The year was 1999. Just when it seemed everyone who needed one was wearing an alphanumeric pager on their belt, BlackBerry(s bbry) changed the game with its first portable email device. Three short years later, BlackBerry added voice capabilities, turning its data-centric devices into early smartphones that helped show the world the power of mobile computing while spawning a highly profitable enterprise services group.
How could a company so ahead of the smartphone and mobile broadband curve fail to maintain its place in the market in less than a decade and be prepared to sell itself for just $4.7 billion in 2013, after being valued at over $40 billion in 2007?
There are a number of reasons, but to understand them, you have to step back in time to get the whole story.
Helping to create an industry
Getting email or surfing the web on a device that fits in your pocket is pretty commonplace now. In the mid-1990s though, cell phones were clunky devices that couldn’t hold a charge for more than a few hours and were one-trick ponies: All they did was make or receive voice calls. Small pagers became handy, particularly for the growing IT industry.
Numeric pagers were just the start though. Then called Research In Motion, BlackBerry saw the potential of both receiving and sending text as well. The value was significant — instead of being notified of a phone number to call back, you could receive actionable information. By 1996, BlackBerry had a device on the market that was a two-way pager, sending data over the internet and offering both delivery and read receipts; now a standard for most messaging services.
These new devices also included many hardware features that appeared in many later products from others: like thumb-based keyboards and trackwheels for scrolling through menus and messages. The company also created its BlackBerry Enterprise Service (BES) to help securely deliver mail and messages.
Data-centric messaging machines were all the rage for a few years and during this time cell phones went from a luxury item to a device that could be obtained by a broad audience. Handsets also got smaller while battery life improved. All of this happened at just the right time for BlackBerry, which began to merge its two-way messenger devices with cell phones in 2002: BlackBerry’s smartphone was born.
|1984 – Engineering students Mike Lazaridis and Douglas Fregin co-found Research in Motion|
|1992 – Jim Balsillie joins RIM|
|1996 – RIM introduces the Inter@active Pager, which allows users to send and receive messages|
|1999 – RIM is listed on NASDAQ and introduces the RIM 850 Wireless Handheld, a data-only QWERTY device|
|2002 –The BlackBerry 5810 comes out, which is the first BlackBerry phone to actually make phone calls – via a wired headset|
|Click to enlarge BlackBerry stock prices|
|2003 – RIM introduces the BlackBerry 7230, with a color display, integrated calling capabilities and a full web browser|
|2006 – RIM releases the BlackBerry Pearl, which replaced the thumb wheel with a track ball for navigation|
|2006 March – RIM agrees to pay $612.5 million to NTP to settle a patent dispute|
|2007 – The BlackBerry Curve comes out, establishing the classic BlackBerry form factor|
|2007 June – Apple releases the first iPhone|
|Click to enlarge BlackBerry market caps at iPhone releases|
|2008 May – The BlackBerry Bold is released|
|2008 October – The first Android-powered phone, the T-Mobile G1, goes on sale|
|2008 November – RIM introduces the touchscreen BlackBerry Storm, which was received poorly|
|2009 – The online BlackBerry App World store opens, with noticeably fewer apps than the competition|
|2010 June – RIM buys QNX Software Systems|
|2010 August – The BlackBerry Torch comes out, which featured a sliding touchscreen and a QWERTY keyboard|
|2010 October – The first Windows phones go on sale|
|2011 August – RIM releases the BlackBerry Bold 9900, the last big push for BB7|
|2011 April – The QNX-powered BlackBerry Playbook tablet comes out|
|2011 October – A three-day service disruption affects BlackBerry users worldwide|
|2012 January – Co-CEOs Jim Balsillie and Mike Lazaridis step down and COO Thorsten Heins takes over|
|Click to enlarge BlackBerry shipments|
|2013 January – RIM changes its name to BlackBerry|
|2013 February – BlackBerry releases the touchscreen-only BlackBerry Z10 running the new BlackBerry 10 OS|
|2013 June – BlackBerry releases the keyboarded BlackBerry Q10|
|2013 August – BlackBerry announces that it is open to “possible transactions,” including a potential sale of the company|
|2013 September – BlackBerry announces that it will cut 40 percent of its workforce – roughly 4,500 jobs|
|2013 September – BlackBerry signs letter of intent to be acquired by Fairfax Financial Holdings for $4.7 billion|
The good times keep getting better
The next several years saw BlackBerry grow its lucrative BES subscriber base from 534,000 in 2003 to nearly 5 million in 2006. The company made smart decisions to improve its handsets with color displays, and some early models that included a Wi-Fi or a Bluetooth radio.
