In business, a golden parachute is an agreement that gives an executive a significant payout if his employment is terminated. For BlackBerry’s current CEO, Thorsten Heins, that number is $55 million. But to be ousted, first he has to sell the company.
Finding a suitor won’t be easy, though. Last year, when BlackBerry hired JPMorgan and RBC to advise it on strategic options, the banks quietly contacted bidders, only to find little interest in the beleaguered company, Bloomberg reported. At the time, Heins claimed he was focusing on potential partnerships and software licensing deals, but that tone changed this month when the company confirmed, in writing, that it would consider a takeover.
Who would want to buy BlackBerry?
Large companies, notably Microsoft, had passed on it, according to the New York Times. Smaller firms, like those based in China, would covet the brand, but be blocked by the Canadian government over national security concerns. Still, a third option would be to go private, which would free it from distraction of having to satisfy the whims of short-term investors. But exactly how BlackBerry could finance such a deal is still unclear.
Meanwhile, founder Mike Lazaridis and former co-CEO Jim Balsillie, who both stepped down last year, wait and watch from the sidelines.
Six years ago, BlackBerry, then called Research in Motion, or RIM, peaked at around $230 a share. Canada’s flagship technology company so dominated the smartphone sector that Webster’s dictionary had made “CrackBerry” — a nickname its loyalists used for the addictive qualities of its handsets — its word of the year. RIM had brought wireless e-mail to the masses, backed by servers so secure that foreign governments threatened to shut its services down because they couldn’t break into them.
World leaders and rulers, captains of industry, the rich and famous — they all swore by RIM’s rectangular QWERTY devices.
The summer of 2007, though, would be an inflection point — the beginning of the end, so to speak. Seven months earlier, in January, Apple had introduced the iPhone. At the time, RIM executives brushed it off as a mere plaything. Real consumers, they thought, wanted to get work done, and they ceded the general-use market to Apple to concentrate on its business core.
Today, BlackBerry’s success seems all but a dream. With a stock price floundering at just over $10, Heins, last week, formed a “special committee” to explore a sale or joint venture. He was throwing in the towel. The company’s value, analysts calculated, amounted to a pile of cash, some proprietary technology and a trove of patents.
In other words, it was being sold for scraps. The once admired tech-giant, it seems, is on its way to the junkyard.
History is littered with once-dominant tech companies, and it would be simple to say BlackBerry — like so many rivals before it — was merely trampled by twin juggernauts known as Apple and Google. But really, the world had changed, and RIM didn’t.
Lazaridis and Balsillie rode a tidal wave of data to the top, on the backs of CIOs and IT managers that demanded more units. RIM’s closed system was a unique advantage, running on its own secure network, using its own proprietary software, and the promise it gave was what businesses needed most: rock-solid reliability and ironclad security. As long as businesses were satisfied, RIM thought, consumers would follow.
But they didn’t. RIM, or more specifically, its co-CEOs, had it backwards.
Mihal, or “Mike,” Lazaridis was born in Istanbul, Turkey in 1960 to a working-class Greek family. After a brief stint in Germany, his father moved them to Windsor, Ontario, to pursue an apprenticeship as a tool-and-die maker. He eventually opened and ran his own retail store, while his mother worked as a seamstress and journalist.
“[My parents] were always self-sufficient — they taught me that you control your own destiny,” he told Computerworld in an interview. “The world is a big place and it’s full of opportunity.”
Even at a young age, Lazaridis showed signs of extraordinary intelligence. At four-years-old, he built a model phonograph out of a pile of Lego blocks. Then, at eight, he crafted a pendulum clock that kept exact time. One day, he received an electric train set, igniting his exploration into engineering. When the landlord, who lived below, complained about the loud noises his locomotive made, his father showed him how to silently illuminate the lights by touching two wires to the track.
“That was the first time I understood how an electric circuit was completed,” he told Computerworld.
Lazaridis was a bright student, excelling in both reading and science, and his high school was blessed with an exceptional engineering program — equipped with two auto shops, an architectural shop and a mechanical drafting shop. There was even a woodworking shop, two large machines shops and two large electronic shops.
“One of them was completely outfitted with the latest electronics technology, electric motor-generator pairs, amplifiers, all the way up to precision electronic instrumentation,” Lazaridis said.
His shop teacher, John Micsinszki, had one rule: if you wanted to use a piece of equipment, you had to first take the manual home and learn it. Only once you passed a quick quiz, were you allowed to unpack and use the machinery. That summer, Lazaridis opened and learned to use every tool in the laboratory.
“Be careful not to get too involved in computers,” Lazaridis said Micsinszki had once told him, according to Computerworld. “In the future, electronics, computers and wireless are all going to combine — and that’s going to be the next big thing.” He didn’t understand it then, but those words would seep into his subconscious. Years later, after starting RIM, they would creep back and remind him, almost like fate, of the opportunities that lie ahead.
In class, not only did he have an intuitive understanding of the theoretical basis of science, he also had a knack for invention — very practical inventions.
