Research, no motion: How the BlackBerry CEOs lost an empire

"Can I move on to the problems you've had in terms of security," asked Cellan-Jones, "your various arguments with the Indian government and, uh, a number of governments in the Middle East. Is that anywhere near being sorted out?"

At the word "security," Lazaridis briefly furrowed his brow. He tilted his head and shifted in his chair. He blinked a half-dozen times, tightened and set his jaw, looked from the interviewer to the camera. As the question finished, he looked down and away. An off-screen voice said, "I'm sorry, Rory" as Lazaridis shook his head, saying, "That's just not fair, Rory."

As the off-screen PR voice asked if there was one more question, Lazaridis spoke up, his voice tight and deliberate. "‘Cause first of all, it's not a sec — we have no security problems. We've got the most secure platform — "

"Why's that not a fair question to ask?"

"Because you said — you implied that we have a security problem. We don't have a security problem," Lazaridis said.

"Well, you have an issue..."

Lazaridis again shook his head and looked down. "No, we don't." He blinked slowly and shrugged his shoulders. "We've just been singled out, because we're so successful around the world. It's an iconic product. It's used by business, it's used by leaders, it's used by celebrities, it's used by consumers, it's used by teenagers. I mean, we're just singled out," he said. "You know," he shrugged again, still grasping the Playbook with both hands, "just because of our success."

"Is that sorted out now? That issue is being dealt with?"

"We're dealing with a lot of issues. And I think that we're doing our best to deal with the kind of expectations that we're under," Lazaridis said.

"And you're confident that — we've got a lot of listeners and viewers in the Middle East and in India — you can confidently tell them that they're going to have no problems with being able to use their BlackBerrys, and you being able to give them assurance that everything is, uhm, secure?"

As the question concluded, Lazaridis looked down. At the word "secure" he glanced off-camera, shook his head, and said, "So, it's over. Interview's over." The PR voice said, "We're up on time." He looked back to his interviewer, still shaking his head. He looked down. "Please. You can't use that, Rory. That's just not fair." Again, quieter: "That's just not fair."

Then he looked up, his voice rising, "Sorry, it's not fair. We've dealt with this. Come on, this is a national security issue." He pointed to the camera and said, "Turn that off." Interview over.

Arguably, Lazaridis had a point, at least about the phrasing of the question. The interviewer wanted to ask about the Indian government's threat to shut down BlackBerry operations in the country unless RIM provided surveillance access to BlackBerry Messenger and email. The stand-off had become increasingly heated, and while Lazaridis may not have expected questions about it at what was ostensibly a product demo, the topic shouldn't have been out of bounds.

But asking about vaguely defined "security issues" struck at a fundamental attribute of the BlackBerry brand, comparable to asking Apple about "usability issues" or Microsoft about "ubiquity issues." Lazaridis reacted to the word "security" as though someone had questioned his life's work — making a secure, portable email device. He, the perfectionist, the born engineer, had done it, and at the questions he looked hurt, confused, and angry. A more restrained (or less invested) CEO would have redirected the question and filibustered with talking points; instead, Lazaridis walked out.

Regardless of whether he had a legitimate complaint, Lazaridis's failure to regain control of the interview made him look petulant. The video also fed a narrative gaining ground among the technology press, RIM shareholders, and even the company's employees. Research In Motion had lost its will (or worse, its capacity) for innovation, the story went; it was a provincial fiefdom reigned over by two out-of-touch CEOs, Lazaridis and his long-term partner, Jim Balsillie. They'd built something great once, and seen it succeed beyond anyone's wildest expectations. But they'd been caught flatfooted by change. Rather than admit they needed help, they dug in, making themselves oblivious to the new, undeniable realities. They had Founder's Syndrome: they were too close to the work, too enmeshed in an outdated paradigm, where smartphones were souped-up pagers rather than handheld computers. It was not a story that promised a happy ending.

In the months after Lazaridis halted the BBC interview, his company suffered a series of blows.

Reviews declared the PlayBook largely disappointing. Despite a solid hardware design, its software lacked the polish of its competitors — surprising given its long gestation. Even more astounding, it shipped without a calendar, contacts, or native email. A promised update would provide those functions, but for Research In Motion to ship a product without its signature feature — email — seemed unthinkable. In its defense, RIM claimed customers wanted a "free" way to link to their BlackBerrys. Balsillie told Bloomberg that complaints about the missing email client were "overplaying one aspect that really isn't a core element that we've seen from our enterprise customers or webmail people," and that users should "stay tuned" for updates. Still, initial sales proved underwhelming, with only late-year discounts of $300 spurring consumers; admitting a lack of demand, the company took a $485 million write-down on its PlayBook stock. In a final insult, the tablet promising RIM's robust security was rooted, thanks to a tool ignominiously named "Dingleberry." The hack allowed users to modify secure areas of the device — areas RIM had to lock down again, only to have to see them re-hacked. The cat-and-mouse had begun.

