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Black-buried as inevitable as innovation

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The stock price of Microsoft rose seven per cent Aug. 23 after the company announced that Steve Ballmer would resign as chief executive officer during the next 12 months. This harsh market verdict suggested Mr. Ballmer and the company had failed -- but if this is failure, what would success look like?

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Investor expectations in the high-tech sector remain extremely high. Complaints about the performance of Canadian tech giant BlackBerry should be judged accordingly.

Mr. Ballmer ran the business side of Microsoft through the 1980s and 1990s while Bill Gates ran the technology side. They gave the world the personal computer and its operating systems such as DOS and Windows. Since Mr. Ballmer took over as chief executive in 2000, Microsoft has enjoyed good success with the Xbox game device and improvements of the Windows operating system. However, Waterloo-based Research in Motion (now BlackBerry) and then Apple and Samsung took the lead in the expanding field of mobile computing and smart phones.

Investors who counted on Microsoft to remain a virtual monopoly as it was in the 1990s became impatient with its shrinking position in the high-tech market and demanded Mr. Ballmer's departure. He announced in early July a realignment of the company aimed at making it more nimble and more able to respond quickly to consumer tastes in high-tech products.

A week later, the company reported $73.7 billion in sales in the preceding 12 months and sharp increases in operating income and earnings per share (though these were impaired by a discount offer to customers for a Windows upgrade and by a European Union fine for anti-competitive conduct). Not enough, said the stock market, and the stock price dropped below $32. OK, I quit, Mr. Ballmer said last week, and the stock rose above $34.

In this environment of high investor expectations, BlackBerry should be seen as a successful company whose winning streak did not continue indefinitely. Under its former name, Research in Motion (RIM), the Waterloo, Ont., company developed and marketed the mobile computing systems and networks that put a smart phone in the pocket of every Canadian and U.S. government official and corporate executive in the 1990s. Apple and Samsung came along later with prettier devices that were more engaging. These devices appealed so powerfully to consumers that RIM was left in the dust. Lately the company has put itself up for sale and its strategy is in doubt.

In June this year, BlackBerry reported $3.1 billion of sales for the three-month period, an increase of nine per cent from the corresponding period a year earlier. Since BlackBerry had launched a new product that was intended to match the appeal of the Apple and Samsung smart phones, it had clearly not succeeded in that strategy. The firm shipped 6.8 million smart phones during the quarter, a respectable achievement, one might say, but pathetic when compared to the 178 million smart phones using the Android system shipped by Samsung and others during the same period.

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Success in the high-tech industries is a relative thing. BlackBerry enjoyed stunning success for several years around the turn of the millennium. Investors are beating up the company's stock now because it no longer enjoys the virtual monopoly it then held by virtue of its inventiveness and its aggressive defence of its intellectual property. Now it has settled back to be a niche player, still appealing to markets where good encryption is valued and where public wireless service is unreliable.

The firm had a remarkable run. It put tiny computers in people's pockets and linked them to users around the world. It changed public expectations and paved the way for social media. In addition, it freed people in developing countries from reliance on scarce copper-wire telephone networks. It changed the world; but the world continues to change. Someone else will have to come up with the next big thing.

Republished from the Winnipeg Free Press print edition September 3, 2013 A12

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