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A Estratégia Competitiva Desmistificada: estudo de caso da Blackberry

Data: 20/07/2021

Prof. Aldo Brunhara, Ph.D
Doctor in International Business
Director of International Relations in IBS Americas

Blackberry’s failure: a fruitless strategy that rotted the firm. 

 

At its peak, Blackberry, the world’s original smartphone developer, owned over 50% of the US and 20% of the global smartphone market, sold more than 50 million devices a year, had its device referred to by is addicted users as “CrackBerry” with $19 907 million in revenues in 2011 and boasted a stock price of $230 (Luo, 2018). Today, Blackberry has 0% share of the smartphone market and has a stock price that only has single digits for most of the past few years. How did Blackberry fall from such heights? 

 

bberry-revenue
Blackberry/RIM's revenue from 2004 to 2019 (in million U.S. dollars), Statista, 2019

 

 

smartphone-market
Global smartphone market share held by RIM (Blackberry) from 2007 to 2016, by quarter, Statista, 2017 

A failure to keep up with a changing market scenario may come as a consequence of errors in a company’s strategy and vision. Indeed, the analysis of a new industry environment can be difficult due to many stakeholders and factors involved: substitutes, suppliers, potential entrants, buyers, and competitors, as stated by M. Porter (1980). Nevertheless, these elements, even if analyzed thoroughly, might not be a defining criterion for a firm as they do not prevent the entrance of new stronger competitors into a particular industry. Investment management professors B. Greenwald and J. Kahn (2005) agree that although the Five Forces framework provides an invaluable model for market evaluation, it is too complicated for the formulation of a sound and effective corporate strategy. Instead, the scholars propose an alternative to such a cumbersome framework and offer to focus on a single force - barriers to entry – a competitive advantage, that underlies potential rivals. The existence of barriers means that incumbents are able to do what potential competitors cannot and, as a result, they become protected. Thus, the main idea of the theory lies in understanding the strategic context imposed by other economic players. Internal focus on financial details, marketing strategies, branding and differentiation may be effective for some tactical decisions but often fail to provide the understanding of the competitive environment.

According to the authors (2005), there are three forms of competitive advantage that could implement entry barriers: 

  • Supply benefits are cost advantages which can come in a form of proprietary technology (ex. patents), experience, exclusive supplier agreements, expertise (ex. secret Coca Cola formula) and other ways to supply unique products and services at a much lower cost than competitors. 
  • Demand advantage is a customer captivity based on habit, switching costs and expenses of searching a new substitute product. 
  • Economies of scale is an ability to reduce costs per unit as volume increases largely due to spreading fixed costs over a greater number of units sold. The value of economies of scale is determined by a relative share of the market rather than by absolute size. 

In their book, Competition Demystified, Greenwald and Kahn (2005) describe three steps that a company must take in order to estimate its position in the market. First of all, it is necessary to develop an industry map that identifies the market segments that make up a particular industry with its leading players. The second step involves the analysis of possible barriers to entry into this segment; market share stability of the main competitors, profitability within the market, ROI and EPV could be good indicators to estimate it. Finally, it is important to identify the dominant force in the company that could leverage its competitive advantage and keep the barriers of entry high. As a result, there are, generally, three different market scenarios that firms can discover: 

  • None of the competitors has a dominant position and unique competitive advantages cannot be created. In such an unprotected industry, the only option available to companies is to run businesses as effectively as possible. 
  • When smaller firms – “ants” – find themselves in an industry with a dominance of a single large corporation – “an elephant” – they may consider leaving the market as it would be extremely hard for them to succeed. But for that solid company that already started to benefit from its competitive advantages, the next step would be to figure out how to manage this favorable position in order to preserve it in the long-term. 
  • Markets with multiple players enjoying competitive advantage are more complex, and firms can explore more different strategies including cooperative agreements. Classical game theories, such as the prisoner’s dilemma or entry/preemption behavior may be of great help for companies to reap mutual benefits.