Coincident with the product woes, employee morale took a hit in July, when the company announced layoffs of 2,000 employees, 10.5 percent of the total workforce: a "cost optimization program." Hiring had been so fast and furious that the move returned RIM to roughly the size it'd been earlier in the year; the company noted that its rapid growth meant "the workforce had nearly quadrupled in the last five years alone." Not only were the layoffs an ominous sign, but digging deeper, it was obvious RIM had brought on thousands of new employees only to lay off an equal number months later. That didn't cast a positive light on its long-term strategies.

Lazaridis was unimpressed. The whole point of a PDA, he believed, was constant connectivity. The Newton required syncing with another computer, making it more a peripheral than a stand-alone device. To its credit, Apple saw the Newton as just a starting point; Sculley and his engineers conceived of it as a platform that would, in time, integrate wireless connectivity.

But like most of the other big hitters working on PDA tech — a list that included Motorola, Bell South, AT&T, and Palm — Apple didn't believe the wireless version was feasible. At least not yet. "From a conceptual point of view, John [Sculley] was absolutely right," former Newton Systems Group chief Gaston Bastiens told PenComputing in 1998. "The infrastructure for two-way wireless at the time was not there; we all knew it was a couple of years away, but it was always part of our platform strategy." The company spent five years and $100 million on the Newton, before Steve Jobs returned and killed it.

Where skeptics of the day, including Intel chairman Andy Grove, saw technical impossibilities, Lazaridis saw an engineering challenge. If current electronics devoured too much power for the batteries of the day, well, he'd optimize them. He believed he could make wireless work, and take it farther than anyone else.

So his company went forward with the Mobitex products. In fall 1996, it unveiled the RIM 900 Inter@ctive Pager, a pocket-sized clamshell device with a diminutive keyboard. It cost $675, but along with the two-way paging, it provided peer-to-peer messaging (complete with delivery and read receipts), the ability to send faxes and text-to-speech messages, and an Internet gateway for email. It was glitchy and a little too heavy, not exactly a stunning success for the company, but it showed what could be done. RIM went forward with its successor, the 950.

Lazaridis had recently hit on the idea of a thumb-typing keyboard, and the patented concept got worked into the 950. That meant faster typing, but another advance proved even more important: always-on email. With wireless connectivity and a superior keyboard, it was the first device that could replace a PC or laptop. And it could go three weeks on a single AA battery, quieting the power-problem skeptics. The rave reviews earned RIM lucrative contracts with, among others, Bell South, IBM, and Panasonic.

But the legions of new fans were using it in the old way: like a pager. Given the name, this was understandable, but Lazaridis and his engineers knew it was more than that. The ampersat in Inter@ctive Pager only hinted at what they considered the device's killer feature, email. In a rare moment of going to the market, rather than waiting for it to come to him, Lazaridis realized the problem. They had the technology. And they were used to talking to people who understood its intricacies, who worked with it every day: engineers and IT heads. But to really take off, their work had to go beyond that community. It needed to be understandable to consumers. In short, it needed marketing.

RIM brought in Lexicon Branding, the marketing shop behind the Apple PowerBook and Intel Pentium brands. Lexicon set out to establish a unique brand, one that would replace the blandly descriptive 950 Inter@ctive Pager with something more dynamic. Pagers were a dime a dozen; this was something different. What was different about it? The keyboard. The keyboard made it more than a pager: it made it a true, professional messaging device. How to draw attention to the keyboard and everything it symbolized?

It kind of looks like a strawberry. The buttons are like little seeds.

No, not strawberry. Straw is a slow syllable, explained Lexicon's resident linguist. This is fast, zippy. "Berry" is good, but we need a different prefix.

BlackBerry.

That approach earned RIM nine million subscribers by mid-2007, adding another million every three months, and partnering with 300 carriers in 120 countries. It was worth $42 billion, coming off a quarter in which its sales had increased 76 percent, topping $1 billion. And the market for corporate email would only grow.

The previous fall, RIM had begun to target consumers. But Lazaridis believed consumers would come to RIM; there was no need for a radical redesign. That philosophy led to the Pearl, the first BlackBerry with a camera and media player. Though many smartphones — from Motorola, Palm, and Samsung — had better cameras and media playback, RIM wanted to increase its appeal without alienating its base. The Pearl was a "prosumer" smartphone: BlackBerry's professional communications capabilities alongside basic multimedia. It launched well, and RIM delivered a steady stream of new versions.

