayed, delayed. And it launched in January 2013. And it was actually well received, but at that point it was just too late. The iPhone was launched in 2007, Android, in 2008. They were five years late.

And by that time, the delays, it just meant that. that their offerings between the launch of the iPhone and Android and that date were based on their older technology when their main rivals were making their phones more user-friendly, better over time. And BlackBerry was just sitting on this old technology. And by the time they got their new iOS, or not iOS, but their new operating system, they just had lost so many users. And users were used to it. developers were not really interested in developing stuff on on blackberry's ecosystem so at that point it was just too late and it's something that even Microsoft failed that i don't know if you remember but they came into the smartphone market with windows phone in 2010 i think they had previous versions of

that but essentially they partnered with Nokia and eventually bought them and they eventually just wrote it off but even microup yeah yeah exactly even Microsoft as big as it was as experience as it was with Windows, ended up not being able to compete with the essentially Apple and Android and how entrenched they were in that smartphone market and ecosystem. So at the end of the day, I think it's just a company that I think they were just too slow to react. They just doubled down on what they thought the customer wanted. And then when they started seeing that, okay, the customer.

customer is shifting, they thought that they had a mode in enterprise and government smartphones, which I guess they did for some part of the time, but these governments and enterprises are run by people that have their own individual or personal phones. And when they start getting used to Apple and Android and say, you know what, this is way better than what we're using at work, like why are we using this archaic kind of phone, then you get that pressure and it eventually started eroding even the corporate moat. And by the time they got their stuff together, it was just too late. It was just they did not react properly.

Instead of probably taking Apple seriously when Apple first launched, like they'd launched in 2007. If BlackBerry would have taken this seriously and say, you know what we think? hard keyboards or the traditional keyboards will stick there. But you know what? Let's still work on a product that will compete against this just in case. They didn't.

I think they were just too late to do that. So they waited a few years and that just, yeah, it was just too much to make up. Yeah. And they had, like if you go back to 2007, they would have had the money to compete with Apple. Like they were the largest company in Canada. too, I think back then. They kind of eclipsed. They were, yeah, they were like, I mean, if you look at the stock chart here, it's,

it's pretty crazy. Like, it's, the stock was trading at like over $100 per share, $130, $140 around there. Just looking at the chart quickly and now it's trading around like $9. Yeah. So it's not like if people think of Blackberry and Apple today and think like, well, nobody was ever going to compete with Apple. But back then, like Blackberry made a lot of money. They easily could have shifted the right direction and probably still be competitive in the smartphone market today.

But they just made all of the wrong decisions and assumptions. Yeah. And I think that's a good lesson is that even though the results may look still good in the moment, because they still had pretty solid results, I think back in 2011 we were talking about, it doesn't mean that the business isn't eroding underneath, right? So while they were posting all-time results, the consumer demand was completely shifting. So I think that can also mislead management teams

because they're like, oh, you know what? We're just firing on all cylinders. Just to realize a few years later, oh, it was like shifting underneath us and we didn't see it. But yeah, so I guess that's a good way to wrap it up for Blackberry here. So what's your next name before we wrap this up?

I'd be Nike. So primarily Nike's decision to, not cut out wholesale, but kind of limit wholesale significantly and kind of go direct to consumer. So in 2017 is when they actually started to do this. And I think the direct to consumer versus the wholesale is primarily the troubles that Nike is in today. I think that's actually for the majority part, why the moat and the company just overall is falling off a cliff. I think one of the main moats that Nike had was the fact that it was absolutely everywhere. Like everywhere, before they went direct to consumer and kind of yanked all their stuff out of these stores,

everywhere you went. Like, I mean, in Canada, we'd be, I'm thinking like footlock or sport check. Yeah. Place like that. Like, it was Nike shoes all over the shelf. Like shelf space was brand recognition at that time. And back in 2017, they thought it would be a good idea to kind of turf a lot of these partnerships and instead sell more through its own channels. So they, they mentioned that they were involved with 30,000 retailers and it said it would primarily focus on 40 key partners. Bare numbers wise, it kind of seems like a genius idea because let's say it costs you, and I'm just completely making these numbers up. I don't know, it has nothing to do with Nike's margins or anything. But if it costs you 60 bucks to make

shoes, you then sell them to the retailer for 120 and then that retailer flips them and sells them for 180, why not just kind of cut out that middleman and you kind of take the retailer's chunk so you can sell the shares for cheaper, or sorry, the shoes for cheaper and potentially even make more money. But you also kind of expose yourself to stores, staffing, shipping, return policies, advertisements, all that type of stuff. So this time frame, Nike's, or sorry, over the last five years, I guess, Nike's operating costs were increasing well above their actual sales. The phase out wasn't really instant.