For example, when practicing for “Reach for the Top,” a Canadian quiz-show that featured students in trivia tournaments, he noticed his team had a tangled mess of wires. So he built a compact buzzer-box to determine which of the four contestants hit the button first. Before then, everyone was confused. The invention worked so well that soon other teams began to ask for them, so he and his father built and sold them to schools.
Those profits paid for his first year’s tuition at the University of Waterloo, which chose for its strong co-op program. He received not just theoretical electrical engineering coursework, but also hands-on experience to help pay for college. Soon, he began to work on his own projects, and in 1984, General Motors granted him a $600,000 contract to make LED notification displays, which he called the “Budgie,” for use at its factories.
With a month before graduation, the 23-year-old, like so many entrepreneurs before him, dropped out of college to go into business. But before he could do so, he needed permission from Doug Write, the president of the university.
“I have to do this,” Write said, according to CrackBerry.com, “I have to try and dissuade you… but speaking personally, just between you and me, go for it.”
Instead of a trip to California, though, Lazaridis and childhood friend Doug Fregin — with funds from friends and family and a $15,000 government loan — moved a few blocks from campus to a tiny office atop a strip mall.
Waterloo, Ontario was about the farthest place from Silicon Valley. The industrial city of around 98,000 sits on the outer edge of Mennonite country. Instead of seaside sunset vistas, at about 70 miles west of Toronto, it had snow and more snow. It wasn’t a place to base a startup, and yet, that was exactly what Lazaridis did.
After a few ideas, he decided on Paradigm Research. But the name was registered. So they dropped “Paradigm” settled on the next-best idea: Research in Motion.
“[Motion] means we never stop, we never end,” Lazaridis told Fast Company. “We keep going.”
RIM felt like an overnight sensation, but the journey started 25 ago in 1984. In fact, BlackBerry devices didn’t hit the market until 1998 — 14-year gap. The company’s initial General Motors project was a failure. After shipping less than 100 displays, it sold the remaining contract for some quick cash and moved on to the next job.
They scrambled for, and accepted, all sorts of contracts, coding through the night. Then, one day, a local dentist approached Lazaridis. He had an idea: a readout device that could teach people how strong to brush their teeth. If you brushed too hard, he thought, a red light would illuminate and tell you to ease off. If you applied just the right amount of pressure, it would stay green. He wanted Lazaridis to turn the idea into a reality.
Needless to say, it bombed, but it kept those early lights on in the office, buying RIM valuable time to stay alive and fight another day. It would go on like this for over a decade.
Then, Lazaridis heard about a potential contract from the National Film Board. The industry needed a device to take in and read film. So he designed a digital-barcode reader, called the “Digisync,” to follow the edge of the strip and jump to any spot. It was an instant hit. Work that used to take an editor two days could now be done in 20 minutes.
In 1999, Lazaridis stepped onstage and accepted an Oscar from Anne Heche. Every Hollywood studio had his device, but they only needed one. And once they had it, since it was so well-built, they never needed to buy another one. With little ongoing demand, RIM moved on, looking for another project.
Oddball contracts kept RIM afloat through the years, and it limped along.
Meanwhile, Lazaridis hadn’t forgotten his passion for data. At a time, wired e-mail was used by professors and scientists on ARPANET. He used it in college, and he thought the rest of the world did, too. But when he handed out business cards in the real world, people would look at his e-mail address and ask, “What’s this?”
He would tell them that data — or more specifically, the ability to send and receive e-mail — would be more important. But, of course, nobody knew what he was talking about. Nor were they interested. Carriers like Rogers, Telus and AT&T, at the time, all focused on cell phones. Voice was where the money was at.
Still, in the back of his mind, his shop teacher’s advice kept his idea of “e-mail on a belt” alive. So he wrote some gateway code to hook an HP Palmtop — a LCD device too big to wear on a belt, but small enough to put in a briefcase — to Ericsson’s first portable Mobitex data modem.
“Our employees started taking these things home, and they wouldn’t return them,” Lazaridis told Fast Company. “That’s when we knew we were onto something. We had discovered that always-on, always-connected wireless e-mail was completely addictive. The challenge now was to make it practical.”
Bingo — he had created the world’s first wireless e-mail solution.
Jim Balsillie was born 50 miles west of Waterloo, in Seaforth, Ontario near the Lake Huron shore. Contrary to Lazaridis, his father worked in technology, as an electronics technician. But rather than engineering, Balsillie gravitated to business and athletics. During summers, for example, he worked as a camp manager, trailer park maintenance man and even at a painting company. In winters, he helped out at a ski hill.
Balsillie studied business at the University of Toronto’s Trinity College, before entering Harvard Business School. Upon graduation, he took a job at Sutherland and Schultz, a small technology company that made a ground-breaking product to link computers. Headquartered in next door to Waterloo, at Kitchener, Ontario, it would become one of RIM’s clients.
Over the span of three years, Balsillie, initially hired as the vice president of finance, quickly jumped to executive vice president and then chief financial officer. When Sutherland and Schultz negotiated to acquire RIM, which then made over $1 million in revenue a year, Balsillie was called on to “close” the deal. In those days, when negotiations came to a stalemate, he was sent in to finish the job.
