The rise and fall of Blackberry: How an $80B giant collapsed

In 2007, Steve Jobs went on a stage in San Francisco and said a sentence that would basically end a $70 billion company. And the sentence was, "Today, Apple is going to reinvent the phone." A few thousand miles away in Canada, BlackBerry's co-CEO, a guy named Mike Lazaridis, was watching the announcement. He was stunned. He couldn't figure out how they were doing certain things, everything from the battery life to the way the technology worked. His co-CEO, a man named Jim Bazzille, he was more dismissive. He said, quote unquote, "We'll be fine." And there was good reason for them to be confident. BlackBerry at that point had nearly 50% of the United States smartphone market. Their stock had gone from $2 to $140. They had over 10 million subscribers and their growth seemed to be accelerating. But within 7 years, they'd lose 99% of their market share. Their stock would crash from $140 back to $6 and they lay off over two-thirds of their workforce. But here's the thing about BlackBerry. The folks who built it knew exactly what was coming. They had seen it all along. In fact, at that moment, they were powerless to stop it. And it's a scary thing for any company, especially great ones, and how they can die.

Oh, and by the way, thanks to Quo for sponsoring this video. More on them later.

Let's go back two decades before that iPhone moment. In 1984, a 23-year-old engineering student named Michael Lazaridis had dropped out of the University of Waterloo. 2 months before graduating. He started a company called Research in Motion, and they didn't start with mobile phones or devices. They started with kind of lame stuff like digital signage and LEDs and stuff like that. But Mike, along the way, was fascinated and obsessed with one idea. He believed wireless communication was the future, not phone calls, data. He kept after it. In 1996, RIM released a thing called the Interactive Pager with an sign in the middle, and it could send and receive digital messages wirelessly. Anywhere. Corporate IT departments loved it. Suddenly their executives weren't just working from the office at their desktop. They could send and receive email from virtually anywhere. Then in 1999, RIM released the very first BlackBerry, the Model 850. Push messages and a keyboard, all available, well, wireless and through the cell network. It looked like a pager had had a baby with a calculator, and it was so popular and addictive for executives that they called it the CrackBerry. Like people couldn't put it down. And if you remember mobile phones at the time, they were these big bulky things that tried to be phones. BlackBerry just said, we're not even going to try to be any of that. We're going to be a data device. And the genius move that Mike did was that the BlackBerry device just did one thing, but it did that thing incredibly well. It didn't try to do a bunch of other stuff. And if you look at great businesses around and many that we're familiar with, this is a common theme. Raising Cane's is famous for just focusing 100% on how do they make the best chicken fingers in the world. No pork, no nothing else, just chicken fingers. There's a lesson there. And one decision that RIM made was really smart. They defined their entire infrastructure that every single message went through their servers in Waterloo, Canada. This design decision gave them two huge advantages. First was you could have push notifications, meaning people didn't have to check for messages. The second was carriers like AT&T, Verizon, those guys, they loved BlackBerry 'cause it didn't clog up their systems. By 2004, BlackBerry had 2 million subscribers. By 2006, they 4x'd that to 8 million, and their stock went from a couple bucks to nearly $70. Wall Street bankers couldn't leave without having their own BlackBerry. It was like the Bloomberg terminal of Wall Street. And at the time, it was famous that President Obama was so connected to his BlackBerry that he fought the Secret Service in order to keep his. By the late 2000s, over 80% of the Fortune 500 would have BlackBerrys installed for their executives. In 2006, the word crackberry was defined as the word of the year by one of those dictionary companies. And something people forget was that at its peak, BlackBerry was the number one messaging service in the world. Over 60 million people were using it before iMessage or WhatsApp or any of that stuff even invented. Like it was all going through BlackBerry. Ironically, they had the opportunity to build the world's first social network right there on their phones. They just couldn't figure out how to do it. They were hardware and networking guys. I've talked a lot on this channel about what makes you successful is the thing that kills you in the end. And at this moment, well, that's when things started to change. Before we get into that, I want to talk about today's video sponsor, QWO.

