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Attendants at the launch of a new Blackberry phone in Toronto, Jan. 30 2013. (Fernando Morales/The Globe and Mail)
Attendants at the launch of a new Blackberry phone in Toronto, Jan. 30 2013. (Fernando Morales/The Globe and Mail)

How BlackBerry got swarmed at the mall Add to ...

Most people seem to think that BlackBerry Ltd.’s challenges were caused by complacent management and a failure to innovate. But the real answer can be found in the research of Harvard Business School Professor Clayton Christensen.

Prof. Christensen points out that companies innovate faster than customers’ needs change. This creates an opportunity for a new class of competitor to battle on terms the incumbent isn’t used to. Imagine Muhammad Ali in his prime, fighting a swarm of killer bees – his training and skills would have been useless against that type of opponent.

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That is what really happened to BlackBerry: It was swarmed by a new breed of competitor.

For many years, smartphones were purchased by information technology managers who were primarily concerned with data security. BlackBerry (then known as Research In Motion Ltd.) dominated the market because it produced the most secure device.

In 2009, when other devices could finally provide “good enough” security, IT managers began permitting those devices onto their networks. This shifted the purchase decision to users from IT managers. Instead of focusing on security, end users cared more about marketing and software.

Unfortunately, BlackBerry wasn’t equipped to fight on those terms.

Key rivals, such as Apple Inc. and Samsung Electronics Co. Ltd., have been selling consumer products to mass markets for decades.

But Waterloo, Ont.-based BlackBerry spent all of its corporate life selling to corporate users. The company lacked internal expertise in mass marketing and was forced to hire outside expertise. Its leaders were slow to even realize they needed this expertise, hiring their first chief marketing officer in 2009 and running their first major ad campaign later that year. This was two years after the iPhone was introduced.

At its core, BlackBerry is a hardware company lacking software development in its corporate DNA. The company was forced to acquire QNX in 2010 to make up for this deficiency.

The company also failed to develop a software ecosystem. In late 2011, there were only 30,000 applications available for BlackBerry compared with more than 400,000 in the Apple store.

Instead of trying to create software expertise, Samsung humbly adopted Google’s Android operating system, benefiting from free software development. Google was willing to give away software because it makes money selling advertising, not devices. It is extremely difficult to compete with those who are not even trying to win the same game as you because they generate revenue in a very different way.

Lacking the marketing and software skills needed to compete, BlackBerry was doomed when the terms of competition changed. The skills and resources that allowed the established company to create its dominant position in the first place are rarely transferable to the new playing field.

It is like expecting Michael Phelps to apply his lifetime of training in the pool to try to beat Usain Bolt in a sprint. If swimming were removed from the next Olympic Games, it would be fruitless for Mr. Phelps to choose a new sport. All he could do is reflect on his past glory.

In the case of BlackBerry, its best option would have been to sell the company before the inevitable future was widely recognized.

John Ewing and Darcy Morris are co-founders of Ewing Morris & Co. Investment Partners in Toronto.

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