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BlackBerry kills its smartphone division, will pivot to software, services licensing

BlackBerry, née RIM, has announced that it will no longer develop its own smartphone or tablet hardware. The company is currently transitioning from a hardware-centric business to a software development company. It expects to complete that transition more effectively now that it has ended its own internal hardware efforts.

“Our new Mobility Solutions strategy is showing signs of momentum, including our first major device software licensing agreement with a telecom joint venture in Indonesia,” CEO John Chen told investors. “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. This allows us to reduce capital requirements and enhance return on invested capital.”

Today’s news marks the end of an era for BlackBerry, but one that’s been a long time coming. The company is a classic example of the so-called innovator’s dilemma, in which a powerful company that dominates a market is unable to anticipate what kind of products its customers will demand in the future. Rather than experimenting and introducing new products and services, a company will double down on the features and capabilities that made it popular.

BlackBerry’s missteps began with its systemic refusal to adapt to the iPhone and what it represented. Like Microsoft (at the time) it dismissed the iPhone and its touch-centric display as a gimmick. BlackBerry built its business on corporate contracts, physical keyboards, and email — not multimedia streaming, consumer-friendly feature sets, and large (again, at the time) LCDs. In 2011, BlackBerry was fielding still-popular smaller models like the Pearl, the Curve, and the executive favorite Bold. At the same time, companies like Apple and Samsung were launching dual-core hardware with larger displays, higher resolutions, and consumer-friendly feature sets. Perhaps most importantly, Apple and Samsung were at the forefront of a new, skyrocketing mobile app scene that was way ahead of what passed for third-party (and mostly vertical-market) apps on BlackBerrys.

At the time, BlackBerry’s joint CEOs, Jim Balsillie and Mike Lazardis, insisted that the company’s fortunes would recover thanks to increased uptake in foreign markets and strong partnerships with corporations around the globe. By the time BlackBerry woke up and realized its entire market was being eaten out from under it, it was too late to catch up.

The company’s late, long-awaited BlackBerry 10 OS may have been popular with a tiny segment of the BlackBerry faithful, but it utterly failed in-market. BlackBerry bet that business executives would flock back to its physical keyboards, but by the time these devices were ready, the market for physical keyboards in a smartphone was basically dead. The company’s first Android device, the Priv, wasn’t bad, but it wasn’t great, either, particularly not at its initial $700 price point.

The problem with betting on physical keyboards wasn’t that people disliked them. The problem was, the overwhelming majority of smartphone users today never owned a BlackBerry device or a physical keyboard at all. The Priv’s key feature was an attempt to drum up enthusiasm in a fading market, not a capability that would intrinsically appeal to new customers looking at BlackBerry for the first time.

Earlier this year, BlackBerry launched the DTEK 50, a rebranded Alcatel Idol 4. Any future devices that the company launches will presumably be licensed from other manufacturers as well. The good news is that BlackBerry’s software and services division are showing signs of growth and may be sufficient to carry the company forward, for a little while anyway. Whether it can continue to build on this growth now that it’s merely licensing hardware is less clear.

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