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The foundation for that had actually been set back in 2006, even before the iPhone was introduced. RIM engineers had introduced and run a prototype by the co-CEOs of the company. It was a small device that was all touchscreen with no keyboard. And well, it kind of sounds familiar, something that Steve Jobs would later introduce. Lazaridis was old school. He killed the idea of doing it. His reason? Well, he thought without a keyboard, the battery usage would be too high and the device not very useful. At the time, batteries kind of sucked, so he wasn't wrong about that kind of stuff. But eventually batteries would get better. And also consumers were very different than people that were executives. At the same time, the carriers were getting frustrated. They didn't like that RIM was basically a layer on top of their entire infrastructure. They had a chokehold on their business, and that wasn't good if the carriers wanted to make more money. Lazaridis, well, he basically said in 2006 he didn't care what the carriers thought. They needed BlackBerry more than they needed them. And that would be true until Steve Jobs walked out on that stage and made his announcement. The iPhone launched in June 2007. They sold 270,000 units in the first hours. Wall Street analysts asked the RIM leadership if they were worried, and, uh, RIM was pretty dismissive. They said, "Oh, it's not a sea change that you think it would be." Yeah, the sea was about to boil. Lazaridis was even more dismissive. He said, "Try to get an email on a touchscreen like that, and you'll see why BlackBerry is not going anywhere. And here's the thing, he had a point. Those early iPhones were really lacking in a lot of features that people cared about. No predictive touch typing, no voice dictation, no enterprise integration, and no App Store. They were a far cry from BlackBerry at the time. Inside, RIM engineers would make fun of, uh, the iPhone without Exchange integration, which was how enterprise America did mail at the time. Uh, it was basically a toy and wasn't useful for real business. 'Cause for years, RIM had actually built for IT departments. They didn't care much about consumers. It was all about what did IT departments wanna make their executives use? So while at this point the iPhone was in its infancy, things kept rolling for RIM. In 2007, they almost doubled. In 2008, they almost doubled in sales again. At its peak, the company was worth over $80 billion. The co-CEOs had kind of been proven right at this point. It looked like a toy and like they weren't gonna be able to disrupt RIM. But the problem was they hadn't looked forward to see what the real vision for the iPhone was. What Apple understood and what they didn't was that the iPhone would be a platform, not just a telephone. While RIM was building a communication tool for IT departments, Apple saw that the real value would be increased when they allowed other people to build into the Apple ecosystem. We talk about it on this channel a lot, the innovator's dilemma. What you have is so good and you listen to your customers, these IT departments that want it, that you don't see the disruptions coming for you, and so you don't disrupt your own thing by building something else. And in this case, Apple is building the thing that consumers would want, and eventually, well, IT departments would want it as well. But something that nobody talks about is BlackBerry actually responded with their own touchscreen project. And in 2008, they brought out the BlackBerry Storm, designed to be a full touchscreen version of the BlackBerry hardware. And when it was released, it was an absolute disaster because they looked at everything through the lens of a classic BlackBerry with a keyboard. They had made the touchscreen one that was basically what they called clickable so when you pressed on it, it felt like there was a tactile part to it. Having been keyboard guys for so long and stuck in their ways with their existing hardware, RIM just basically came out with a very clunky, buggy, didn't work very well version of the iPhone. Reviewers destroyed it and customers returned it in droves. But the reason the Storm failed so badly wasn't because of engineers. It was because of the way they had structured the company at RIM. They had a structure that, well, I'm not a huge fan of— the co-CEO idea. Lazaridis ran engineering and product. Bazilet, he ran marketing and sales. And as long as the two guys were aligned around their original vision, things went really well. When the iPhone showed up, they were in strategic crisis. Lazaridis wanted to double down on the keyboards and not give up on the form factor that had worked for them for so long. Bazilet wanted to pivot to consumers, build an app system, build an ecosystem, compete with Apple head-on. So when both people are in charge, well, that means nobody's in charge. And They compromised, and that meant the company did nothing well. So while Apple shipped one phone per year with total focus in making that awesome, in 2011, for example, BlackBerry shipped 37 different models of their cell phones and devices. Just insane. And every time Apple got this lead, people would build more apps for their system. And by 2010, Apple's App Store had over 300,000 apps available. At the same time, BlackBerry's had barely 10,000. The co-CEO structure had made the company totally unable to deal with the disruption that was happening. CEOs are typically