They were phasing out people from 2017 to 2020, but the big cuts didn't really start until 2020. And this is my opinion, of course, just my opinion. But I think COVID was actually the nail in the coffin for Nike, but not in the way you would think. The direct-to-consumer model kind of had flaws right from the start. But COVID hid them and kind of gave them a false sense of the fact that it was working very well because direct-to-consumer looks absolutely amazing when everybody is locked up

at home and shopping online. Like if you wanted, like when everything was shut down, if you wanted a pair of Nike shoes, you went online and bought them like because you couldn't go to the mall or at least it was a large pain to go to the mall. So there was massive results from Nike over the COVID years because of that direct-to-consumer model. So they continued to kind of abandon more partners over the course of 2020 to 2022. They were making way more money selling the shoes direct to consumer rather through retailers.

So it started out by cutting all the pretty standard department stores, all the department stores in the states. And then it would move to, I guess never officially cut footlocker, but it would limit the stock that they could get. So they kind of said that their direct-to-consumer model was so popular that, you know, Foot Locker would want more Nike shoes, but Nike just wouldn't give them to them because they were selling more online. And the supply was very tight at that time, too. So a lot of factories that made the shoes, made whatever may be, were shut down. And Nike just could not afford to send stuff to the wholesalers that it had because it needed to keep its own inventory. So, yeah, they just kept shaving that. down and then post-COVID is where everything absolutely fell apart. Like you can see the peak here for Nike would have been. Yeah. Probably early 2022. Yeah.

Yeah. And Nike took up so much shelf space at all these retailers. It needed to be filled. So the retailers just filled it with different brands. Like I know New Balance was a huge one. There was a ton of shoe companies that benefited massively. Yeah. Yeah.

Yeah. Yeah. Yeah. start with an H. I can't remember the name of it. But like Nike doing this benefited so many other shoe companies because they got they got the shelf space. So when people started flooding back into the malls post-COVID, nobody saw Nike before. Nobody saw Nike anymore because they were all, I mean, I don't want to say nobody saw it because they still did have some retailers, but they pulled a lot of it back. So I think for a long time Nike shoes dominating the shelf space kind

of kept people tunnel vision, I guess. You couldn't really see the quality of other shoes. So when they went back to the malls, they bought another pair or whatever it may be, the other brands. They noticed the quality. It was kind of an eye opener. And they had the head of fleet feet, which is apparently one of the biggest chains of like specialized running store shoes in the US said the comments on the other brands after people bought them was that they were just simply better shoes than Nike. So it was a big issue there. And you come into 2020 delayed shipments all kind of landed at once those delayed shipments from the shut down factories, whatever may be. And then demand cooled and then inventory was absolutely massive. But Nike had

nowhere to sell it anymore because they kind of starved foot locker out. They starved a lot of these retailers out. And then when Nike needed to move product, the shelves were filled with other shoes. So they pretty much turned an iconic brand into a discount brand because old inventory was just marked down at crazy prices because they just needed it. They just needed it to move. I bet you TJX probably bought a bunch of it. Yeah. I would not doubt it.

Yeah. It's the company finally admitted that they made a mistake in, what was it? 2024, I think, like late 2024. They had mentioned that they over rotated away from wholesale way too much. And I think they never said this, but I think COVID just gave them way too much of a kind of a false sense of success that this was working. And again, it's, I mean, it's a massive turnaround project for Nike because this is not something like, what are you, what are you going to do? I mean, they're getting back into,

they're back in Amazon now and they're in a lot of stores now, but I mean, people just see the quality of other options now. Like, Adidas did the kind of same thing, but I don't think it was, was as dramatic. And I think, like, if you look back, right? If you're like shopping in a, in a store, especially if you're looking at, like, think about shopping for kids. If you're shopping with your kids, you're probably not shopping in online. Like, whenever we buy stuff for my daughter, we, like, want her to, like, try it and see if she likes it and she likes to see things in person. Like, and a lot of it, I'm sure, was, like, selling kids shoes. So that's just an example. Like, well, if it's not on the shelf, like, your kid's not going to try it. It's going to try something

else. Yeah, and I think that it was the main downfall of Nike going to this direct to consumer is Nike was kind of under the impression that customers that let's just say went to Foot Locker were looking to buy Nike's when in reality people bought Nike's because they went to Foot Locker looking for shoes. As soon as you took them off the shelf, it was replaced by a competitor. People didn't really care. They bought those shoes. They bought whatever was there. So massive. They may have gone there looking for Nike shoes, but then, once they arrive and they weren't there, they're like, okay, well, I'll try something else, right? Yeah, that's probably what happened.

Yeah, I think so. And they, there's even comments on a lot of these retailers that, yeah, said, like, people are buying other stuff and they're commenting on the quality of it. It's not that bad of quality. And like, I think they just thought the moat was people cared about the brand, but I think the moat was that they were just absolutely everywhere and people perceived them with quality. but once you start taking a brand out of people's heads, like they don't stare at it every day in the store,

they just kind of forget about it. Like, that's just kind of the way it works. And people just buy the stuff that's in the store, especially with stuff like running shoes, like you want to try them on, you want to do all that stuff. And I think Nike has a lot of struggles just outside of running shoes. But yeah, it's the funny thing is, is the guy that implemented this plan.

