Blackberry, Palm, Nokia, and Microsoft all failed to adapt to the Smartphone 2.0 era inaugurated by Google and Apple. What caused these failures? Human error, technological inadequacy, or business model collapse?
BlackBerry CEO John Chen finally conceded what has been obvious for months, years even: BlackBerry phones are no more. In a not-so-cryptic statement on page two of the company’s latest quarterly results, Chen tries to put a good face and a serving of buzzwords on his hardware-less strategy [as always edits and emphasis mine]:
“We are reaching an inflection point with our strategy. Our financial foundation is strong, and our pivot to software is taking hold…Under this strategy, we are focusing on software development, including security and applications. The company plans to end all internal hardware development and will outsource that function to partners.”
During the first six months of 2015, Blackberry generated a modest profit of $119M from $1.2B in revenue. For the same period this year, the company swung to a loss of $1B from $734M in revenue, a 34% decrease.
There’s not much mystery, here. Blackberry’s hardware business has been in decline for years. After reaching a unit volume peak of 14.6M in Q4 2010, sales dropped to a brutally insignificant 1.7M a mere three years later, almost 90% down:
In a market where hundreds of millions of Apple and Android devices are sold each year (Samsung alone shipped 1.4 billion in 2015), you can’t survive if you’re sunk in the single digits.
We won’t dwell on the reasons why Chen stuck to the BlackBerry hardware business for close to three years past the point of insignificance. Instead, let’s look at what caused such a precipitous decline.
“These guys are really, really good,” Mr. Lazaridis replied. “This is different.”
“It’s OK — we’ll be fine,” Mr. Balsillie responded.
RIM’s chiefs didn’t give much additional thought to Apple’s iPhone for months. “It wasn’t a threat to RIM’s core business,” says Mr. Lazaridis’s top lieutenant, Larry Conlee. “It wasn’t secure. It had rapid battery drain and a lousy [digital] keyboard.”
A few months later, Lazaridis “cracked open” an iPhone and put Apple’s achievement in existentially relevant if technically inaccurate terms:
“They’ve put a Mac in this thing…”
In the decade since returning to Apple in 1997, Jobs and NeXT’s team of computer scientists, most notably Avie Tevanian, Bertrand Serlet and Scott Forstall, had succeeded in sliding a real, Unix-based operating system under the Mac’s applications and UI layers. By 2007, knowledge of what Apple had achieved was in the open and, among other facts, the OS X platform had proven its portability by moving from the PowerPC architecture to Intel’s x86.
Lazaridis correctly perceived that by taking the Mac OS further still — by sliding it into a phone — Apple’s new handset put BlackBerry’s primitive, genetically deficient software platform to shame.
Lazaridis understood…but this is seeing without seeing. What did the BlackBerry creators do with the revelation? Nothing. For three years. Finally, in April 2010, RIM execs realized that they needed to replace the BlackBerry’s old software engine and so acquired QNX Software Systems, maker of a well-respected Unix-like platform that’s certainly capable of supporting modern smartphone development.
It was too late. Unable to catch up with Android and Apple’s iOS, the company’s efforts to develop and sell QNX-based handsets came to naught.
So BlackBerry pivoted again. Earlier this year, the company announced it was moving to Android, dressing up the decision as a Best of Both Worlds move:
Again, no one was interested.
In retrospect, the reason for BlackBerry’s undoing seems obvious: It didn’t stand a chance against a superior OS that quickly enabled the now paradigmatic App Store. But at the risk of over-psychologizing, I can’t help wondering about the human factor. Lazaridis saw the technology weapon aimed at his company and yet waited three years before buying QNX and then tackle the difficult task of building an Application Framework, a scaffolding for apps. (I’ll note that the engineers who know how to build such frameworks are few and highly respected.)
So was it a mere matter of technology, or was it a human failing? We’ll never know for sure, but we can look around for similar situations to enlighten us.
Even more so than RIM, Palm dismissed the iPhone in memorable words:
“PC guys are not going to just figure this out. They’re not going to just walk in.”
