iPhone's entrance caught BlackBerry unawares, then it was too late: WSJ

Ben Wood | CCS Insight

In 2007, BlackBerry's leadership watched the unveiling of the iPhone with awe and bewilderment—then could only sit slack-jawed as Apple's flagship device steadily stole its market share and dramatically transformed the relationship between consumer and cellular carrier, according to a report in The Wall Street Journal.

Research in Motion (RIM)—the erstwhile corporate name of BlackBerry—effectively pioneered the smartphone, but the company's missteps eroded its dominance in the hotly competitive market it helped to popularize.

The Journal's report offers a window into what went wrong, and how the company scrambled to catch up to a pricey, sleek upstart that eventually came to make Apple billions of dollars, and became a device that virtually every consumer felt compelled to own. The article is based on the material from a new book called "Losing the Signal: The Extraordinary Rise and Spectacular Fall of BlackBerry."

Mike Laziridis, RIM's co-founder, was on his treadmill when he first witnessed late Apple CEO Steve Jobs introduce what would quickly become the tech giant's signature device, according to the WSJ. After being mesmerized by the iPhone spectacle, the report says Laziridis said that the iPhone was "different."

He began to wonder whether Apple was on to something, yet other RIM executives believed consumers would ultimately grow tired of the iPhone's touch screen keyboard, "lousy" battery life and comparatively weaker security. In addition, RIM thought the iPhone's data-heavy applications would ultimately "collapse" the network of its phone carriers.

"It's OK—we'll be fine," the publication reported co-CEO Jim Balsillie as saying.

That, however, ended up being famous last words, and the rest was history. The iPhone quickly captured consumers' hearts and wallets, and caught RIM executives flatfooted as Apple moved more than a million units within months of the phone's release. Efforts to blunt the iPhone's momentum with new devices ultimately fell short, with The Journal reporting that the company rushed out a version of the BlackBerry Storm in late 2008 that RIM knew was flawed.

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According to the report, the Storm's poor sales and design flaws doomed the device, and prompted Verizon to demand that RIM reimburse the cellular company for $500 million in losses associated with the phone. Meanwhile, the iPhone's runaway popularity meant that Apple could basically force phone carriers to subsidize the device's data and marketing costs, the publication added.

"You're going to make us whole on the money we've spent fixing your Storm product problems," Verizon chief marketing officer John Stratton told Balsillie in a tense 2009 meeting, "or we'll revisit our whole supplier relationship with you," the WSJ reported. "This is your responsibility. We expect you to step up because this is your fault, not ours," the paper reported Stratton as saying.

Ulitmately, RIM managed to cobble together a series of concessions that only cost it $100 million. Yet the moves weren't enough to help the company regain the confidence it lost with carriers and consumers.

Although BlackBerry managed a surprise profit in its latest quarter, the company has been bleeding cash for years, while its market share has dwindled to the single digits. The company has found itself relegated to also-ran status as Apple slugs it out with Samsung for dominance in the smartphone market.

The Journal's full report can be found on its website (note subscription may be required).