Research in (downward-spiraling) Motion

January 5, 2012

By Kevin Kelleher
The opinions expressed are his own.

Failure is a funny thing in the tech world. An entrepreneur can get fired from a company he founded and his peers will watch to see what he does with the lesson. A young company can burn its cash like a Viking setting his ship on fire, but be remembered wistfully once it’s bankrupt. For startups, failure sometimes seems like a rite of passage – the painful second act of a three-act story with a happy ending.

But it’s different when a big company stumbles, losing its place at the top of the heap. Nobody cheers you on. You just seem like a stock character in someone else’s legend – the hoary old giant descending so that another can ascend. For big tech companies, failure is the grim final act that can stretch on for years and years. Until no one wants to watch anymore.

In the annals of tech brands that have risen and fallen – DEC and Wang in early computing, Sony in consumer electronics, AOL and Yahoo in the Internet – the declines have taken several years, at least. But few tech giants have fallen as quickly, or as dramatically, as Research in Motion.

By some measures, Research in Motion still appears healthy. Its Blackberry smartphones have 70 million subscribers around the world, and it’s far from losing money – analysts expect the company to post revenue of $19 billion and a per-share profit of $4.13 this year. But they also expect profit to fall 50% this year (even after 2000 layoffs since July) and another 30% next year. The key reason: Blackberries are quickly losing market share, which fell to 16.6% from 19.7% between August and November.

The severity of the decline is clearer in RIM’s stock, which ended 2011 near a seven-year low, having fallen more than 90% in the last two and a half years. In 2011 alone, RIM has lost $27 billion in market value – more than Nokia is worth and more than twice as much as Google is paying for Motorola Mobility.

And the highs from which RIM has fallen were high indeed. In 2009, Fortune magazine reckoned it was the fastest growing company in its survey of global companies. Back then, RIM commanded more than half of the U.S. market for smartphones. That was two years after the release of the iPhone, the Apple smartphone that would – along with the Android phones that followed – eventually eat into RIM’s dominating market share.

But more than iPhones or Android phones, the main reason for RIM’s precipitous decline is the sense of complacency and even denial by its co-CEOs Mike Lazaridis and Jim Balsillie, who greeted the new wave of touchscreen phones with indifference, as if they best knew the smartphone market they helped to pioneer. But markets evolve in unpredictable ways, and instead of building on the loyalty that Blackberry users felt for the brand, Lazaridis and Balsillie took it for granted.

In 2007, the iPhone launched as a consumer phone, while corporate IT managers preferred the email-friendly Blackberry. That offered RIM an opportunity to create a touchscreen phone to challenge the iPhone, and build inroads into the market for consumer smartphones. It would entail creating a stronger brand for the Blackberry – something that RIM has never appeared to take seriously – to counter the seductive ad campaigns for the iPhone.

Instead, the reverse happened: iPhones and Android phones became coveted as business phones as well. The usefulness of touchscreen-driven apps trumped the bubbly Blackberry keypads that were useful primarily for typing emails. RIM responded with touchscreen phones like the Torch, but they were greeted as buggy and unintuitive.

2011 was supposed to be the year when RIM would turn things around. But instead it brought a series of disappointments and disastrous missteps. The Playbook tablet wasn’t the iPad rival that RIM hoped it would be, but instead a full-scale dud. Only 150,000 Playbooks sold in the most recent quarter, against 11 million iPads. RIM took a $360 million writedown against the costs of discounting Playbooks to $300 – below its original retail price (which started at $500), but still $100 more than the coveted Amazon Kindle Fire.

The company also took a $50 million charge related to the September outage that disrupted service to global Blackberry subscribers for three days. That mishap left a stain on the brightest part of the Blackberry brand – its reputation for secure and reliable emails. RIM encrypts messages before delivering them, a supposed benefit that has brought the company controversy before, when autocratic countries sought access to monitor encrypted messages.

As the year ended, concerns also emerged about the next-generation RIM phone, the Blackberry 10, which will be delayed until the end of the year. RIM insisted the delay is caused by the need for a power-efficient chip for faster 4G networks – not because of performance issues. But the reason matters less than the reality that RIM may not have the luxury of waiting a year for a new smartphone.

RIM’s 2011 was so bad that there’s no clear resolution in sight for 2012. Carriers, app developers and customers will all avoid a brand caught in a downward spiral, which would slow sales even further. At some lower price, RIM could be bought for its patent portfolio alone, but Microsoft and Nokia reportedly looked at the company and were “scared off.” Other companies, like Amazon, have shown interest in buying RIM, but Lazaridis and Balsillie insist on turning the company around themselves.

That’s doubling down on a bet that holds too much risk. Which may be a key reason why RIM’s cat-napping board might reportedly be taking guard and making sure that the board’s co-chairman (Lazaridis and Balsillie) aren’t the two men overseeing the wayward and errant co-CEOs (Lazaridis and Balsillie). This was the crazy kind of management-cum-governance that led to RIM’s rise. And this was the same toxic mix that caused its downward spiral.

But in the end, removing the co-CEOs from their shared board chairs may not be enough. And that’s why, in the end, RIM may not be remembered as much for its once iconic Blackberry phones as for a dramatic illustration of a simple business lesson: Falling out of step with your market can destroy a great company. Unlike similar tech giants that have fallen before it, RIM tells us that the fall can sneak up on you a lot faster than anyone expects.

Photo: A salesman displays a Blackberry mobile phone to customers next to dummy handsets at a shop in Jammu October 13, 2011. REUTERS/Mukesh Gupta

One comment

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I am using Blackberry tour . I very satisfied as it fulfills my basic needs : daily mails ,messenger , social networking with some business apps ..

I think major factor which is responsible for the fall of RIM is that they forgot what their strength is . Concept of BBM and BB enterprise server is very unique . But in-spite of developing and improving it RIM focused on developing smartphones to compete against i phone . i phone has its own unique features ( not to mention SIRI in I phone 4s ) but on the other hand RIM has ( or used to have ) its own market segment .

This lead to a catastrophe . . which I think RIM is still figuring out how to get out of it !!

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