The Fatal Mistake That Doomed BlackBerry

BlackBerry failed to anticipate that consumers — not business customers — would drive the smartphone revolution

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Mark Blinch / Reuters

Beleaguered gadgetmaker BlackBerry said on Monday that it’s signed a tentative agreement to be purchased by a group led by Canadian holding company Fairfax Financial in a $4.7 billion deal. The transaction, in which BlackBerry would become a private company, represents a turning point for a once high-flying tech giant that played a key role in the mobile-device revolution only to be eclipsed by Apple and Google.

Fairfax, which already owns 10% of BlackBerry, will pay $9 per share for the company, about 3% more than its closing price on Friday. BlackBerry still has the flexibility to accept a better offer in a maneuver known as a “go-shop” process, but it’s hard to imagine that a sweeter overture will be forthcoming.

On Friday, BlackBerry announced that it would cut 4,500 jobs as it prepares to absorb nearly $1 billion in losses related to unsold-device inventory, sending its stock price plunging by 20%. Since last month, BlackBerry’s “special committee” has been evaluating strategic alternatives (like a sale) for the company. BlackBerry and Fairfax are expected to complete their due diligence by Nov. 4. By going private, BlackBerry (until recently known as Research in Motion) can continue to attempt a turnaround without the Wall Street pressure that accompanies public companies.

(MORE: Why Apple vs. Google Is the Most Important Battle in Tech)

“The special committee is seeking the best available outcome for the company’s constituents, including for shareholders,” Barbara Stymiest, chair of BlackBerry’s board of directors, said in a statement. “Importantly, the go-shop process provides an opportunity to determine if there are alternatives superior to the present proposal from the Fairfax consortium.”

Prem Watsa, chairman and CEO of Fairfax, is often referred to as Canada’s Warren Buffett, the famed investor who runs the Omaha-based Berkshire Hathaway conglomerate. “We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees,” Watsa said in a statement. “We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.”

It may seem like a distant memory now, but just a few years ago BlackBerry was the premier mobile gadget on the market. The device was so ubiquitous on Wall Street and Capitol Hill that it earned the nickname CrackBerry. As recently as 2009, BlackBerry was named by Fortune magazine as the fastest growing company in the world, with earnings exploding by 84% a year. Times have changed. Since 2009, BlackBerry’s stock price has collapsed by a vertigo-inducing 90% to under $7 at its low point last summer.

Today, BlackBerry has fallen to the back of the smartphone pack — with a minuscule 3% of the market — as Apple’s iPhone and Google’s Android operating system have come to dominate the market. BlackBerry’s decline has become a case study about what happens when a tech giant fails to innovate in a consumer-technology market evolving at breakneck speed. In a sign of the times, Apple said on Monday it sold a record 9 million units of its latest iPhone devices during the first weekend they were on sale.

(MORE: BlackBerry CEO Could Face Testy Crowd at Annual Meeting)

BlackBerry’s failure to keep up with Apple and Google was a consequence of errors in its strategy and vision. First, after growing to dominate the corporate market, BlackBerry failed to anticipate that consumers — not business customers — would drive the smartphone revolution. Second, BlackBerry was blindsided by the emergence of the “app economy,” which drove massive adoption of iPhone and Android-based devices. Third, BlackBerry failed to realize that smartphones would evolve beyond mere communication devices to become full-fledged mobile entertainment hubs.

BlackBerry insisted on producing phones with full keyboards, even after it became clear that many users preferred touchscreens, which allowed for better video viewing and touchscreen navigation. When BlackBerry finally did launch a touchscreen device, it was seen as a poor imitation of the iPhone. BlackBerry saw its devices as fancy, e-mail-enabled mobile phones. Apple and Google envisioned powerful mobile computers and worked to make sending e-mail and browsing the Web as consumer-friendly as possible.

Founded in 1984 as a consulting business called Research in Motion in Waterloo, a suburb of Toronto, the company introduced its first BlackBerry device in 1999. For e-mail-obsessed Wall Streeters and other corporate users, it was a godsend. BlackBerry pioneered “push e-mail,” meaning that users simply received their messages when they were sent, instead of having to constantly check for new e-mails. BlackBerry’s QWERTY keyboard was like an epiphany: no more pecking at a numeric keypad to eke out messages. In the years that followed, the BlackBerry keyboard spawned a whole generation of dual-thumb e-mail warriors.