RIM, though, passed on the deal, but Lazaridis saw Balsillie in action. So when a Dutch company, soon after, acquired Sutherland and Schultz, and gave Balsillie a severance package and an exit, Lazaridis called.
RIM excelled in engineering due to Lazaridis’ expertise, but it suffered from poor contracts from bad negotiations. Even at just 14 employees, Lazaridis knew he needed someone on the business end — he’d seen too many companies sink when founders tried to do everything. He was determined not to let it happen to him.
Lazaridis gave Balsillie an offer: take a pay cut and invest $250,000 to own a third of the company. Balsillie agreed, but he didn’t have enough cash on-hand, so he mortgaged his house. Two days later, he dug up the balance sheet, curious to see how his investment had affected the bottom line. But it was all gone. His money, it turned out, had been used to pay overdue bills.
“My job is to raise money,” Balsillie told the Globe and the Mail. “Mike’s is to spend it.”
Regardless, Lazaridis now had in Balsillie a partner to focus on finance and drive the business forward. That allowed him to do what he did best: design and innovate.
It’s common for startups, founded on a great idea, to be gobbled up by larger, established rivals. IBM used to say it only had to be second best. It let rivals take the leadership role, and the high risks that came with it. Then, if they should beat the odds and succeed, it would simply absorb them.
But more often than not, startups become stuck in a sort of purgatorial safe zone — taking small, profitable jobs that had no future, afraid or unwilling to risk it all on a big long-shot. For some, staying at two dozen or so employees was just fine. But by the time Balsillie joined, Lazaridis had made a conscious decision to resist short-term temptation for the home run. Soon, the company dropped its contracts to focus on wireless data.
But first, they needed a product.
In the early-90s, Apple CEO John Sculley, who had ousted Steve Jobs, delivered a keynote at CES, coining the now-famous term, “personal digital assistant,” or PDA. He believed, one day, handhelds as powerful as computers would tie everyone to all the world’s knowledge.
Apple unveiled the Newton, soon afterwards.
Unfortunately, the Newton was still more handheld computer than the ubiquitous future Sculley had described. It was the first of several devices, which would later launch Palm, Handspring and countless rivals into the nascent handheld market, but all the while, Lazaridis remained skeptical. He believed wireless connectivity, not palm-sized power, would be key.
In 1996, Lazaridis unveiled a prototype wireless device, dubbed the Inter@ctive Pager 900 — the first pocket-sized, two-way pager. It also offered peer-to-peer messaging and an Internet gateway for e-mail. But the large, bulky device was full of glitches. Rod McQueen, author of “BlackBerry: The Inside Story of Research in Motion,” told Allan Gregg in an interview that the 900 was the size of a double cheeseburger, with a tiny screen that displayed four lines of text, a full keyboard below and a big, hinged lid that closed down. It also weighed well over three-quarters of a pound. If you had worn it on a belt, it would tilt your pants to that side.
Lazaridis nicknamed it the “Bullfrog.”
It wasn’t exactly sellable, but it was proof that a wireless device could be made.
RIM looked for partners to refine and produce the device. Intel took a chance, investing time and money to design a chip that combined its internal components into a smaller package. To Balsillie’s credit, Intel forged the alliance, all the while, not knowing if RIM would agree to buy the parts, much less if its device would even work.
According to Fast Company, a sign hung over hung the engineering cubicles that read: “Have you saved a milliwatt today?” With improved components, RIM went to work on its next device, the 950, nicknamed the “Leapfrog.” Measuring the size of a cigarette pack, it had a tiny screen, a smaller, superior keyboard with buttons the size of Tic Tacs, a now-iconic trackwheel for navigation and, most importantly, always-on e-mail. It also synchronized to a PC and corporate e-mail.
It looked like a two-way pager because, in those days, consumers had yet to understand the concept of wireless data. But it was more. RIM promised it could send e-mails anytime, from anywhere, without any hassle. It was revolutionary. While the first BlackBerry was still a year away, the elements of wireless connectivity were now in place.
In 1997, Lazaridis and Balsillie, with a more portable and sellable Leapfrog in hand, tried to convince the world that e-mail was the future of mobile. But it fell on deaf ears. Now, on their last legs, they stood in a BellSouth conference room.
The telecom, meanwhile, had spent over $300 million to buy and build out its Mobitex network, all without even knowing if a device could even run on its service, and executives told RIM if it could show them a product — anything — they would be interested. BellSouth was hemorrhaging cash, and if it couldn’t find a way to turn things around, it would just sell the whole network.
Lazaridis knew that if that happened, RIM would have to shut down. As he began the pitch of his life, explained how the Leapfrog worked, how BellSouth would benefit from it and how a mass of customers would clamor for mobile e-mail. Suddenly, he realized that he’d left the Leapfrog models in the taxi. Regardless, he used wooden substitutes, pasted with strips of paper to mimic what users would see. As executives excitedly passed them around, he breathed a sigh of relief.
BellSouth would not only keep its network, but double its size, ordering over $60 million worth of Leapfrogs in 1997 alone.
