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BlackBerry: Resistance to Change Killed Its Smartphone Business

When the company announced the end of its own smartphone production on Sept. 28, "surprised" was not a word that came to mind.

BlackBerry, smartphones, Apple iPhone, mobile phones, enterprise smartphones, John Chen

For BlackBerry, the writing was on the wall about its declining smartphone business in big bold letters two years ago when CEO John Chen said that 2016 would be the company's year to finally again show a profit in smartphones—or else.

Chen's words came during an earnings call for the second quarter of fiscal 2015, when he announced a GAAP net loss of $207 million for the period and talked about how the company would continue to work to turn things around.

That didn't happen, though, as BlackBerry's smartphone sales and earnings continued to fall until the bleeding finally had to be stopped by ending its own smartphone production and handing it off through licensing deals with partners.

Just about everyone in the industry likely knew this was coming when it was announced Sept. 28, but it still marks an intriguing moment. The move to end internal smartphone production came as the company reported a net loss of $372 million on GAAP revenue of $334 million for the latest quarter, which ended Aug. 31. That compares with net income of $51 million on revenue of $490 million for the same period one year ago.

It's been quite a market tumble for BlackBerry, from dominating the enterprise mobile phone market through 2006, before the first iPhones appeared from Apple in 2007. Back then, about half of all smartphones sold were BlackBerry models. By 2009, though, its share of the global smartphone market was down to 20 percent. Now its market share is down to less than 1 percent due to vicious competition from Apple, Samsung, Google and others.

But maybe it didn't have to be that way. For BlackBerry, by not reacting quickly enough and correctly to a changing mobile phone marketplace as the first iPhones arrived in 2007, the company stuck with what it knew and let its competitors erode its market share and its customers to turn to other smartphones.

"This is the classic 'innovator's dilemma,'" Avi Greengart, an analyst with Current Analysis, said, referring to the book by that name which was written by Clayton M. Christensen. "If you continue to consistently serve your existing customers [in the same ways], then it's very difficult to compete against someone who is coming into the industry with a different value proposition."

And so even though BlackBerry's phone sales rose initially after the iPhones arrived, the battle began to be lost when Apple began adding capabilities, such as the use of apps, that were welcomed by consumers and business users, said Greengart. "It didn't help that [BlackBerry's] responses were terribly inept."

Even Google saw that trend as it built its Android project and refocused on an app-driven platform after the company saw the potential of the iPhone, said Greengart.

That's what killed BlackBerry's smartphone business—that inability to see beyond what the company already was doing to meet the needs of changing consumer desires.

For the companies that go on to license BlackBerry's future devices, that's something to keep in mind—change or be run over.