 

Competition Demystified Decision Tree, B. Greenwald and J. Kahn, Competition Demystified, 2005.


comp-desmytified-tree

 

 

Although such a simplified approach towards strategic decision making was met with praise by the majority, some premises of the book are being questioned. For example, the idea that strong branding and product differentiation focus cannot be considered as incumbents’ competitive advantages that raise barriers to new entrants is argued to be groundless. In fact, demand advantages based on customers’ captivity and habit can result from strong personal emotional attachment to a company’s brand. But in order to derive more substantial inferences from the theory, it is worth analyzing it from a practical perspective. 

At the beginning of the 21st century, Blackberry turned out to be the leading company in the mobile phone industry. A Canadian telecom firm, originally named RIM (Research in Motion), started out developing pagers and handsets as well as manufacturing products for GM and IBM (Friend, 2013). Later on, in 2002, it introduced its first smartphone, Blackberry 957, whose main functions included push e-mails, mobile calls, text messaging, faxing, web browsing and other basic wireless information services (McConnell, 2016). The device quickly gained considerable market share in the mobile industry and was chosen as a preferred model in corporate America thanks to its enterprise level security, available business functions and a simple design. At its peak, in 2011, the company sold up to 15 million devices and became highly recognizable due to its distinct physical keyboard style (Appolonia, 2019). The key component of Blackberry success can be attributed to high degree of innovation that, on the one hand, provided huge opportunities for the corporate world and, on the other hand, gained popularity among common users due to its messenger function. 

However, in 2007, Apple released its full touch screen iPhone that appeared to be extremely user friendly and intuitive. In 2008, Google introduced Android OS and, subsequently, Google Play Store, a digital distribution service where users could purchase applications for their devices. Apple, following the new customers’ needs, also developed its own App Store. Conversely, Blackberry, that had already dominated the corporate market, insisted on producing devices with full physical keyboards incrementing only minor changes such as a trackball (Pon, Kenney and Seppala, 2014). When it became clear that users preferred touchscreen devices, the company finally launched its Blackberry Storm smartphone in the attempt to adapt to the market changes. Nevertheless, at that point of time, Apple that launched its revolutionary iPad and Google that continued improving its Android Market were already in their next cycle of adaptation leaving Blackberry far behind (Luo, 2018). Starting from 2012, Blackberry’s revenue began a downward spiral and, eventually, the company stopped producing smartphones, as it can be seen on the graph below. 

 

Global market share held by leading smartphone vendors from 4th quarter 2009 to 3rd quarter 2019, Statista, 2019


global-share-smartphone

 

As it can be observed, until 2012, RIM was the market leader in the industry of mobile phones. Although the company enjoyed its high returns and operated within certain barriers thanks to the technology it had,  it failed to maintain and extend its competitive advantages, was not able to spot potential threats and, finally, did not take strong countermeasures to fight the rise of other companies. Interestingly, Blackberry managed to pursue and keep two of the main benefits related to supply advantages and economies of scale: it had technical knowledge, many patents and experience, exclusive supplier contracts with governments and businesses and, to come extent, it reached the economies of scale.

The biggest problem of RIM was on the demand side, which, consequently, opened the way for new competitors to enter the industry. First of all, the company doggedly focused on the wrong end market sticking to its existing corporate customers while Apple and Google built smartphones available to the mass consumer through the creation of appealing user-friendly interfaces, back and front cameras and a wide variety of apps (Luo, 2018). Blackberry catered to its already acquired clients that generated most of the revenue and, hence, neglected the end market of noncustomers that would eventually become the most profitable. The company also had a very slow reaction to the change in the customers’ preferences and habits: it dismissed Apple’s touchscreen iPhone insisting that users preferred a physical keyboard (Yarow, 2016). Apparently, the switching costs for smartphone users were low, which allowed Google and Apple to successfully poach Blackberry’s consumers. Finally, the firm did not manage to understand the changing value proposition of a smartphone as a platform for the personal use and entertainment. Eventually, the baton was passed to Apple and Google that were able to build their own long-term entry barriers around third-party app ecosystems, whereas Blackberry’s first-part development made its devices inferior. In fact, RIM’s sole adherence to product differentiation strategy without matching its customers’ needs proves Greenwald and Kahn’s theory (2005) that branding, and differentiation alone cannot be considered competitive advantages as they do not raise barriers for new entrants. 