As RIM made its first tentative appeals to consumers, a new competitor waited on the horizon, one that would redefine the smartphone industry.

The iPhone.

Apple, having dropped the "Computer" from its name the same day it released the iPhone, plotted a different trajectory. If RIM wanted to focus on business users, but let consumers ride along, Apple would woo those same consumers with easy-to-use, visually appealing hardware and software — and later, almost inevitably, it would move its way into the business world. A strong web browser and growing app ecosystem left Apple better prepared for always-connected consumers who wanted more than just email.

The differences went deeper than just strategy. Apple was at its core a consumer electronics company headed by a non-engineer; RIM a wireless technology company founded by an electrical engineer. Lazaridis believed in quantification, in the rational world of numbers and formulae. "One of the things that we've really internalized here at RIM," he often explained, "is the belief in the numbers, belief in mathematics, belief in the limits imposed by physics, and the general understanding of physics. If you don't understand the limitations you can't design something that works well within those limitations."

So in thinking about smartphone design, Lazaridis and his company thought about limits. There was the size limit: the phone had to be small enough to be portable, but large enough to be usable. There was the battery life limit: a dead device is a useless device. And finally, there was the bandwidth limit: Lazaridis believed in conserving bandwidth to enable networks to scale. Too many bandwidth-hogging devices would bog down the network — as AT&T came to realize as the iPhone grew in popularity.

RIM designed its phones within limits, and its conservative designs had their appeal. Size and battery life appealed to road warrior professionals using the devices; low bandwidth usage appealed to the people who managed the devices, and to the telecom carriers. Apple ignored RIM's self-imposed limitations, producing an iPhone with less than stellar battery life that (eventually) gobbled up bandwidth. Network utilization was the carriers' problem, not Apple's, and it bet customers would tolerate a short battery life because the phone could do so much.

In retrospect, Apple's strategy seems obvious, and obviously winning. But Steve Ballmer epitomized the prevailing wisdom among many competitors when he exclaimed,

$500? Fully subsidized? With a plan? That is the most expensive phone in the world, and it doesn't appeal to business customers because it doesn't have a keyboard, which makes it not a very good email machine. It may sell very well or not… Right now we're selling millions and millions and millions of phones a year. Apple is selling zero phones a year. In six months they'll have the most expensive phone by far, ever, in the marketplace. Let's see how the competition goes.

And indeed it went.

Even today, though, the consumer-centric model hasn't worked everywhere, as it imagines a particular kind of consumer. The iPhone and Google's Android (which used a similar approach) may dominate in North America, where RIM's market share has dropped precipitously. But even while RIM has started to lose some business and government customers — see Halliburton switching to iPhones, the National Oceanic and Atmospheric Administration moving to iOS, and the US Army field-testing Android — the company has 75 million worldwide subscribers. It touts high growth in France, South Africa, Mexico and Argentina, Indonesia, Saudi Arabia and South Africa, with 61% of its revenue coming from outside the US, UK, and Canada. Over half its hardware growth comes from outside the US. Balsillie's early efforts to spread the BlackBerry far and wide have earned RIM a strong position among heavy texters worldwide, with BBM as a selling point. In countries where carriers don't subsidize phones, price becomes an important factor, as can network usage, depending on how customers are charged. In a way, today's RIM has begun to look like yesterday's Nokia: a worldwide brand with little traction in the US.

But what happened post-iPhone? It's fair to say the iPhone blindsided RIM — as it did Nokia, Palm, and Microsoft, to name just a few. Those companies reacted by retooling their operating systems; Android, still in embryonic form, received a similar revamp. Such radical strategic shifts were necessary to remain competitive, but none of those companies had a strong business investment in their older operating systems. They either had little market share (Palm, Microsoft) or had a potential successor OS in the works (Nokia, moving from Symbian to Maemo).

RIM didn't have those options. It couldn't easily update its aging operating system, but switching to a new OS could mean losing customers — and it would likely take years. And why undertake such a project unless absolutely necessary? There wasn't an immediately obvious business case for changing direction. The iPhone hadn't become a BlackBerry killer. As the first iteration gave way to the iPhone 3G, BlackBerry sales hadn't suffered. In fact, they'd increased. New smartphone users lured by Apple's hype could find reasons to choose either: the more-expensive iPhone had better multimedia features and an elegant interface, but the BlackBerry was cheaper, with a physical keyboard and excellent messaging features. Apple had helped expand the market, accelerating smartphone adoption. Balsillie had predicted as much with customary glibness on the eve of the iPhone's launch. "I've said before they did us a great favour because they drove attention to the converged appliance space," he told analysts. "The attention to it has quite frankly been overwhelmingly positive for our business."