As the BlackBerry exploded in popularity, especially among business customers, the company became Canada’s most valuable firm, leading some to dub Waterloo Canada’s Silicon Valley. But while BlackBerry was resting on its laurels atop the corporate mobile market, Apple and Google were laser-focused on the consumer market, which they correctly predicted would drive smartphone adoption. In January 2012, BlackBerry announced that its co-CEOs Jim Balsillie and Mike Lazaridis would step down and be replaced by Thorsten Heins, a German-born executive who joined the company in 2007. Nearly two years later, Heins has not yet been able to execute a turnaround.

 

34 comments
alleongto
alleongto

Blackberry also lost on several IP lawsuits (Bluetooth and a mobile device management IP in San Francisco).  The outage for several days with a "patch" also confirmed it was technically on shaky round vis a vis its competitors.  Without the strongest IP the technology war is lost (google vs yahoo).  Businesses realize this and so let the users decide which phone to use.  Blackberry lost a lot of momentum.  Remember, Apple had newton with handwriting (which was a flop). And before RIM, there was PalmOS (Palm Pilot).

danielmbure
danielmbure

If you think historically, Apple was where BB is today when Microsoft creamed them in the PC market. Every market has cycles so let's stop talking in absolute terms or as if Apple will own the market for the next 100 years. Yesterday it was BB in the ascendancy, today it's Apple and Google, tomorrow it's... I think what is important here is that we acknowledge that for some people BB is still just it (see South Africa), etc. Just because Apple and Google dominate the market does not mean BB should crawl into a hole and die. Their 3% market share are still people like you and I and that is proof enough that they should and will go on. 

ChuckOvits
ChuckOvits

They also failed to recognize that applications were key to growth.  I worked for a company for a time that had mobile developers. We called some contacts at RIM about creating applications with them for the market.  They weren't interested.  

luscus111
luscus111

We have a saying in Spanish, "Become famous and lay down and sleep"  It happened to Dell,MS, Sonny, HP crap printers, crap computers and the only good thing they had going WebOS, they mismanaged,BB. 

It happens when they think they are invincible and that their feces don't stink, they treat customers like dirt and have a superiority complex. 

Want to learn how to treat customers look at Amazone and learn something.

And for those of you in fear of Big Brother go find a rock to put your head under, or wake up and smell the coffee, it is only going to get worse, so stop obsessing about it.

g.adamw
g.adamw

"Tools, not toys" - Blackberry's 2011 advertising motto which basically dug it's grave. Such a shortsighted company with half-wit CEOs. Blackberry isn't dead yet, it has a loyal following and still has a lot of business customers. Basically it comes down to harsh restructuring to reduce overhead. If they can keep operating costs low and keep the devices competitive, they can keep in the running.

mark1
mark1

What in the world is Fairfax thinking? BB has under $2.5B in cash and burning a nice chunk daily (the 4k person layoff will be expensive as well) 

BB has nothing to sell as no one needs their s/w these days (is Apple or Google really going to sell more phones because they can offer some BB feature?) BBM has been irrelevant for a long time.

How do they plan to make their money back?

nofail
nofail

It sounds like a conspiracy theory but I fear that blackberry phones security and unwillingness to cooperate with the NSA was a major stakeholder concern disregard. Blackberry is canadian (not us) it has no rights.

