BlackBerry: How to Destroy $75 Billion of Value
BlackBerry is an example of how ineffective alignment between business and operating models can destroy company performance. How did a company that essentially invented the modern smartphone and later led the smartphone market find itself on the brink of failure?
Business Model
BlackBerry’s (formerly known as Research in Motion) business model is to “design, manufacture and market innovative wireless solutions for the worldwide mobile communications market.” This requires development and integration of new software, hardware and services technologies. The company originally focused on business customers, who were drawn to BlackBerry by the security of the network, user-friendliness and functionality of the hardware, and the seamless integration of its products and services. As BlackBerry emerged as the leader in the smartphone market, the business model evolved to include sales of hardware to individual consumers through wireless carriers.
Operating Model
Lack of technological innovation / loss of focus in R&D
New product innovation was essential to the continued success of BlackBerry’s business model. However, BlackBerry’s R&D team could not keep up with its peers. The R&D process failed to adapt to consumer demands or to accurately predict what consumers desired. Not only were the new products of poor quality, the releases are better remembered for their numerous delays and unfulfilled promises. Needless to say, that’s not a recipe for success for an “innovative” company.
Hardware
BlackBerry had an opportunity to compete with the original iPhone, but it failed to do so when it released the Storm with numerous technological flaws. The launch of the Z10, the long-awaited first phone on the BlackBerry 10 system and BlackBerry’s first touchscreen-only device, went against the company’s business model that was driven by a focus on the business customer. There was nothing innovative about the new phone – it was merely a poor attempt to imitate Apple and Samsung products. The team failed even more miserably with the first tablet, the PlayBook. After many delays in releases, the initial version came out without functionality for e-mail and lacking other key tablet features. It’s hard to imagine that the business vision behind the PlayBook lacked these critical features.
Software
BlackBerry’s software was falling further and further behind its competitors’ as the engineering team consistently ignored customer feedback. In an attempt to improve the software, BlackBerry acquired QNX Software and quarantined a team to build BlackBerry 10, the new software platform. However, the results were far from positive. Not only did this move further split the company, the new BlackBerry 10 system was very different from the previous well-known BlackBerry 7 system and was poorly integrated with BlackBerry’s hardware and services. Instead of saving the business, BlackBerry managed to isolate its only remaining loyal customers, who could no longer identify with the product.
Services
BlackBerry Messenger (BBM) was the pioneer and global leader among all messenger platforms. Unfortunately, the team couldn’t agree on a plan to make the messenger service cross-platform. You don’t have to look past the valuations of What’s App and Kik to realize how big of a mistake BlackBerry made. Even worse is the fact that BlackBerry failed to see the importance that apps would play in the smartphone market, and that apps would drive the consumers’ smartphone purchase decision process.
Highly Ineffective Management
Effective execution of a business model requires an effective management team. A business that relies on innovative solutions to stay relevant needs decisive leadership. BlackBerry had neither. A dual-CEO structure was questioned both by industry experts and the financial community alike. The dual-CEOs could not agree on many key decisions, resulting in inefficiencies and a lack of forward thinking. When the co-CEOs were replaced, the company wrongfully chose Thorsten Heins as the replacement. Heins had been part of the inner circle for years and thus lacked a fresh perspective, which was badly needed to spark innovation. Management was slow to make decisions, and when it did, the decisions were late and in conflict with the business model, such as the Z10’s noticeable lack of a physical keyboard.
Equipment Failure
BlackBerry appealed to the business customer through the promise that the phone will be “Always On, Always Connected.” The last competitive advantage that BlackBerry had was the reliability of its network, which was very valuable to the enterprise customer. And that’s precisely why the 2011 three-day outage was a final deathblow to BlackBerry. Business customers lost their only remaining justification in remaining loyal to the BlackBerry product. Unfortunately, this failure could have been avoided had the company been less complacent. The rapid growth of the smartphone market required BlackBerry to rewrite its core networking software; instead, BlackBerry simply increased its number of servers. The expansion was poorly handled, and BlackBerry failed to act upon this ticking time bomb.