Later that night, Lazaridis sat in his basement, and from midnight to 3 a.m., typed out a five-page roadmap for BlackBerry’s design. “When is a tiny keyboard more efficient than a large one?” he wrote, believing long-term success depended not on what was added, but what was left out. To successfully launch e-mail from a two-watt transmitter, he would need to eliminate all but the core features to maximize battery life.
His called it “Success Lies in Paradox,” and it would become RIM’s business plan.
“I like really hard problems,” he told Bloomberg. “If you solve one of them, you create a new industry.”
With Intel on manufacturing and production, and BellSouth on bandwidth, Balsillie then focused on marketing. With limited funds, he came up with an ingenious guerilla tactic to court tastemakers. RIM sent “e-mail evangelists” on the road to give out free Leapfrog devices to celebrities and trend setters in the public eye. To save costs from the giveaways, they would stay at Red Roof Inns and Motel Sixes all across the U.S.
They were hooked. Soon friends saw and asked about the pager-like devices. RIM started to get subscribers.
In 1999, Lazaridis led the development of the next version of its wireless device. With better parts, it had a bigger screen, yet kept the same portable size. Far removed from the double cheeseburger-sized Bullfrog, it was no longer a “frog.” It was small and nimble, and needed a new name.
So RIM hired Lexicon, the firm behind Apple’s PowerBook and Intel’s Pentium brands. With buttons that looked a bit like tiny seeds, an executive said it resembled a strawberry. But, strawberry wasn’t quite right.
No — it’s a “BlackBerry.”
Lazaridis is furious.
“That’s just not fair,” he says. “We’ve just been singled out because we’re so successful around the world.”
His company is struggling to comply with Indian regulators, who threaten to ban its service unless it gives into their wiretapping demands. He needs to find a compromise; he can’t afford to lose one of the most lucrative and growing markets because, despite his bombastic rhetoric, he understands that looming ahead, profits are sinking and consumers are growing dissatisfied. Not that he’ll let you know.
“[BlackBerry] is an iconic product — it’s used by businesses, it’s used by leaders, it’s used by celebrities, it’s used by consumers, it’s used by teenagers,” he tells the BBC in an interview. “We’re just singled out because of our success.”
Then, a pause, and for a moment, a glimpse of the truth.
“But we’re dealing with a lot of issues.” In the market of smartphones, the competition is brutally unforgiving, to put it mildly.
In just four years since, the company had lost nearly its entire market share. The drop was remarkably fast, even by technology standards. Failing to foresee the “bring your own device,” or BYOD, trend, BlackBerry stubbornly clung to e-mail, which it still did better than anyone else. But consumers want everything else: touch displays with better browsing, dual cameras with third-party filters and hundreds of thousands of games and apps to choose from. Apple and Google gave it all to them.
Some call it hubris; others call it being out of touch. Regardless, in companies, the flow of power began to dissipate away from the IT managers that set protocol to the employees that used them. And since consumers loved their iPhones and Android devices, businesses started to alter their policies to accommodate them.
Once seen as revolutionary, BlackBerry was clueless to what consumers wanted. It didn’t unveil the Storm, its first touch device, until a year — equal to a few generations in the mobile world — after the iPhone. But even then, the Storm was a poor imitation, at best.
BlackBerry gave you secure, wireless e-mail, but Apple and Google offered something more: a sense that you could have it all. By then, of course, the BYOD trend picked up traction, Apple began to shore up its security and the iPhone had become a workplace staple.
BlackBerry’s make-or-break moment came with its largest and most ambitious turnaround effort ever — the launch of the Z10 and Q10, running on a robust, new QNX platform. Despite high initial praise, lackluster sales hinted at signs of deeper problems — namely the lack of a robust ecosystem of apps, and a tarnished brand value. Improvements aside, it was still one step behind of rivals, always, it seems, offering too little, too late.
Android, meanwhile, continued to dominate the market, running on four-in-five smartphones sold worldwide.
In the early days, BlackBerry co-CEO Jim Balsillie — the business brains of the operation — made a tactical error in closing a deal with Oracle. “I got stubborn on a couple of clauses in the contract, figuring I’d play businessman. Surprise, surprise — Oracle walked,” he told Fast Company. “I learned that you don’t win by trying to hit a grand slam to Mars. You win by making constant progress.”
Balsillie wasn’t going to make the same mistake twice. Sure enough, in slow-and-steady fashion, he secured agreements from BellSouth, IBM and Rogers Cantel and then expanded alliances with Compaq, Nortel and Qualcomm, among others. Each strategic alliances he made, gave RIM cloud, but more importantly, turned competitors and enemies into allies.
Before 1999, BlackBerrys were little more than glorified two-way pagers, used mostly by law enforcement, firefighters and ambulance workers, but through those partnerships, it was able to meld e-mail and wireless data on a traditional — if tiny — keyboard. RIM not only produced a hit product with a suite of PDA features — like an address book, calendar and task list — it also developed a complete, encrypted e-mail and messaging service that ran atop the Mobitex networks of BellSouth and Rogers Cantel.
Now, confident he had a hit device and service on his hands, Balsillie, the Harvard Business School graduate, turned his attention to a sector that would value its ironclad security: Wall Street.