I can't remember what he did with Nike back in 2017. but they hired him back to pretty much reverse it. Elliot Hill. I don't think he was a CEO back then. Yeah, they hired him while he took over the CEO role in 20, 2025, maybe late 2024, but he was kind of the one who had the whole plan back in place in 2017. He wasn't the CEO, but he was some sort of, I can't remember his position. But yeah, they pretty much hired him back to unwind it all and try to turn the company around.

And as you can tell by the stock chart, it hasn't really worked out. I don't really know if there's like a full scale recovery from this, but what I will say is at least in my opinion, if Nike would have just stayed in the retail space, I don't think they're in the position they are right now. Their stock probably doesn't go up as much during the COVID years because it wouldn't have benefited as much from all the e-commerce activity that they did, but I also don't think you see it trading as rock bottom as it is now.

Yeah, I mean, Nike for the longest time was the exception when it came to fashion. Right. Yeah. Like it was the exception because you looked at the chart I'm sharing right now. I mean, it's kind of crazy. Like you consistently had sales growth. And that's as far as I can go. But I'm assuming it goes further back with fiscal.a.i.

That's as far as I can go. But I mean, the chart dates back to 2005 and sales are pretty much going up every single year or close to it. Like, I mean, I think around the GFC in 2008, 2009, it was flat for a few years, but I guess that's understandable when the economy takes a turn for the words. But for the most part, yeah, it just went straight up. 2020 was a bit of a down year. I'm assuming, again, you're factoring the start of COVID, but then it went up. And then the last two years are basically declines for Nike, which was a bit unheard of. Do you think they ever turn it around?

Before we wrap it up? I don't think so. I think they're probably going to turn it around from the $35 a share level they're at now, but I don't think you'll ever see them return back to what they were doing during COVID. And even if you look to, I'm sorry, 2023 and 2024, or sorry, 2022 to 2024, people will be like, oh, well, sales were still increasing. But that's just volume of product moved. If you actually look at earnings, like earnings went nowhere. So their revenue was still growing quite a bit.

but earnings were going nowhere because they had to mark all these products down. Like if you look at their diluted earnings, diluted earnings for sure. I mean, I don't know precisely, but I'm at, yeah, see, they, the earnings went nowhere, despite revenue going from 44 billion to 52 billion. Earnings went from $3.50 to $3.73. So that was probably the period there where they were marking down a ton of product. And yeah, revenue was going up. They were moving a ton of product.

but, you know, in this space, you know, when your cost of goods stay the same, but you're having to mark everything down, sure, sales are going to go up, but your profits are not. Yeah, I mean, it'll be interesting. I think, yeah, I think it still has some name brand power, but it has to undo a whole lot of stuff that a lot of mistakes. And I think Lou Lemon's another one that is kind of in that situation too right now. Not impossible. I think Lou Lemon, there's probably more hope.

I feel like they've realized faster than Nike, some of the issues that they were facing. But again, it's still, those are the kind of situation where I'm not necessarily not going to invest in these companies at some point. But I want to see the turnaround starting to happen. I'd rather be a bit late than too early on this. Because you can very, you can very well be looking at just a falling knife kind of. a thing. But if a turnaround happens, I think I'd rather miss out on the first 15, 20, 25% than just be too early and see another 50, 70% decline, whatever it is. But Nike is down what like 80% from the highs. So it's been quite the fall from grace. Yeah. Yeah. And I think it was again, I think it

was self-inflicted. I know people probably say that this isn't the sole entire reason for all of their struggles, but I think it was a massive, a massive impact in just the trajectory of the company overall. Okay. Well, I think that's a good, good place to wrap it up. So I went more technology companies. You went more kind of more traditional type of companies, but still, yeah, it's still very interesting. So we saw the, the ones I made, I think, was more companies not properly reading the customer, just not pivoting and making wrong assumption of shifting consumer preferences and not really adapting to that or waiting too long to adapt to that. You had more, you know, one company just taking advantage of consumers in general with EpiPen.

And then obviously Nike just making just bad decisions, like just screwing with a model that was working well and then trying something new because they got greedy. They wanted higher margins. They wanted higher profits. and then it had the counter effect for them. And there's a bunch of other companies we could have chosen from. Probably could have taken, done an episode on 20, 30 companies, but it would have taken days to do that.

So hopefully you enjoyed it. Make sure you give us, you subscribe if you're not subscribing to YouTube. Give us a review if you enjoyed this on whichever podcast platform you're listening. But we appreciate all this support. We'll be back with our news and earnings this upcoming Thursday. The Canadian Investor podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.