Sources
2007, 2008 and 2010 Research in Motion Annual Reports and 40-F Filings (Accessed through FactSet)
2014 Blackberry Annual Report and 40-F Filing (Accessed through FactSet)
“How BlackBerry Blew It: The inside Story.” The Globe and Mail. 27 Sept. 2013. Web. 05 Dec. 2015. http://www.theglobeandmail.com/report-on-business/coming-saturday-the-inside-story-of-why-blackberry-is-failing/article14563602/>
“Is the BlackBerry Dead? A Look at RIM’s Descent.” The Information Space. 11 July 2012. Web. 05 Dec. 2015. http://infospace.ischool.syr.edu/2012/07/11/is-the-blackberry-dead-a-look-at-rims-descent/
Gustin, Sam. “The Fatal Mistake That Doomed BlackBerry.” TIME. 24 Sept. 2013. Web. 05 Dec. 2015. http://business.time.com/2013/09/24/the-fatal-mistake-that-doomed-blackberry/
“Ex-BlackBerry CEO Admits Why Its Most Important Device Failed.” Fortune. 10 June 2015. Web. 05 Dec. 2015. http://fortune.com/2015/06/10/blackberry-storm/
“BlackBerry Outage for Three Days Caused by Faulty Router Says Former RIM Staffer.” The Guardian. 14 Oct. 2011. Web. 5 Dec.2015.http://www.theguardian.com/technology/2011/oct/14/blackberry-outage-faulty-router-suspected
Vitali, this article was extremely helpful in understanding how misalignment in business and operating models result in bad performance. I greatly appreciated your articulate explanation on the lack of focus on R&D and innovation (rather, the company focused on a simple increase of servers), as I believe it is not only a poorly-managed growth strategy, but also a solid proof of internal misalignment. Thank you for sharing !
Thanks Vitali – good analysis.
One additional observation I have around Blackberry not directly touched on above, but a derivative of some of the factors you talked about around poor market understanding & reactionary R&D, is that Blackberry really missed the boat on attracting a developer community to create applications. Applications have been increasingly important to consider in phone purchases for both the consumer (games, music, etc.) and corporate (think Mobile Iron, Citrix GoToMeeting, etc.) segments.
While deficiencies in software and hardware can be corrected, and competitor products can be imitated (pretty commoditized / Blackberry still has decent brand equity / etc.), I think developer network and application offerings can be pretty difficult to replicate -> it’s a vicious cycle when you don’t have the users to attract developers, and then without developers you can’t get users!
I completely agree about the apps. BlackBerry thought that their advantages in hardware would be enough, and thus didn’t anticipate the importance of apps and didn’t focus on the developer community until it was too late. I agree that hardware can be imitated, but it’s much harder to imitate the software).
Very interesting post, Vitali.
It’s definitely true that RIM had many missteps along the way and it is incredibly unfortunate that given the massive pile of cash they sat on for years, that they never saw the light. At what point do you think RIM was truly a goner? Was it following the release of the Storm or even earlier when the iPhone was released? Do you think RIM would have been able to credibly survive against the iPhone and Android or was the company just delaying the inevitable? Also, why do you think no strategic buyer would step in as they began to falter until it was ultimately too late? Seems like it could have been a great platform for Google or a Chinese firm to enter the US smartphone market.
Lastly, if my memory serves me correctly, BBM was much more secure than What’s App or iMessage. Even as the company’s feasibility as a standalone smartphone provider disappeared, why do you believe this did not still remain the messaging platform of choice for business professionals?
Great questions, Thomas.
I think RIM could have competed against iPhone and Android if it focused on innovating its software (including apps platform) before it became too late. The Storm was a flop, but at that point BlackBerry still had a very strong position with the Bold. I think the company still had a chance until the horrible execution of the Z10 release.
The Chinese companies did want to buy BlackBerry but the transaction would have never been cleared by the Canadian or US governments. The US government was actually one of the most loyal BlackBerry customers and they would never use a product that allowed a Chinese company to monitor its information. A number of non-Chinese companies thought about acquiring BlackBerry as well, but were either scared off by HP’s failed acquisition of Palm or had no interest in BlackBerry’s hardware business (they only wanted the enterprise software business).
As far as BBM, it’s another example of a major failure by the BlackBerry team. BBM was the most popular and most secure global messaging platform, yet the company failed to monetize it in any way. BlackBerry never viewed BBM as a business messaging platform (it was actually blocked by many enterprises, at least on Wall Street). Other companies created messaging platforms that firms accepted, so clearly there was a market for it…
Hey, Vitali, this was a very interesting read, especially since you were able to dive into analysis of a few key factors that contributed to RIM’s downfall. It all just shows that even a company that appears to have conquered the enterprise communication world with BlackBerry phones was not untouchable. You pointed out that their R&D was lacking and that they failed to properly listen to and predict customer trends and feedback. Why do you think they did not treat the initial iPhone as a true competitive threat? Do you think that a release of the Storm without so many technological issues could have caused a different future for BlackBerry?