For BlackBerry leaders, success paved way for failure

BlackBerry Chief Executive Officer Thorsten Heins speaks in front of a display of one of the new Blackberry 10 smartphone at the BlackBerry 10 launch event by Research in Motion at Pier 36 in Manhattan on Jan. 30, 2013, in New York City. Mario Tama/Getty Images

(MoneyWatch) The history of American business is littered with the remains of once-dominant companies suddenly rendered obsolete by powerful new technologies. BlackBerry is not one of those companies.

The mobile gear maker wasn't "disrupted" by a nimbler startup in possession of a revolutionary patent; rather, it was out-innovated -- meaning out-managed -- by established competitors like Apple (AAPL), Google (GOOG) and Samsung. Along the way it made many of the usual strategic errors that, while not individually fatal, routinely combine to turn formerly great companies into corporate footnotes. 

In many ways, BlackBerry's biggest mistake stemmed from its previous success. As Apple was launching the iPhone in 2007, Research in Motion (as BlackBerry was called at the time) was enjoying surging profits and sales. The company had introduced its first BlackBerry four years earlier and attracted millions of subscribers. A phone with a camera and multimedia features geared to consumers, the Pearl, soon followed. Its BBM messaging service, which to this day has more than 60 million users, was ubiquitous, while the company's co-CEOs, Michael Lazaridis and Jim Balsillie, were feted by the media as architects of the emerging mobile world. 

Amid this success, BlackBerry became wedded to its products and business model, failing to comprehend just how thoroughly the iPhone and its imitators would upend the industry. The company's leaders were also distracted by other concerns, notably a long-running legal battle with a company, NTP, that held patents used in its wireless email service.

"Instead of realizing that their core business was under fire, they saw that profits, subscriber numbers and sales were rising," said Avi Greengart, research director for consumer platforms and devices at telecommunications research firm Current Analysis. "They didn't see that their business would eventually come under fire from the iPhone, Android and other devices that offered far more access to applications."

One reason for this myopia may have been that Lazaridis, who co-founded the company as a University of Waterloo engineering student in Ontario, Canada, in 1984, had encountered such challenges before. As they grew the company, RIM leaders repeatedly faced skeptical analysts and tech pundits who predicted the company would soon get squashed by Microsoft or other telecom giants.

RIM kept growing, its popularity seemingly a reproof to such naysayers. By 2007 it was the most valuable company on the Toronto Stock Exchange, with a market capitalization approaching $70 billion.

To be fair, BlackBerry execs weren't the only ones to underestimate the iPhone. So did Nokia, Palm and other major tech players that summarily dismissed Apple's foray into mobile. But companies like Google, with Android, and even notoriously slow-footed Microsoft, with its Windows-based line of wireless devices, eventually perceived the threat and took action. Not BlackBerry. 

"By 2008, it was obvious that the iPhone was just as revolutionary as people had claimed it to be," Greengart said, noting that even as of last year BlackBerry was diverting R&D spending earmarked for its long-awaited operating system, BlackBerry 10, to its outdated messaging service. "That goes to show how incredibly insular and out of touch BlackBerry's management really was."

As BlackBerry lost its juice, it turned to marketing gimmicks, spending big bucks this year on a widely panned Super Bowl ad. Today, BlackBerry's share of the smartphone operating system has shrunk to less than 3 percent, according to researchers at tech analysis firm International Data Corp. That compares with 79 percent for Android and 13.2 percent for Apple's iOS software. It came as no surprise when BlackBerry last week announced that it would lay off 4,500 employees, or 40 percent of its work force.

The way forward for BlackBerry is hazy at best. Although the company has said it plans to focus on serving corporate customers, it also seems to want to continue making smartphones geared to consumers. That split focus is confusing even BlackBerry's core users, business people like Ken Wisnefski.

"It's up to them to define their niche and not pretend to be something they're not," said Wisnefski, CEO of digital marketing firm WebiMax and by his own admission one of only two people at the New Jersey company who still uses a BlackBerry product.

Trouble is, BlackBerry is hardly alone in focusing on so-called enterprise users, with Google, Samsung and others also targeting the segment. Also working against BlackBerry is that many businesses today encourage employees to use their personal device for work rather than issue a company phone.

"It sounds good theoretically," said Kevin Restivo, an analyst at IDC, of BlackBerry's plan to serve corporate users. "But the issue with that sort of refocusing is that BlackBerry is no longer surrounded by a moat. It's not uncommon for people to bring their own devices and have the job pay for it. So it doesn't necessarily give them a chance at success."

Such obstacles could ultimately deter Fairfax Financial, a Canadian investment firm and BlackBerry shareholder that on Monday proposed to buy the hardware maker, from completing the $4.7 billion deal. BlackBerry shares traded today at just over $8. That's more than 10 percent below Fairfax's $9-per-share offer price, suggesting investors have doubts that the deal will even be completed.

Indeed, some analysts believe the buyers won't be able to line up financing and the deal will collapse.

For BlackBerry CEO Thorsten Heins and other top managers, going private could offer a better environment for revamping the company's strategy. But that would require new thinking -- and perhaps new leadership, too, Wisnefski suggested.

"The current leadership has this mentality or mindset that BlackBerry is still relevant," he said. "But the reality is that they're not."

  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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