Helping to make handsets even smaller was the introduction of SureType: A predictive text method that also allowed keyboards to have half as many keys. Each individual hardware key represented two different characters and SureType helped the handset figure out the typed words.
At this time, BlackBerry saw promise outside of enterprises and began to offer smartphones attractive to consumers. These phones included a built-in chat client, media player software, expanded memory and a change from a trackwheel to a trackball with the Pearl handset. The biggest draw over competing handsets though was the famous BlackBerry keyboard, which made messaging, email and chat easy to use. First the Pearl, and later the Curve, become hot handsets that consumers wanted.
Of course, BlackBerry wasn’t the only choice for a smartphone: Nokia(s nok) and Palm — remember them? — were in the mix as well. Like BlackBerry, Palm changed with the industry, first offering personal digital assistants and later bringing its PalmOS software to handsets. And Nokia was in its prime, leading the smartphone market worldwide: A spot it would hold until a market disruption would occur.
The game changed in 2007
By 2007 more than 1 of every 3 new smartphone purchases in the U.S. was a BlackBerry. Worldwide the company was second only to Nokia in the smartphone business, which was just gathering steam. BlackBerry’s market share would continue to grow but peaked in 2009 only to spiral downward over the next four years. What happened? Apple(s aapl).
Apple’s iPhone changed the game for BlackBerry and everyone else trying to make smartphones. Yes, consumers still wanted their connected features, but interacting with virtual objects through a touchscreen was something BlackBerry didn’t offer, and the iPhone’s Safari web browser was like nothing the early smartphone market had seen. And in 2008, when Apple announced support for third-party apps its iPhone sales growth only accelerated. Simply put, BlackBerry had nothing comparable to offer and wouldn’t for years.
But it wasn’t just the changing market that began BlackBerry’s downfall; it was the dismissal of the idea that the market was changing. BlackBerry’s leadership never took Apple’s iPhone as a serious threat to business. At least not until it was too late.
Here’s one of many examples of that dismissal from Jim Balsillie, co-CEO of BlackBerry, speaking about the then-new iPhone:
“The recent launch of Apple’s iPhone does not pose a threat to Research In Motion Ltd.’s consumer-geared BlackBerry Pearl and simply marks the entry of yet another competitor into the smartphone market.”
BlackBerry’s responses to the iPhone: A bad Storm and a dim Torch
By November of 2008, BlackBerry began selling its first touchscreen device: the BlackBerry Storm. But there were two huge problems that led the New York Times to declare it a “dud.”.
First: that famous hardware keyboard that BlackBerrys were known for was gone. In its place was a horribly implemented touch-based keyboard. The ease of text entry, long a staple of BlackBerry devices, was missing. Second: The operating system was improved for touch input but still not optimized for it. BlackBerry overlooked Apple’s approach of creating a symbiotic hardware and software relationship, instead thinking it could just slap a touchscreen on a BlackBerry and continue to enjoy strong sales.
Another example of BlackBerry playing follow the leader — first to Apple’s iOS and later to Google’s Android(s goog) — was BlackBerry App World. This smartphone app store opened in April 2009, nearly a year after Apple’s own store. Besides being late to the app game the store opened with just a few hundred apps. It was deemed “good enough” in our review.
But time would prove that it wasn’t quite good enough at all. Nor was the Storm. So in 2010, BlackBerry launched the Torch; a hybrid device with both a touchscreen and a hardware keyboard. In my review, I called it an evolution, not a revolution. While it offered a better experience than prior models thanks largely to better software, it wouldn’t compel current iPhone or Android device owners to make a switch. New software would be needed to rival or exceed the experiences offered on competing devices.
QNX will save us all
If the Storm and Torch were strikes one and two, BlackBerry’s entire QNX strategy would be strike three and seal the company’s fate. Knowing that its aging BlackBerry OS was beyond saving, BlackBerry bought QNX Software Solutions from Harman International in April of 2010. The idea was to integrate QNX software into BlackBerry hardware to create a more compelilng software experience.
It was a sound idea but the implementation proved a challenge. While BlackBerry was working on QNX for its devices, it rolled out BlackBerry 7 software and new phones to run it on. This turned out to be a visible stop-gap measure because the new handsets would be incompatible with the new QNX platform. That hurt not just consumer adoption but developer interest as well during the transition.