Having failed to build a moat around its smartphones, the firm focused on operational effectiveness in order to keep its head above water. But poor functionality, ineffective product tweaks and incoherent value proposition made Blackberry lose the smartphone war. As a result, RIM, once regarded as “an industry elephant”, turned into an “ant” that had to leave the market dominated by other giants like Apple and Google. In the end, Blackberry was acquired by a Chinese consumer-electronic company TCL, which led to its departure from the smartphone market, fourteen years after the release of its first phone (Appolonia, 2019).

The Blackberry case, thus, provides evidence that any obsession with the strategy that completely ignores a possible entry of new competitors is doomed to fail. In the contemporary business world, understanding the strategic steps taken by other economic players is necessary for making informed decisions. RIM, a company that was blindsided by the emergence of “app economy”, which drove massive adoption of iPhone and Android-based devices, rested too heavily on what it thought was its impenetrable enterprise business and, eventually, ended up in the death rattle (Gustin, 2012). 

Some executives believe that they can manage their companies just by looking at themselves, their products and their processes – a kind of "corporate version" of pride, a human weakness so common to all of us. Perhaps delighted by its many virtues, Blackberry didn’t pay the due attention to the changes of its customers and competitors. Competitive Intelligence and Reverse Engineering do not constitute espionage nor are synonymous with patent breakage. Within ethical and legal limits, it is possible and necessary to closely observe the strategies of competitors and their impacts on markets, offering perspectives so that the company can walk its own paths and remain relevant to its customers. Lesson learned: companies, especially those that claims to be innovative, should have a clear strategic vision estimating future market changes. Whereas hindsight is always 20/20.

 

References: 

Appolonia, A. (2019). How BlackBerry went from controlling the smartphone market to a phone of the past. Business Insider. Retrieved from: https://www.businessinsider.com/blackberry-smartphone-rise-fall-mobile-failure-innovate-2019-11

Friend, D. (2013). RIM’s rise and fall: A short history of Research In Motion. Global News. Retrieved from: https://globalnews.ca/news/384832/rims-rise-and-fall-a-short-history-of-research-in-motion/

Greenwald, B.C., Kahn, J. (2005). Competition Demystified. A Radically Simplified Approach to Business Strategy. Portfolio. 

Gustin, S. (2012). BlackBerry Crushed. Time. Retrieved from: http://content.time.com/time/subscriber/article/0,33009,2118523,00.html

Luo, J. (2018). “The Rise and Fall (and Rise Again?) of BlackBerry. Harvard Business School. Retrieved from: https://digital.hbs.edu/platform-digit/submission/the-rise-and-fall-and-rise-again-of-blackberry/#

McConnell, J. (2016). Last call: A nostalgic list of BlackBerry devices through the ages. Financial Post. Retrieved from: https://financialpost.com/technology/personal-tech/last-call-a-nostalgic-list-of-blackberry-phones-through-the-ages

Pon, B., Kenney M., and Seppala, T. (2014). Android and the demise of operating system-based power: Firm strategy and platform control in the post-PC world.  Telecommunications Policy. Retrieved from: https://www.researchgate.net/publication/263546833_Android_and_the_demise_of_operating_system-based_power_Firm_strategy_and_platform_control_in_the_post-PC_world

Porter, M. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York Free Press. 

Statista. (n.d.) [Blackberry Statistics]. Retrieved from: https://www.statista.com/topics/5316/blackberry/

Statista. (n.d.) [Global market share held by leading smartphone vendors]. Retrieved from: https://www.statista.com/statistics/271496/global-market-share-held-by-smartphone-vendors-since-4th-quarter-2009/

Yarow, J. (2016). All The Dumb Things RIM's CEOs Said While Apple And Android Ate Their Lunch. Business Insider. Retrieved from: https://www.businessinsider.com/rim-ceo-quotes-2011-9

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