BlackBerry Implosion: A Postmortem

on October 2, 2013

In the past few days, the true extent of BlackBerry’s perilous position in the market has become clear, but the future for the company is cloudier than ever. The company plans to lay off another 40% of its staff, consumer device sales are being halted (or not – “prosumer” sales will continue), and the board of directors said it would consider offers for all or portions of the company. When BlackBerry’s stock cratered at the news, Fairfax Financial Holdings, its largest shareholder – and controlled by a former BlackBerry board member – put in a bid to stop the price from cratering further. We’ll see if other bids are forthcoming or if Fairfax actually buys BlackBerry (it can walk away any time during the next month of due diligence).

I’ve been tracking BlackBerry closely for over a decade as an analyst, and while everyone agrees that BlackBerry didn’t react quickly enough to Apple, there were three main reasons why it reacted so slowly. RIM, Nokia, Microsoft, and Palm all dismissed Apple’s entry in January 2007. This was partly understandable in 2007 when RIM was aimed at business users and the iPhone did not support corporate email. Google was the only player to see the iPhone for what it would become, and Google quickly changed Android’s UI from a variation on BlackBerry and Windows Phone to a touch-driven experience. RIM’s oversight was less forgivable in 2008 when RIM had launched the Pearl targeting consumers, and the iPhone got Exchange support, moved to a subsidized model, and announced the App Store. Verizon Wireless – iPhoneless at the time – handed RIM a prime opportunity to catch up in late 2008, but the BlackBerry Storm grafted a poor touch experience onto an OS designed for a scroll wheel. It was also a buggy mess. RIM only moved to create a modern, touch-first mobile OS in 2012, and phones finally shipped this year. By that time, it was too late – its high end users had moved to iOS, and its Curve sales were being decimated by cheap Android phones running WhatsApp.

What Went Wrong? There were three main factors:

  1. 1. NTP. When BlackBerry could have been designing breakthrough consumer-oriented BlackBerries just before the iPhone launched, RIM management was not focused on creating a browser and app-centric mobile experience – they were consumed with fighting a patent lawsuit from NTP. The fight was clearly personal to RIM management, and it took an enormous amount of time and attention away from running the business. The resulting line of consumer BlackBerries were just BlackBerries with a media player and a camera grafted on. They sold well, but did not position BlackBerry to succeed as the market shifted and expanded.
  2. 2. BBM. Once Apple started decimating RIM’s core prosumer user base in North America, BlackBerry sales and profits did not decline – they rose. RIM had lucked into a BBM frenzy in Europe and emerging markets, where consumers bought BlackBerries to save money on messaging. From 2009 – 2012, BBM’s success masked underlying problems in its business, and RIM further failed to realize that this windfall would soon be under severe margin constraints. Cheap Android phones running free messaging apps were more attractive than (relatively) pricey BlackBerries – and Android had a richer ecosystem of apps and services beyond messaging that BlackBerry couldn’t match.
  3. 3. Management. RIM’s senior management suffered from a truly epic case of founder’s syndrome. For years, people told RIM CEO Mike Lazaridis that what he was trying to do was impossible. RIM was successful anyway, and then financial analysts and the tech press switched to predicting that RIM would be crushed by Microsoft or Nokia. When the real wolf was at the door, Lazaridis and his co-CEO Jim Balsillie ignored it. As late as 2012, RIM actually diverted resources from BlackBerry 10 to push out a new, and not completely compatible, version of its old OS! BlackBerry management did not even prioritize phones for its new OS, launching BlackBerry 10 half-finished on the BlackBerry PlayBook. The PlayBook bombed, and BlackBerry 10 only appeared on a phone a year later (and without a critical mass of high quality apps). When Lazaridis and Balsillie stepped down, they did so unwillingly, and installed an insider to continue their strategy. New CEO Thorsten Heins genuinely did not believe that there was anything wrong at first, showing how out of touch and insular the management team was. Heins did eventually realize that things were dire, but under his watch, BlackBerry produced a horrific Z10 marketing and launch plan, and produced nearly a billion dollars of excess Z10 inventory.