Victim of Success: The Rise and Fall of BlackBerry

Victim of Success: The Rise and Fall of BlackBerry

Though BlackBerry has less than 1% of the smartphone market share today, it once had more than 50%. The question is how such a successful company could fall so far. Journalists Jacquie McNish and Sean Silcoff provide many of the answers in their book, Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of BlackBerry.

Wharton marketing professor Americus Reed recently had an opportunity to talk with McNish about what we can learn from the rise and fall of BlackBerry.

An edited transcript of the conversation follows.

Americus Reed: I want to start off with some questions about what drew you to this topic. Tell us a little bit about why you wrote this book, Jacquie.

Jacquie McNish: It started with an investigation I did when I worked at The Globe and Mail here in Canada with my colleague Sean Silcoff. The great untold story in Canada in the technology sector globally was how the maker of something that we loved so much and that we were so addicted to — the BlackBerry – could fail so quickly. It was an enduring mystery that was very hard for any business journalist to crack: [Research in Motion (RIM), was a] very, very insular company based in Waterloo, Ontario, outside of Toronto, [with] a very small business feel to it despite its global reach. We spent a lot of time trying to crack it.

We were finally able to talk to some of the principals and did an investigation for the Globe and Mail that led to a wonderful agent in Washington, Howard Yoon, calling up and saying, “You guys should write a book,” and that’s how it all began.

Reed: What do you think sets this book apart?… Tell us a little bit about why this particular book should be on people’s must-read lists.

McNish: We live in an era of constant disruption. No matter where you are, there’s an algorithm or a new way of doing something that’s more efficient, that challenges the old way of doing things. We will look back on this period as being as significant socially and economically as the industrial revolution.

“In this era of disruption, the mother of disruption stories is the BlackBerry story.”

In this era of disruption, the mother of disruption stories is the BlackBerry story. A company that introduced the BlackBerry in 1998 became a $20 billion company from nothing in less than a decade. Then four or five years later, it was back down to a $3 billion company, gasping for breath. It’s not only a disruption story; it is a story of the speed of the technology race today. There has not been a technology that has so quickly penetrated the consumer market as the smartphones did with the BlackBerry being the innovator. Not since the television in the 1950s. We’ve never gone from zero to more than 50% of the consumer market so quickly.

Reed: When I look back on the heyday of the BlackBerry brand, I’m reminded of those images of how deeply it was connected to the business community. In other words, it was seen as a symbol as those who had made it professionally. I remember very vividly our President at the time holding up his BlackBerry and saying, “I cannot live without my BlackBerry,” very much in line with what you were describing with respect to this iconic rise of such a great brand. Tell us a little bit about the genesis of this rise. What were the key business moments that precipitated this rise to greatness for that particular brand?

McNish: Timing is everything, and coming from an outside perspective is very important in innovation. At the time, in the 1990s, a lot of people were racing in the handheld device space. I remember when the Palm was the “It” thing. That only synced your calendars and your contacts with your desktop, but it was the hot thing then. The other hot thing was Motorola’s Tango, the one-way pager that you could [use to] send a few messages … but they were very distant and very unreliable because of their big network.

You had IBM trying to do stuff. You had Ericsson as well strapping … a very successful cell phone onto a very tiny keyboard. If you had fingers the size of a squirrel, you might be able to tap onto it. So all these people were racing to get into that space, essentially with products they already had. Even Apple tried with the Apple Newton with the stylus; that was a disaster because the software just wasn’t right.

BlackBerry looked at this market and came at it from a very different point of view, and this is the key thing about successful innovation. You’re not only offering new innovation, you’re changing the rules of the game. What none of the competitors, the big players, understood was that at that time in the 1990s, bandwidth was very limited for data transmissions. Mike Lazaridis, the founder of Research in Motion, which was BlackBerry’s founding name, understood … how limited the bandwidth was at that time. So he created an instrument that parceled out bits of data communications … so that it would not overtax the networks, whereas everyone else wanted to charge you $4,000 for something that the networks could barely function to transmit. They had that simplicity of design [and] the conservation of the data being transmitted.

The final wonderful thing was that everyone was using their little squirrel keyboards. He said, “What if we create this kind of arched keyboard where you could use opposable thumbs?” That was just one of those breakthrough moments he had one night. That’s the innovation side of the story.

The other side of the story is staying alive because then you’re a small company from Waterloo, Ontario, that’s struggling to make it. You get something right like the BlackBerry, and the big players want it. Some of the big players were there from the beginning. Palm tried to buy them. US Robotics, when it was making modems for mobile data communications, placed a big order and then withdrew it, nearly killing the company because they took on debt to meet that order…. That was managed by Jim Balsillie, a Canadian businessman who went to Harvard, who came back and decided that technology was going to be the key to his success. The two of them were a powerful combination in the early days….

Reed: Can you speak a little bit about the particular strategies that were being pursued at that time by the company?…

McNish: [RIM] did something very innovative. They created these guerilla marketing teams…. They threw boxes of BlackBerrys in the back of their cars, and they went to conferences, they went to airports. They specifically looked at airports for people who were carrying back then the big, heavy laptop computers with the large modems that may or may not have worked, and said “Here, try this.”

“Everyone was using their little squirrel keyboards. He said, ‘What if we create this kind of arched keyboard where you could use opposable thumbs?’”

They called it the Puppy Dog Routine. They said, “Give us your card. You can have this free for a month. Let us know what you think of it.” They were so successful at it, and they had such a small back office that for years, people were using their BlackBerrys for free because they couldn’t figure out who their clients were because they were handing so many of them out spontaneously.

Reed: They had that much faith in the power of the technology that they were literally willing to let people just try it to form an impression.