But he hit an unexpected barrier. Wall Street bosses, the decision-makers upstairs, were largely indifferent to technology. IT was, and still is, considered backend support — the cost of doing the business. Technology, though important, was secondary to the money-making side of the corporate finance and sales and trading, so CEOs and managing directors often left it to the CIOs in support to handle. And unless things broke, there was little incentive to change what was working.
Undaunted, Balsillie began to give away BlackBerrys again — this time a few hundred at a time — to ground-level employees. In the mobile world, RIM had something of a rarity: a wireless device that was actually useful. So soon, a growing army of bankers were addicted to them. If a few employees brought them into their organizations, Balsillie believed, CIOs would feel the pressure to adopt them.
And they did.
Big firms like Credit Suisse First Boston and Merrill Lynch placed orders by the thousands — for everyone in the company. With only a few hundred in stock, Balsillie struggled with the surging demand, sending Lazaridis back to the laboratory to design and produce another batch of models.
And word began to spread, in 1999, RIM went public on the NASDAQ exchange, raising $250 million to further develop its technology. With BlackBerrys now seen in the hands of the rich, famous and powerful, its e-mail tagline “Sent via BlackBerry” became a status symbol. Oprah had one. So did Madonna. And if you had one, you were someone important, too.
While Wall Street was going crazy over BlackBerrys, Balsillie used the same giveaway tactic inside the Washington Beltway: bringing devices in the backdoor, convincing decision-makers of its security and then selling them by the truckload. Once the politicians and their staff had them, he believed, lobbyists and those that did business in Washington, would follow suit. But traction didn’t build as quickly as in New York. It would take a tragedy to get business moving.
That happened on September 11, 2001.
During the attacks on the World Trade Center, all cellular networks had shut down — calls were neither going in nor coming out. RIM employees, meanwhile, frantically worked with Mobitex and DataPac to keep its data networks online, giving trapped BlackBerry users the ability to contact loved ones. It was imperative to keep the service up. Not only were police, firefighters and ambulance drivers using it to coordinate resources, but even Vice President Dick Cheney was on his BlackBerry to communicate with senior staff amid the crisis.
In Washington, perhaps by luck or sheer will, the third plane had missed its intended target of either Capitol Hill or the White House. Poor communications hampered evacuation efforts, and only the few politicians with BlackBerrys could send and receive messages, shining a spotlight on RIM’s stellar reliability.
In the aftermath of the crisis, the U.S. government immediately ordered 3,000 BlackBerrys for all 100 senators, 435 representatives and thousands of staffers, according to Alastair Sweeny, author of “BlackBerry Planet,” State and city regulators soon followed, firmly cementing RIM’s ties throughout all levels of the government.
Lazaridis is big on engineering, and it shows in the emphasis placed on encryption and security. The company’s early success, he believes, was due to his habit of personally interviewing everyone entering the company to find the sort of people who shared his values — he was looking to replicate himself. Not until RIM grew to over 500 employees did he stopped interviewing, but by then, the company had enough like-minded Lazaridis-clones to take over and look for others of similar ilk.
But with all of RIM’s successes, it wasn’t infallible. And in the upswing of its growth, it was nearly shut down due to litigation on patent questions.
Mobile is a very particular industry. Aside from normal competition between rivals to produce the best products, there is a subset of firms that never creates or sells a thing. Their main asset is a portfolio of patents, often purchased from others, which they use to lodge complaints against successful firms rich with cash. They wanted royalties, and a deal couldn’t be struck, they’d take them to court, often not with the intention of winning, but causing enough pain to negotiate a quick, and lucrative, settlement.
It was a shakedown in every sense of the word, and in the industry, there’s a term for these companies: patent trolls.
RIM ran into one such troll in NTP, whose portfolio of 50 patents included one related to mobile e-mail. It didn’t make a product, it didn’t sell a service. But it was in the business of lawsuits. And as Rod McQueen, author of “BlackBerry: The Inside Story of Research in Motion,” told Allan Gregg in an interview, NTP was a mom and pop shop — but without a mom or pop.
During the trial, RIM showed that it had developed its own functioning wireless e-mail system, called “System for Automated Messages,” or SAM, in the public domain well before NTP ever invented its product. But NTP’s attorneys discovered that RIM used a more modern version of SAM software, which came after NTP’s innovation, allowing the judge to instruct the jury to disregard the demonstration.
Then, a turn of events, in 2003, a judge granted an injunction to ban the sale of RIM’s devices in the U.S., which accounted for 70 percent of its business, forcing the Justice Department to step in and filed a request to delay the injunction due to the large number of BlackBerry users in the federal government.
Locked in a stalemate, NTP approached RIM, willing to settle for $23 million. But Lazaridis and Balsillie refused, believing they were right. They never heard of NTP, much less copy any patents, and NTP never developed anything as advanced as RIM’s encrypted service — why should they have to pay them any money at all?
As the courtroom battles continued, in 2004, RIM celebrated its 20th anniversary by surpassing two million subscribers worldwide. Time Magazine even named Lazaridis and Balsillie and to its “Time 100” list. But an appeals court upheld most of NTP’s claims, insisting that RIM had infringed on patents.
