How Not to Stay on Top: In four short years, BlackBerry went from dominance to being an also-ran

August 19, 2013

How Not to Stay on Top

By JOE NOCERA

In the late 1970s and early 1980s, the dominant computing device used in corporate America was a word processor made by Wang Laboratories. The company’s founder and chief executive was An Wang, a brilliant Chinese immigrant who was widely hailed as a visionary entrepreneur and philanthropist.

At Wang’s peak, some 80 percent of the top 2,000 corporations used the company’s word processors, according to Bloomberg Businessweek. The company’s rise was so heady that Wang used to keep a chart in his desk that showed when he expected to overtake the mighty I.B.M. — sometime in the mid-1990s.But then I.B.M. created its first personal computer, and that was the beginning of the end for Wang. He and his company stubbornly clung to the notion that the main thing people wanted from their computers was word processing; even after the company realized its error — by which time Wang had foolishly installed his son as chief executive — it always seemed to be a step behind. By 1992, Wang Laboratories was bankrupt, done in by competitors that understood that people wanted their computers to be more than glorified typewriters.

Twenty-five years after Wang Laboratories dominated with its word processor, a Canadian company then called Research in Motion was the dominant player in its corner of technology: the cellphone and wireless e-mail market. The company, of course, made the BlackBerry. It is a remarkably similar story.

In its heyday, the BlackBerry was so popular that it was nicknamed the CrackBerry. Chief technology officers loved its emphasis on security. Corporate employees loved its compact keyboard, which they mastered with their thumbs. As recently as 2009, the BlackBerry had about 22 percent of the smartphone market.

Today, of course, the company — which recently changed its name to BlackBerry — is in a heap of trouble. In the most recent quarter, it announced a net loss of $84 million, the latest in a string of bad financial news. In the latest quarter, its share of the global smartphone market had slid to 2.7 percent. Its board announced last week that it was “exploring strategic options,” which usually means it is putting itself on the block. Just like Wang Laboratories — and thousands of other once-dominant companies that stubbornly clung to what they thought they were instead of what they needed to be — the maker of the BlackBerry has become an object lesson in the vagaries of capitalism.

It is not exactly news that it was the introduction of Apple’s iPhone in 2007 — followed by smartphone competitors that used Google’s Android operating system — that turned the BlackBerry from a dominant to a marginal device. But it’s a little more complicated than that.

To start with, BlackBerry’s co-chief executives, Mike Lazaridis and James Balsillie, simply didn’t take the iPhone seriously at first — just as An Wang didn’t take the personal computer seriously. After all, the iPhone had a touch screen that made it more difficult to write the kind of long, serious, work-related e-mails that BlackBerry users took for granted. The iPhone was a toy, they thought, and assumed that corporations would never let their employees use them on the job.

More than that, though, “BlackBerry had a huge installed base, and they were afraid to walk away from it,” said Carolina Milanesi, a research vice president with the Gartner Group. This is a problem that often plagues dominant companies. They are so concerned with playing defense — protecting what they have built — that they stand paralyzed as new competitors arise with business models they can’t, or won’t, replicate.

As it turns out, it was true that the iPhone made e-mailing a more cumbersome experience. But it did everything else so much better that it didn’t matter. People were willing to give up some of the ease of e-mail use for everything else iPhones provided. BlackBerry had long thought of itself as a company that provided mobile phone and wireless e-mail service. But Apple gave consumers a sense that they could have something more. In time, the iPhone became a more secure device, and technology officers succumbed to employee desires that they support it. The toy had become a tool.

In recent years, BlackBerry has introduced phones with touch screens. It set aside $150 million to lure developers to write apps for its phones. Its latest phone has gotten some good reviews. But the company has been consistently one step behind its competitors. Although BlackBerry could conceivably stage a comeback, it is still not a good place to be.

Was BlackBerry’s fall from grace inevitable? When you look at the history of dominant companies — starting with General Motors — it is easy enough to conclude yes. There are companies that occasionally manage to reinvent themselves. They are nimble and ruthless, willing to disrupt their own business model because they can sense a threat on the horizon. But they’re the exception.

Wang Laboratories is the rule. And so is BlackBerry.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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