one person because they have to bring together all functional areas of the company and have those aligned in a common direction and vision. When you split that in half, well, it doesn't work. And remember how those carriers had been really grumpy with BlackBerry and the BlackBerry co-CEO had blown them off? Well, they took their time to pounce at that moment. One thing that Steve Jobs did when they launched the iPhone was he went to different carriers and he asked them for an exclusive deal to give a sweetheart economic deal for Apple. And he found that in AT&T. And so when the iPhone was released, suddenly AT&T's network was overwhelmed, and they were also overwhelmed with a lot of customers. And at the same time, all of these carriers were suddenly desperate for a competitor, and they looked up and they said, well, we can do it with BlackBerry, or better yet, we can go with Android. And pushing Android and giving those phones away and discounting them and all that kind of stuff, their salespeople at these carriers were actively pushing people away from BlackBerrys. By 2010, Android's market share would pass BlackBerry, and it was not because BlackBerry was worse. It was because all these carriers were highly motivated to break the mortal lock that BlackBerry had had on their infrastructure and their customers for so long. RIM's response at the time was to come out with a tablet, and that tablet would come out in 2011. And, uh, crazily enough, BlackBerry, the company that had grown up on mobile email, shipped a tablet with no email connectivity. And if you wanted to check your email, you had to connect your tablet to your BlackBerry device using a clunky bridge app. While the tablet sold 500,000 units in the first quarter, within several months they would discontinue it and BlackBerry would take a $485 million charge writing down the inventory. Then in 2011, the wheels came off the bus entirely. In October 2011, and I remember this, BlackBerry's entire network went down. Remember how they had put all the servers in one town in Waterloo, Ontario? Well, that network went down. The data center went down and took the whole network down for 3 days. Customers started to realize that BlackBerry wasn't the trusted IT infrastructure they had hoped it would be. And a lot of those people who were customers, they were Wall Street traders and they traded the stock down from $140 to $50. In 2012, January, The board agreed with them, forced the co-CEOs out, and replaced it with somebody who would be the opposite of disruption, a 14-year RIM insider. And his name was Thorsten, I think, Rims or something, can't remember. And the investors were so unimpressed, the stock went down 8% that day. Thorsten, and his last name is Heinz, by the way, I just went and looked it up, he had inherited something called BBX, which was the moonshot idea that was supposed to save the company. In 2013, a full 6 years after Apple had introduced the iPhone, BlackBerry decided to introduce their own version of it, a brand new operating system, this BBX thing, and released new phones called the Z10 that would be 100% touchscreen. In a desperate bid to show that it was a new day, they changed the name of the company officially from Research in Motion to BlackBerry. The Z10 would sell a million units in its first month, which are like, okay, cool. Well, the iPhone 5S sold 5 million units in its first weekend. By May of 2013, things were so bad that BlackBerry was in crisis mode to try to sell itself. The stock had gone from $140 down to $15. In November 2013, they announced a buyout offer from a group called FairField Financial. They would buy the company for $4.1 billion. Well, the stock dropped to $6 and the deal fell through. Hines was fired and they brought in a new guy, a guy named John Chen, who was a turnaround artist. Chen looked at the numbers. He realized that Android had totally commoditized the idea of phones. Apple owned the upper end, the ecosystem market, and the era of BlackBerry being able to compete, being a hardware and software company, was over. His vision was to make BlackBerry 100% software company, and in 2016, BlackBerry announced they would not make phones anymore. Today, BlackBerry is a cybersecurity and software company. Uh, their software is used a lot of places. Their QNX operating system is used in 235 million cars worldwide. They have a bunch of other stuff that they do, but number of phones they sell? Exactly zero. And BlackBerry, which was worth over $83 billion at one point, the entire company is worth less than $4 billion today. Whereas they once had over 50% of the smartphone market, a few years later it was single digits, and today, basically nothing. It's worth asking whether the failure of BlackBerry was inevitable. It's easy to say it was a bunch of arrogant executives who dismissed the iPhone because they'd been so successful, and for a while it looked like they were right. Ultimately, they fell prey to the innovator's dilemma because of some decisions about how they organized themselves. The co-CEO format made it so they couldn't make the bet-the-company decisions they needed at the time. But who knows, maybe if they'd done stuff differently, had different leadership, and made a few different calls, they might be the next Facebook, Android, and Apple all put together. But in the end, all those folks ate their lunch. All right, let me know what you think about this one. See you in the comments below. I try to read them all. Bye.