As litigation continued over the next few years, NTP’s painful thorn increasingly burrowed into RIM’s business dealings and future growth, and by 2005, Lazaridis and Balsillie decided the hassle was no longer worth the effort to fight it. RIM agreed to pay $450 million to settle the dispute, but within a month, the deal unraveled and fell apart.
NTP then threatened to enforce a court order to shut down all BlackBerry service in the U.S.
In 2006, after the Supreme Court refused to hear a last-ditch appeal, with an imminent shutdown on the horizon and no negotiating leverage, RIM paid the hefty price of over $600 million to settle all claims. RIM was allowed to continue to sell its products and services, and in a perverse way, it gave NTP a war chest of funds to next threaten legal action against — and sign royalty deals with — rivals like Apple, HTC, Motorola, Palm, LG, Samsung, Google and Microsoft — basically, anyone who was anyone in the industry.
RIM’s desire to fight, though costly, was a big part of its success. Canadian companies failed when they enter the U.S., often due to a lack of toughness. Bright employees and a great product aren’t enough, and to survive, or even prosper, in the most competitive market in the world, companies need street smarts and a capacity to fight.
Lazaridis and Balsillie had shown they could go up against the best. When RIM entered the U.S., it faced major-league competition from Palm and Motorola — both with far more visibility in the consumer market. Ericsson and Nokia, meanwhile, were charging headlong into its sacred wireless-data space. Even on two fronts, Balsillie understood that it had to focus, and since security was its advantage, it locked down on enterprise.
“Who wins between an alligator and a bear?” Balsillie asked Fast Company rhetorically. “It all depends on the terrain — do they fight on water, land, or mud? So it goes with wireless.”
In the end, Lazaridis and Balsillie knew they’d defeated Palm when it replaced its trademark stylus with keyboards. And at its peak, RIM was three times the size of Motorola, a communications equipment pioneer that invented the cell phone in the ’70s.
“The market for wireless data is 400 times larger than it was five years ago, and we’ve been there from the start,” Balsillie told Fast Company. “How could we not be confident?”
When established rivals neglected the enterprise market, RIM — nimble and smart — found an opportunity to wedge in and grow while incumbent players lay complacent. But the pendulum had swung. In 2007, when Steve Jobs stepped on stage to introduce the iPhone, RIM had become the establishment — the leader in enterprise.
Bill Gates once said if a company was to be truly innovative, its leaders must bet the business every few years — basically, to go into areas that, historically, have not been their strength. For RIM, that was the consumer market.
Apple, meanwhile, was just such a company. Hungry for an industry to revolutionize, it now became the innovator, challenging RIM in the neglected consumer market.
Heins announced the grim financials. It wasn’t pretty. The plan for a turnaround, the Z10 and Q10, which run on a new QNX platform, had failed. In 2012, the company reported a first-quarter loss of around $520 million on sales of $2.8 billion, down from about $5 billion a year ago.
Heins said RIM would cut another 5,000 employees, but even more drastic steps would be needed, whatever that meant.
RIM was terrifically profitable by bringing texting and mobile e-mail to the masses. But by 2010, its market share had plummeted to just 10 percent, down from around 45 percent a year earlier. The “CrackBerry” addicts had grown tired of RIM: just one-in-three owners planned to stay with it when they bought their next device. The stock price plummeted by 75 percent in one year, and in 2011, co-CEOs Mike Lazaridis and Jim Balsillie stepped aside to give control to Heins. But not even he could staunch the hemorrhaging.
These are dark days for BlackBerry. The iPhone and Android devices have largely replaced it as the smartphone of choice, leading the company to form a special committee to explore a fast auction that’s expected to finish by November, according to the Wall Street Journal.
How did things go so wrong?
Over a decade ago, Lazaridis was asked whether RIM would add color screens — a feature that had popped up in handsets in Asia. “Do I need to read my e-mail in color?” he said, according to Brian Blair, then an analyst at Bank of America. Lazaridis argued that color screens were impractical due to expensive costs and high battery drain. But, of course, a few years later, after rivals had transitioned, it would follow suit and add them.
History, it seems, does repeat itself.
“We had a very, very successful recipe of what BlackBerry was all about. There were four main pillars: battery life, typing, security and compression,” Heins told CIO Magazine in an interview in 2012. “Then, there was a shift. With LTE it was important actually not to save network resources, it was important to load the networks, to sell data plans and sell data volume.”
In other words, BlackBerry didn’t miss on innovation — it had always improved messaging, e-mail and security. No, instead, it had missed on understanding the changes in the market.
The root of its problems can be traced back to overwhelming confidence in its basic BlackBerry product, according to the Wall Street Journal, which interviewed more than a dozen former RIM executives and those who worked closely with the company. RIM rose to prominence by giving devices to employees, having them bring the smartphones into their offices, and then pressuring the CIOs and IT managers to adopt and buy them for the company. Balsillie’s guerilla marketing targeted individuals, but its product, with encrypted servers and easy-to-use mobile e-mail, was aimed at Fortune 500 companies and government agencies.