HazeAndDrizzle
HazeAndDrizzle

IBM and Microsoft fell into versions of the same trap. Microsoft still hasn't figure out how to come to grips with the new reality, trapped between the worst of both world in Windows 8 and the one solution fits all mentality.

customerexplabs
customerexplabs

Or to put it more succinctly - the iPhone launched in 2007 and they didn't even attempt to respond for several years. Which in internet time is a million years. And then Android came along too. And once the iPhone got successful people brought it to work which started the BYOD (bring your own device) movement where people no longer accepted the rigid "requirements' of their IT department telling them they must use a BB. And there were also costs associated with internal IT and BB server licenses - hopefully some IT pros will comment on what that meant for businesses in terms of budget. And then iPads came along in 2010. And then other tablets. But it's been a long, long and slow decline.

sjbdallas
sjbdallas

In 2002, I sat in a meeting with RIM executives on a visit to Waterloo as we were deploying Blackberries to my company.  They were showing off some forthcoming devices and such.  I told him that our employees were asking why they couldn't use Pocket PCs for email (the ipaq from compaq was gaining some interest) or a Palm device.  Our obvious answer at the time was security and reliability.  However, I told him that I would like to see was a software package or a chip that could be embedded in those devices to provide Blackberry-like functionality.  That way, people could use the device they preferred but that we would still have the security we wanted and didn't need to change our existing infrastructure.  Obviously, RIM had little interest in the ideas spouted by some IT guy because they clearly knew better how to run a successful company.  My first BB was an 857 and I've owned almost every model since then.  In a few weeks, I'll be turning in my BB Torch and moving to an iPhone which will end my 14 year relationship with RIM.  It deeply saddens me to see what they've done to such a great company.  I'm saddened for the tech, for the employees, and for they could have been with just a little more foresight and a little less arrogance.

FIGJAM_TX
FIGJAM_TX

Blackberry didn't "fail to anticipate" they failed to listen.  Their bread and butter customers (IT Managers) were telling them that people were clamoring for new and exciting devices.  They ignored them and failed as a result.

funkafunka
funkafunka

This is a great example of the 'accidental' CEO.

Happened onto a good thing, but didn't know how to manage it to future growth and success.

I realized back about 10 years ago, that they were mistakenly ignoring the consumer market, and I was dumbfounded.

Good to see that the article has finally mentioned what nobody in the tech media has recognized until now.

JamesJohn1
JamesJohn1

BB is dead. We know it, and so does BB. 

christopher.mang
christopher.mang

Why did RIM miss the "consumerization" of the mobile phone market?  Was it poor management or was it their 1990's "push" technology (technology that unnecessarily required a secondary server application that was prone to regular outages) that they simply refused to get rid of?


Hmmmm....the cash cow that destroyed the farm.

IanBortner
IanBortner

Buy a smartphone!  With it the government/private interests can know where you are at all times, who your friends are, what you spend your money on, what your interests are, who you're sleeping with, and every other detail of your life.  Orwell thought that televisions would be turned into all-pervasive surveillance devices, but it turns out that the telephone is the real-life telescreen.  There is nothing "revolutionary" about these devices except dramatically improving NSA surveillance.  Everything these devices do can be performed better by an alternative technology. 

MooseKnuckles
MooseKnuckles

"Waterloo, a suburb of Toronto"

It's over 100km (60miles) away and has nothing, absolutely nothing at all to do with Toronto or the GTA (Greater Toronto Area). Wow. Period. Wow.

World_citizen
World_citizen

Apple is disaster waiting to happen! from iphone 4 to 5 to 5c/s do we see any innovation? NO. In fact iphone is quite boring!! new skin under the old frame..... Tim Cooks needs to go if Apple is to survive. Surprising statement to make given the hype about selling 9 million boring devices in less than a week... but then i am also a Apple fan and own many products, just scared and disappointed at the lack of innovation. Wake up boys and girls at Apple.... 

easyed34
easyed34

The keyboard was the only reason they stayed around as long as they did. I use an iPhone not because I love the keyboard. I used a bb for years and really miss the keyboard. The problem that killed bb was the way the bb os before the latest one handled apps. The apps that you downloaded took up bit storage memory but the memory that ran the phone. You were not only limited to how cool the apps were but to less than maybe twenty apps. No one would build a tiny app that may or may not fit on a phone. If you downloaded too many your phone ground to a snails pace and before os5 would lock up. You had to have a min of 10megs to keep it running. That is why the battery pull was necessary was to reset the memory to make the phone work. Apps leaked memory to make matters worse. Because of this the phones during two years would feel like they were burned out.

IanBortner
IanBortner

@luscus111 Haha you admit surveillance is getting worse but your answer is to just lay down and accept it?  

