BlackBerry was an early winner in the mobile phone business, providing a fast, secure, and multi-functional mobile phone with a built in operating system that was itself a platform for app developers. When a new mobile user switched to BlackBerry, they enhanced the value of Blackberry’s platform (direct network effects) by becoming an additional node on the network. BlackBerry’s chat app, BBM, worked only on the BlackBerry network and allowed users to chat easily with others on the same platform.
BlackBerry also enjoyed indirect network effects as a platform. Additional BlackBerry users served as an extra motivator for app developers to do the hard work of building a custom mobile application for BlackBerry’s mobile OS. This process was not a simple one, as BlackBerry’s parent company Research In Motion (RIM) did not spend much time building tools that made the platform particularly easy for developers to build for.
When the iPhone and Android platform were introduced to the market, BlackBerry was slow to respond, believing among other things that their network effects created high switching costs for the users. At the time RIM believed:
- Users preferred physical keyboards
- Users valued security and push email over other UI features
- That their customers were corporate buyers
Unfortunately for RIM, all three of those assumptions eventually proved to be false. The added value of the extra screen space in the phone, and its ability to convert itself into any kind of keyboard (international) — or vanish — turned out to be of greater value than the ability to type with a physical key press.
Users did value security and push notifications, but not more than style, speed, and apps. Apple and Android worked to make their platforms easily available to third party developers with advanced developer tools and lots of resources for learning to apply the code to the new platform. As a result, developers would choose to develop applications for iPhone or Android, but not for Blackberry, or at least not until later, despite the fact that at the time BlackBerry had a larger user base.
Finally, RIM misread their user base. As mobile phones became more affordable they became, increasingly, individual purchases instead of corporate purchases. Which meant that obscure and technological features like security and encryption did less to sway the purchaser than games and high quality graphics.
The story of BlackBerry’s decline is similar in many respects to the story of MySpace’s decline — both were entrenched businesses with network effects working in their favor. The weakness in both cases exploited by the new entrant was in providing a product that was significantly preferred by the end user.
Network effects businesses are ultimately made defensible by the users themselves, and if the cost of switching is sufficiently smaller than the increased quality of a new product, network effects businesses such as BlackBerry can find themselves in a negative reinforcing spiral: as users leave the platform, the platform becomes less valuable to the remaining users, and to the developers or other third parties that derive value from the breadth of the platform.
Once this cycle begins, it can accelerate quickly and be very hard to stop.