The transition took far too long as well. In July of 2011, 15 months after the QNX purchase, BlackBerry laid off 2,000 employees and still had no smartphones running the new software. Instead, it had made a questionable decision by debuting that software on a new tablet called the Playbook in April.
The device actually worked well for what it could do but it was what the tablet couldn’t do that was a key issue: It came without an email client. Due to technical challenges with security, BlackBerry required the PlayBook to use a BlackBerry phone for email; another “strategy” that wouldn’t help expand BlackBerry’s customer base. The device launched with few apps and many that were available were simply Android apps running in an emulator.
PlayBook sales never took off and by the end of 2011 BlackBerry still didn’t have QNX-powered handsets on the market. At that time its U.S. market share had dropped to 16 percent of all smartphones sold; nearly half that of both iOS and Android devices. Tablet sales were on the rise for these two competing platforms as well; yet not even $300 price cuts could move BlackBerry Playbooks.
Surely 2012 would be better?
The beginning of the end
A new year brought a new CEO as then-COO Thorsten Heins was brought in to take over from long-time co-CEOs Jim Basillie and Mike Lazaridis. Heins seemed positive from the get-go, suggesting that the company’s investment in QNX would pay off and that BlackBerry was on the right track for success. But in March, Heins came clean on an investor call and publicly admitted the situation was dire.
A lack of new products in 2012 essentially wasted another year for BlackBerry’s comeback, which by this point was admittedly a long shot. No major products were launched and the new BlackBerry 10 software — based on QNX — didn’t arrive in the second half of 2012. Instead, the company announced in June 2012 a BlackBerry 10 delay until 2013 and another 5,000 job cuts. The Playbook tablet did see a new version of software, but aside from that, BlackBerry delivered no innovation during the year.
The innovation arrived in late January, 2013 in the form of the BlackBerry Z10. Was it better than the company’s prior all-touchscreen efforts? Yes, by far. But it still had some quirks and a number of gestures that could take customers time to get used to. And the mobile app gap had only widened. After just two days with the device I wrote the following:
“The lack of apps [on BB 10] that I use on other devices is concerning. BlackBerry has commitments for Skype, Amazon Kindle and others, but they’re not there. Nor is Netflix, any recognizable top-tier games, or my offline reading platforms. Google Talk is there, but no Google Voice; a must for me on any phone. YouTube is the HTML 5 mobile site wrapped up.”
The hardware was solid, the software was improved, but the overall experience was lacking. I felt deja vu from the Storm launch: existing BlackBerry users might be happy but the new phone wouldn’t grow BlackBerry’s user base. The company followed up with the Q10, Q5 and Z30 throughout the year, but its overall market share kept shrinking. There would be no comeback for BlackBerry’s hardware business.
A $4.7 billion bet
Although hardware sales fell, BlackBerry services were still generating profits. Perhaps that’s why Fairfax Financial decided to offer $9 a share for the company in September, totaling a $4.7 billion deal. BlackBerry signed a letter of intent to close the deal, pending a six week due diligence effort by Fairfax.
What happens to the company after the deal is up to Fairfax, but it’s not likely going to entail the selling of consumer handsets. Instead, the new owner would likely sell the hardware business off if possible and focus more on the lucrative BlackBerry services business. Licensing of BlackBerry’s many patents is another likely possibility.
In the end, the smartphone market was BlackBerry’s to lose. And it did. By dismissing new competition, the company became complacent and sluggish. Instead of reacting faster and more intensely, BlackBerry faltered with a few quick-fixes that failed. Jumping into the tablet market with an unfinished product further hurt the company’s outlook, and taking too long to deliver the real challenger to iOS and Android — namely, BlackBerry 10 — made customers lose faith that BlackBerry could deliver a compelling product.
The market couldn’t wait, so it moved on. And so BlackBerry may not be a part of the industry it helped create because the comeback it promised never arrived.
Could BlackBerry have avoided its fate? Hindsight is always 20-20, so knowing how the last few years played out provides us with information that BlackBerry didn’t have. Perhaps it should have seen the disruption of iOS and Android sooner, however.
Instead, the company took an almost arrogant approach towards its competition and clearly didn’t have a long-term plan to combat it. Each time BlackBerry adjusted to the market, it would still be two steps behind iOS and Android, causing more churn with stopgaps such as BlackBerry 7 and handsets that wouldn’t ever run the company’s future software. All in all, it was a costly lesson for BlackBerry, the once and not future king of smartphones.