But Palm quickly came to terms with the reality that its software platform was an antique, and rushed to develop the Linux-based WebOS. Released with the Palm Pre in the Spring of 2009, WebOS failed to gain momentum, after which Palm was sold to HP and quickly shut down. Later, HP sold WebOS to LG to run inside its “smart” TVs.
Here, we don’t have a case of missing the incoming torpedo. Palm’s attractive but buggy WebOS and lackluster ecosystem were simply too little, too late.
Nokia is a different, more complicated case.
Like BlackBerry, Nokia peaked around 2010, selling about 100 million handsets per quarter. Speaking at Nokia’s US HQ in White Plains, NY in June of that year, I impudently suggested that the company fire CEO Olli-Pekka Kallasvuo (a.k.a OPK), who I thought was a bit too proud of being an accountant and an attorney, and then drop everything and jump on the Android platform. (I had no fear of retaliation as I wasn’t charging for that speech.)
The first suggestion was met with near unanimous approval, but the audience was horrified at the thought of losing control of their destiny by moving to Android. I replied that this had already happened, that there was no way any company could survive with multiple Symbian versions and on-again, off-again development of Linux derivatives (Moblin, Maemo, MeeGo).
When Nokia replaced OPK with Microsoft exec Stephen Elop three months later, it looked like a mixed case: The company denied the technical threat, but were feeling queasy nonetheless and deciding to bring a new perspective at the top
Stephen Elop’s time at the helm started with a flash of clear thought and eloquent exposition. I’m referring to the unforgettable Burning Platform memo, worth reading in its entirety if you have the time and inclination:
“The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, e-commerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyze or join an ecosystem.”
Following his own “join an ecosystem” advice, Elop decided to move Nokia to Microsoft’s Windows Phone platform. The plan was that Microsoft would compensate Nokia with “platform support payments” during the year or so that it would take Nokia to develop a new range of Windows Mobile devices
It was a sensible move…but then things got ugly. Elop immediately let the world know that Nokia has decided to “plunge 30 meters into the freezing waters”. Everyone got the message. Carriers, distributors, customers stopped buying the no-future Nokia handsets. Absent the as yet undeveloped Windows Phone devices, revenue collapsed — and never recovered. This is known as the Osborne Effect, in memory of the eponymous company that prematurely announced a much improved but unavailable product, thus killing the existing one, and the company.
Two years later, in September 2013, Nokia’s situation had become so dire that Microsoft had to buy the company $7.2B, or see its own Windows Phone ecosystem collapse. Another two years after that, in July 2015, Microsoft wrote off $7.6B, thus admitting the Nokia acquisition was a failure.
Unlike BlackBerry, Nokia stood a chance against the two rapidly rising ecosystems. Capitalizing on its Scandinavian design flair, supply-chain management prowess, and worldwide network of carriers, the company could have developed Android handsets in secret, and only announced the new devices when ready to ship en masse.
I realize that this is easy, after-the-fact theorizing, but technology didn’t kill Nokia. Human error did. This wasn’t “seeing but not seeing”, as in BlackBerry’s case; Stephen Elop’s memo shows he clearly understood the war of ecosystems and the need to jump to another platform. But he made an incomprehensible mistake: He Osborned Nokia.
Turning to Redmond, we don’t have to look far for the cause of the failure of the Windows Phone platform. Initially, Android’s aim was to prevent a Microsoft monopoly in the smartphone space by creating an OS that wasn’t just more competent than Windows Mobile (an aging Windows CE derivative), it was free. This killed any hope for Microsoft to build a smartphone licensing business. The company improved its mobile operating system (now called Windows Phone), but was never able to get a licensee of any size.
Today, Microsoft’s handset business is effectively nonexistent. For the future, company execs loftily say they’re going to focus on phones for enterprise, a ‘paradigm shift’ that they are betting will make Windows 10 Mobile competitive.
Neither technology nor humans are to blame here. Failure came from an insurmountable business model obstacle.
In a future note, after Apple updates its Macs and iPads, we might have an opportunity to examine another example of seeing without really seeing.