That strategy — to win over corporations before branching into the general-use market — is a time-honored tactic. The telephone, for example, began as a business tool for banks and big businesses before becoming a mainstay in the home. The same can be said with the PC and offices and the Internet with the military. Technologies often begin as business-only tools, due to the high costs needed to develop them, and Lazaridis and Balsillie believed smartphones would follow that same trend.
By 2006, corporations were driving the overwhelming majority of RIM’s revenues, and its leadership declared that enterprise would continue to be its focus. IT administrators, and those who controlled the purse strings, wanted secure, easy-to-deploy and manageable devices. So, the company worked to deliver them a series of boring, catch-up products in the Pearl and Curve.
Over time, though, the BlackBerry brand — once seen as a synonym for the opulent — lost its luster among a cache of confusing names. RIM customized those models, each with different display sizes and internal components, to suit the needs of the various carriers, and the complexity was made more difficult when — at the height of its success — the market began a seismic shift, coinciding with the release of the iPhone in 2007.
“How much presence does Apple have in business? It’s vanishingly small,” Lazaridis told the Guardian in an interview. “I haven’t seen one,” Balsillie later said, a week after the iPhone hit store shelves. “You watch these things, but you really have to just focus and do your job.”
Lazaridis and Balsillie brushed off the growing popularity of Apple, perhaps to reassure investors, but internally, they were just as dismissive, particularly of the short battery life of the iPhone. As an engineer, Lazaridis obsessed over each milliwatt of power, ensuring BlackBerrys lasted for weeks on a single charge. And he couldn’t understand why anyone would buy the iPhone, when it died after a few hours of use, according to Canadian Business.
Instead, Lazaridis believed consumers would prefer to type e-mails on keyboards instead of touch displays, and its superior security would keep IT departments faithful. RIM would cede the general-use market and continued to lean on enterprise to fuel its success — because eventually the market would transform.
Inside RIM’s walls, executives debated whether it had the right strategy — whether it should target core customers in corporate or consumer. It was clear Apple and Google had redefined the smartphone, and RIM needed to adapt to aggressively target consumers — not simply businesses. But for that, it first needed to scrap and redesign its interface and Web browser, as well as attract developers to write apps for its fledgling platform. Smartphones had evolved from RIM’s core strength — communication — to media consumption.
Those events created tensions and eventually rifts between various camps in the firm. At one meeting, Balsillie was asked if RIM should worry about the BYOD transformation in the market — some executives believed the threat was real, while others argued its stable base in enterprise would hold steady. Balsillie took the view of the latter view, according to the Wall Street Journal.
Technologies did begin to merge, but not in the way Balsillie had anticipated — from corporate to consumer. Instead, employees started to bring their personal devices to work, a trend simply known as “bring your own device,” or BYOD. More often than not, though, that meant the iPhone and Android devices, which started to carve out a place in enterprise, displacing the stalwart BlackBerry.
Balsillie mistakenly believed RIM’s rise was due to decision-makers who loved its security. Really, its success sprang from the army of near-fanatical, ground-level employees who brought them in the backdoors of Wall Street and Capitol Hill. Now, with the rise of BYOD, consumers wanted enterprise devices that also featured cameras, games and Internet browsing, which BlackBerry lacked. So they brought in Apple and Google devices and pressured IT departments to adopt them.
RIM was losing its hold on both enterprise and consumer markets, and its closed system left it with an isolated, barren ecosystem, ill-equipped to compete with the flourishing world of iOS and Android.
BlackBerry’s leadership had failed to see the market shift, and its decision to continue on enterprise at the cost of general-use cost it dearly. By 2015, according to Fortune, employees, and not CIOs, will buy more than half of business devices.
RIM’s plunge seemed sudden, but the downfall had been a longtime coming. BYOD was the iceberg to RIM’s Titanic. Executives were clueless to what consumers wanted. In 2010, for example, an internal report found that buyers increasingly favored Apple’s touch-only devices to RIM’s tactile, thumb-friendly keyboards. But RIM ignored the early warnings.
RIM, in fact, wouldn’t produce a full-touch device until Verizon and Vodafone executives, worried that Apple’s growing dominance would give it outsized influence in the market, approached RIM to collaborate on a product to challenge the iPhone.
But rather than shutter enterprise and go headlong into consumer products, Lazaridis designed the Storm, a hodgepodge touch hybrid with a rather innovative screen that physically clicked when pressed, yet still lacked the plethora of features and apps of iOS and Android.
“Vodafone started really rushing around saying, ‘Help us build an innovative competitor to the iPhone’,” Pieter Knook, a Vodafone executive at the time, told the Wall Street Journal. The Storm was a pale imitation of the iPhone — and it bombed.
Then, in 2010, AT&T approached RIM to develop a touch device to match Apple. AT&T was going to lose its exclusive right to the iPhone, and to continue its success, it needed another marquee device to help differentiate itself from Verizon. The partnership produced in the Torch, but like Verizon’s Storm, it fell far short of the iPhone, hobbled by faulty hardware and lackluster software.
Apple and Google, meanwhile, gobbled up more market share.
As a Hail Mary stopgap, Lazaridis began to poach top executives from rivals, assemble a new marketing team, and look for acquisition targets, culminating in its buyout of QNX Software Systems, maker of a mobile operating system for automobiles and medical devices. RIM was struggling to keep up with iPhone and iPad, and it saw QNX as the backbone of its own tablet, dubbed the PlayBook.