IanBortner
IanBortner

@nofail Most of the "conspiracy theories" are closer to the reality of the world than the crap we're fed in the corporate media.  Nothing but "the NSA is protecting us from terrorists" and other bald-faced lies to the American public.  

nofail
nofail

Business model was based on security for business users. No product fills the gap now !!  The NSA wants security to be impossible, it seems a strategic posture, dissuasion like, an assymetric cyberwarefare posture.

sjbdallas
sjbdallas

@christopher.mang Arrogance and poor management.  There was nothing wrong with the server technology.  It was very reliable for the first several years (at least until they had like 80 million users).   Those "regular outages" were late in the game and simply gave people an excuse to switch. 

LordByng
LordByng

@World_citizen I think you may be right.  One thing no one has mentioned here (or just about anywhere)- how do you compete with free?  Android is free.  How does Blackberry develop an operating system that is better and then compete with that?  Answer?  You can't.  How long can Apple compete with free?  Only as long as it takes for Android to become indistinguishable from Apple.  Does anyone buy an $800.00 Iphone when the Chinese-made zero-profit Android 5.0 phone is just as good and sells for $50.00?  Is there anything in the new Iphone that Google isn't going to copy and hand out for free?

Why was Jobs so furious when he found out Android was making a free OS?  Because he knew it was going to destroy this incredible phone he'd created.

There's only two ways to compete with free: also sell for free, or get out of the market.  Apple is going to be faced with that choice faster than anyone realizes.


deadtrax
deadtrax

@World_citizen iOS is still a far superior OS to android, sorry. I've had both phones. I can live without a massive screen if I have a consistent, well thought out UI, almost zero bugs and glitches. 

HazeAndDrizzle
HazeAndDrizzle

@World_citizen Apple with Jobs is showing signs of being like Apple with Jobs the first time. Being bigger it will take them slightly longer to Black Berry, but they are on their way.

louisjab
louisjab

@World_citizen I think you're right. If they don't move fast, we might see the same problem that they had in early 90's with desktop computers. The difference between an Apple product and the competitor is not worth the price. The iPhone became such a big success because it was by far the best phone on the market. Competitor have caught up. Their saving grace might be the app market, as it is still much better than the Android counterparts. 

whysman333
whysman333

@World_citizen Yes, until my mobile device can make a cup of coffee or double as a flare gun, then there is still work to do.  INNOVATE!!  I don't know what or why for, but... I'M BORED!!  Give me something new or I'm gonna go back to making calls from flip phone! :p

wargabebas
wargabebas

Indeed, many popular apps like Skype was and is still not available.

RustyNale
RustyNale

@easyed34 

Lack of memory and slow processing was a common problem with all but the most expensive phones and tablets 4 years ago.  It wasn't just BlackBerry, all Androids were slow too.

luscus111
luscus111

@IanBortner @luscus111 Pretty much!, 

you can obsess over it, blog about it, bitch about it and parade in front of the white house, They will still do it. 

So your options are pretty much regular societal options, don't do anything illegal on the internet, don't check out minors, don't use war words, don't  plot against your government or to kill your neighbor, don't name terrorist names, and don't even use that word either (They will probably knock on my door this afternoon). It is common sense. or alternative #2

There is an unoccupied cabin for cheap in the mountains of Lincoln Montana, I'm sure Ted can give you a good price, just don't mail anything Ok?

My point is, we all have our crazy and or bad side, just try to keep it under control, Governments everywhere have always spied on their people, especially if they feel that you are a threat to the status quo. 

I got kicked out of Facebook for posting derogatory remarks on the facebook of most of the Republicans that voted to increase the % points on student loans, and mind you I only used 1 swear AH, Facebook took less that 1/2 hour to kick me out. And  I said to them "Good luck and Good riddance" 

Imagine if I started saying that I wanted to overthrow the gov!!!

Surveillance is what keeps me able to sleep in my house with my doors open, in a utopian world we would not need it, but in this world that is full of hate and envy I'm afraid we do.


That is not to say that I like it, I came to the US 33 years ago, and it was a very different place, there were many more liberties then, than what we have now. Do I like it? No, can I change it? I don't think so.