McNish: That’s right…. Word of mouth was very key. Early adopters were Michael Dell and Jack Welch. Just as you described, the CEO of your company says, “Wow, I love this thing, I’m addicted to it,” and everyone wants to have it … and it ripples down the organization….

Reed: Talk a little bit about the BlackBerry brand and how it was part of this calculus associated with the business strategy.

McNish: This company grew so fast that I don’t think they even thought about brand. That’s the amazing thing, and they could do that as long as they had the technology…. Their main clients, and the people who mattered the most, were the carriers. They had to convince the carriers to sell it, and then they entered this new world where they’d be offering discounts on the smartphones, which really sort of juiced sales and put them in the hands of a lot of consumers.

That was an advantage in the early days, and then later as things started to fall apart, a lot of people believed that one of their biggest problems was they didn’t fully understand who their consumers were because they had to spend so much time making the carriers happy.

It was a very limiting relationship because, again, back in the days of limited bandwidth on the networks, the carriers were very rigorous about what they would allow, and Steve Jobs said for years, “I will never make a smartphone.” He called the carriers the “four orifices”; you couldn’t get anything down their pipeline without their permission. Only when he saw the success of BlackBerry, which leapt to control right away, 58% of the smartphone market, did they set their sights on that market, and then they reinvented it on their terms….

Reed: You talked to some extent about this notion of this rise to greatness and its equally iconic fall, if you will. Can you talk a little bit about that? What was it that was behind this kind of deceleration? Was it a series of events? Was it death by a thousand cuts? Was it something foreseeable? Give us some insight into that.

McNish: The pivotal moment is January 2007 when Steve Jobs walks onto the stage in San Francisco and holds up that shiny glass object that we all [now] know and love so much, and says, “This is an iPhone.” It brings you computing, it brings you the Internet and it brings you email — three things. The interesting thing is that he not only brought on the prototype for the iPhone, and said “I’m going to change the world,” he also brought on stage the head of AT&T Mobility. This is where he changed the rules of the game because really the iPhone is just an iteration of the smartphone that BlackBerry started, only they added more.

“The race is faster than ever. It never ends, and the people who are the leaders today will most likely be the followers tomorrow because it’s very, very difficult to stay ahead.”

They brought the AT&T executive onstage, announced a five-year exclusive contract, and that did two things. It gave AT&T the incentive to spend billions of dollars on upgrading its network, and it made every other carrier nuts because they wanted to have the same thing, and they all went out looking for an antidote to the iPhone. The really compelling part of the BlackBerry story is how they reacted that day. Over in Mountain View, California, you had the folks at Google under a secret project. One was for a new keyboard phone and the other was for a touch screen phone that was going to be run on Android. The minute they watched that live, streaming on the internet, they realized that their project keyboard was dead, and they immediately shifted everything to the touch screen phone….

Mike Lazaridis looked at this announcement, looked at what Steve Jobs was offering, and said, “This is an impossibility.” Again, the conservative engineer brought up on conservation said, “The networks won’t be able to carry this. It’s an impossibility. It’s illogical that anyone would even propose this.” He was right for the first two years. Remember all the dropped calls, all the frustrations, all the lawsuits against Apple and the carriers. It didn’t work….

But then it did, and RIM got it wrong. Two years is a lifetime at a technology rate, and by the time they realized what a serious threat it was, they were at that point followers.

Reed: What do you think is the public’s greatest misconception about the BlackBerry story?

McNish: A lot of people think that Mike and Jim and the folks at the senior offices in BlackBerry were arrogant and didn’t understand iPhone and just focused only on BlackBerry. There is an element of truth to all of that. Yes, they missed the turn, but they were missing the turn at a time when they were going from zero to $20 billion. They were growing at a rate of 25% every quarter. You talk to any business person, that’s an impossibility.

They were expanding in Indonesia and India, in other parts of the world. They were huge. They couldn’t keep up with the demand, and they were coproducing new factories everywhere to keep up with it. So imagine going to your board of directors or your shareholders because you’re a publicly traded company and saying, “You know this BlackBerry thing? It’s probably going to be history in a couple of years. We’re going to stop making it, and we’re going to regroup and move into something we know nothing about.” When you have that kind of momentum, it’s really hard.

Reed: It’s hard. You become a victim of your own success in some senses.

McNish: Exactly, exactly…. When you’re a publicly traded company, your options are pretty limited. What I would layer on top of that is they had a series of really unfortunate events. Everything from a horrific and badly managed patent battle in the United States [to] the three-day outage of 2009, which made everyone question their faith in the BlackBerry. We all remember where we were for those three days….

Then there was the Playbook, and then there were other phones. There was just one disaster after another, and this is how businesses fail. At first it’s slow, and then it’s very fast.

Reed: John Chen is now charged with the difficult task of turning this thing around. What are some of the broader takeaways and learnings that you think are critical from having written the book?

McNish: The thing that I take away, and we conclude with, is that the race is faster than ever. It never ends, and the people who are the leaders today will most likely be the followers tomorrow Twitter  because it’s very, very difficult to stay ahead. It is so easy today to innovate…. In the old days when you were a GE factory or an auto factory or a parts supplier, there were huge barriers to entry because you were spending hundreds of millions of dollars on plants. You were pretty well assured that there wouldn’t be an excess of competitors.

Today, that’s disappeared. There are groups of kids coming out of Stanford, out of Waterloo University, all these technology companies. All they have to do if they’ve got a Visa card is rent server time, set up an office, get some people with code experience…. Those barriers don’t exist anymore….

These days you’re an algorithm away from some pretty serious competition. Look at what Apple is trying to do with payment system. I wouldn’t want to be a bank right now. It’s a lot of disruption, and the worst mistake you can make is think that we’re better, we can out-muscle them or we can buy them or handle that competition. I don’t think you can.

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