BlackBerry confirmed today what industry watchers had long assumed to be true: the company is in a death spiral. The firm expects its second-quarter losses to be almost a billion dollars on revenues of $1.6 billion. These massive losses have forced equally large layoffs. The company will give pink slips to 4,500 people, 40 percent of the company's workforce.
It's hard to remember now, but just four years ago BlackBerry (then called Research in Motion) was the second most popular smartphone vendor after Nokia. Market share was rising and profits were high.
Superficially, Research in Motion's problem is that it was slow to jump on the multi-touch revolution kicked off by the iPhone. But its real problem was deeper. BlackBerry's core strength is selling products to businesses instead of consumers. And in the last five years, appealing to consumers has become essential for succeeding in the smartphone market.
The consumer and business markets are very different. Consumer devices are sold one at a time in retail stores. Consumers care about attractive designs, user-friendly interfaces, and innovative features.
In contrast, enterprise IT systems are sold as large, integrated systems under multi-year contracts. They're selected by corporate IT departments, which mostly care about how easy it will be to integrate a product into its existing infrastructure and maintain it over time. Getting devices that are attractive, user-friendly, or offer consumer-friendly features simply isn't high on the priority list.
BlackBerrys have traditionally been "enterprise" devices, purchased by large companies to help their employees stay in touch with the office. It's backed by a powerful suite of server software that allows corporate IT departments to centralize administrative tasks and enforce corporate policies system-wide. BlackBerrys have never been particularly attractive, cutting-edge, or user-friendly. But they didn't have to be, because the user wasn't the one paying the bill.
That changed with the introduction of the iPhone. Suddenly, people who had been happy with their boring old dumb phones became interested in purchasing a phone with more sophisticated capabilities. And once consumers were paying their own bills, the inadequacies of the BlackBerry became obvious.
That wouldn't have been a problem for BlackBerry if the iPhone had stayed confined to the consumer market. BlackBerry could have happily continued selling phones in the corporate market and ignored the consumer market.
But the pace of innovation in the consumer smartphone market was so rapid that employees became dissatisfied with their BlackBerrys. And eventually, the advantages of iOS and Android devices became so obvious that corporate IT departments were forced to capitulate. They began supporting iPhones and Android devices even though doing so was less convenient.
BlackBerry eventually realized that it would need to compete effectively in the consumer market if it wanted to survive. But building consumer-friendly mobile devices wasn't its engineers' strong suit. And by the time BlackBerry released a modern touchscreen phone in 2010, three years after the iPhone came on the market, it had a huge deficit to make up.
BlackBerry now says it's going to refocus its efforts on enterprise customers that have always been its core market. But at this point, that might not be enough to save its beleaguered hardware business. BlackBerry has already begun extending its server software to support Android and iOS devices. Its best hope of survival may be to cut its losses in the hardware business and focus on selling software and services that help IT departments manage networks that include a variety of mobile devices.