“[Lazaridis] came in to that sales meeting about as arrogant as you could be,” a former RIM executive told Fortune. “The feeling at that time was that we were substantially behind Apple in the smartphone category. But he had no doubt that we would succeed given the products we had coming.”
But the same issues that plagued RIM’s smartphones sunk the PlayBook — and it was a disastrous flop. The barriers between work and home had already been knocked down.
Early on in RIM’s history, the co-CEOs agreed to split up tasks: Lazaridis on engineering and Balsillie on business — and it worked out well. They shared a room, then separated into offices next to each other, then moved to buildings a 10-minute drive apart to be closer to their respective teams. They still kept in contact with one another, but the unique, dual-headed leadership structure had grown to instill a deep-rooted dysfunction in the split-personality company.
Due to their unique teamwork style, Lazaridis and Balsillie preferred consensual decision-making, and the process often included bringing vice presidents on board with a proposal. According to Canadian Business, former employees said plans would only continue ahead with widespread agreement. Consensus worked well in RIM’s startup days, but it adds confusion in a large corporation with multiple vice presidents involved.
“Gaining consensus to get something done was next to impossible,” a former employee told Canadian Business. “It just stalls all innovation.”
One former employee said the problem became so bad that internal deadlines weren’t taken seriously. And as a launch date quickly approached, multiple teams working on the project would realize they would miss the deadline — but nobody spoke up, under the belief that another team was even farther behind.
“Everybody just kept their mouths shut, waiting for somebody else to break,” the former employee told Canadian Business. Since those teams weren’t fully communicating, executives who oversaw them had little idea to the source of the problem.
Amid its turnaround plans, Lazaridis concentrated on the comeback device to run on its next-generation QNX platform, dubbed BlackBerry 10. So the QNX group reported directly and solely to Lazaridis, bypassing Balsillie and other top executives, which rankled management, according to the Wall Street Journal. Meanwhile, Balsillie, to buy the company more time, boosted short-term revenue by striking up licensing deals that allowed carriers and smartphone makers to piggyback off RIM’s proprietary technology, like its secure network and BBM messaging service.
In theory, the strategy seemed sound. But the different teams under them often clashed with one another. And in 2011, all those issues culminated into a train wreck of a year, almost too painful to list: the PlayBook flop, BlackBerry 10 delays, massive network outages, followed by its largest wave of layoffs.
As RIM spiraled downward, blame and tensions escalated within the dysfunctional company. By 2012, with shares at an eight-year low, the board, led by Lazaridis and Balsillie as co-chairmen, decided to end their two-prong structure, agreeing to step down as CEOs.
“The CEO structure worked well for many years and allowed each of the co-CEOs to focus on their areas of strength,” RIM said in a statement.
Soon after taking the helm, Heins, a Lazaridis lieutenant, scuttled Balsillie’s licensing strategy to focus on a streamlined portfolio of BlackBerry 10 phones. Then, he brought in outside talent to break down the separate internal kingdoms. But by then, RIM had missed the paradigm shift. The company had ignored the pleas of executives within the company to change and now, it was too little, too late.
In the smartphone market, a year is an eon, and the years Lazaridis and Balsillie spent with their heads in the sand created a gulf between RIM and its consumers. Now, the former smartphone giant — who anticipated and pioneered the concept of mobile e-mail — finds itself on the selling block, carving up for its assets in patents.
According to the Wall Street Journal, financial players like Bain Capital and Canada Pension Plan Investment Board are expected to bid, as well as Asian PC and smartphone makers like Lenovo.
“We believe that the PC industry and the mobile phone industry will continue to consolidate,” Yang Yuanqing, Lenovo’s chief executive, told the Wall Street Journal. “If a target or deal is consistent with [our] strategy, we would take the opportunity.”
Prem Watsa, CEO of Fairfax Financial Holdings and RIM’s largest shareholder, resigned from BlackBerry’s board, citing “potential conflicts that may arise during the [strategic-alternatives] process.” Many view the move as a signal he also intends to bid on the company.
Regardless, a deal is far from certain, but if one were to emerge, it will likely involve multiple buyers, each taking a piece of RIM’s once-dominant core business units — hardware, servers or messaging. It’s an ignoble end to a company that once transformed and dominated the smartphone market.
The story of BlackBerry is one as old as David and Goliath. Small, yet noble, Lazaridis and Balsillie outwitted larger, slower rivals in Motorola and Palm. But after they slayed them, RIM grew so big they had lost their essential hunger. They became Goliath — complacent, and then blind to the shifts in the landscape. Then, Apple and Google arrived.
Product lines expand and shrink and companies rise and fall faster in the technology than other industries. And sooner than later, another more nimble David will likely emerge to challenge Apple and Google.
But for RIM, and Lazaridis and Balsillie, the idea of “e-mail on a belt,” whether from a BlackBerry, iPhone or Android, opened up all of human knowledge, available to you with a few taps, in the palm of your hand. Failing to understand the full ramifications of their own innovation, though, was their downfall. ♦