Critics of the company consider that a rose-colored view, and one that RIM took far too long to shake. Balsillie even joked in 2008, "We're a very poorly diversified portfolio. It either goes to the moon or it crashes to earth. But it's making it to the moon pretty well, so we'll stick with it." That metaphor assumes gravity is the only challenge, and that no one else is aiming for the moon. Between 2006-2009, as the iPhone gained market share, Balsillie made three separate bids for professional hockey teams: first the Pittsburgh Penguins, then the Nashville Predators, and finally the Phoenix Coyotes. All the bids failed; in the case of the Coyotes, the bid went to court. In Balsillie's hockey dealings — coming at a crucial time for the company — critics see a lack of urgency. The iPhone had changed things, and RIM was too slow to respond.

The company's first true response to the iPhone was the BlackBerry Bold 9000. It launched in the US in November 2008; software issues and revisions for compatibility with AT&T's 3G network delayed the launch, originally announced for summer. The Bold garnered positive reviews for its brilliant screen and new, smoother fonts; web browsing, however, still disappointed. The BlackBerry Storm was the first keyboardless, touchscreen BlackBerry, and received decidedly mixed reviews. While delivering the expected email excellence, it lacked Wi-Fi and suffered from glitchy, slow software.

Research In Motion remained competitive: it had a respectable market share and in 2009 was named the fastest growing company in the world by Fortune magazine. But it was yoked to an aging OS that had to be compatible with a wide variety of handsets. Apple made one phone, with one OS. Android, too, had a touchscreen-native interface that visually outclassed the BlackBerry's, and it could be adapted to many phones.

In 2010, RIM began to transition away from the BlackBerry OS. Having already bought several other software firms, that year it acquired Canadian firm QNX Software Systems for its OS and Swedish designers The Astonishing Tribe to work on the user interface. The acquisitions would enable RIM's next-generation operation system, which would power tablets and the long-promised "superphones" on which the company continued to work.

It needed to happen. RIM had begun to lose market share — worse, in the long term, it had begun to lose brand cachet. BlackBerry was increasingly seen as an also-ran, not a leader in its class, and it couldn't remain competitive without compelling software. But was new software enough? And was it already too late?

Yet according to Martin, Lazaridis and Balsillie tightly controlled the company's destiny, with few above or below them wielding influence. According to him, not even the board of directors, tasked with protecting shareholders interests, could have forced a change. "If we were to say to Jim and Mike, ‘Well, we're the board and you should go away now,' they would have laughed at us," Martin told The Globe and Mail.

The pair had built a $10 billion company that, in Martin's view, did not have a deep talent pool from which to draw; nor could it recruit a qualified leader from outside its ranks. "I laugh at the vast majority of critics when they say ‘Oh, you should have made this CEO transition, like, four years ago.' Yeah, right — like, to who?" he said. "So we're supposed to hand it over to children, or morons from the outside who will destroy the company? Or should we try to build our way to having succession?" (RIM stock dropped 2.7% following his comments.)

The succession plan, as he tells it, coalesced around Heins only in late 2011. Still, he says, the former co-CEOs felt no pressure to resign; they have full faith in Heins and his leadership ability. In an email to employees, Lazaridis and Balsillie describe Heins as a telecommunications veteran, a physicist, a product developer, and a people manager. They point to his experience in sales and marketing. But most importantly, he is "a passionate believer in what we do at RIM, and brings the rigor and creativity necessary to help all of you do it better and faster." (Research In Motion did not respond to repeated requests for comment about this article.)

So Heins represents continuity, not radical change. The Monday after his appointment he spoke to shareholders and described RIM as an "amazing company with a passionate and loyal global customer base" — a company undergoing a transformation, but with a strong base on which to build. "We're not just a service company," he said, "we run a network, we run services and we run devices and we can create formidable integrated solutions. This is a very unique position in the wireless landscape." Later that week he suggested the possibility of licensing the BlackBerry OS to hardware partners, but dismissed any ideas of breaking up the company. On taking the reins he said, "There’s no need for me to shake this company up or turn it upside down. We are not at a point where we try to define a strategy. That’s done."

Despite the turmoil, not everyone thinks radical change is necessary. "I don't think they need a turn-around," says BlackBerry Planet author Alastair Sweeny. "They just need to stop over-promising and under-delivering. This has been a humbling experience for them. They have to stop thinking they're the center of the universe and get back to serving their customers."

Michael Mace compares Thorsten Heins to two CEOs who did manage to turn around multi-billion dollar companies. "When you add up all those challenges, it's hard to say that RIM just needs to execute better," he says. "This feels more like a fundamental rethink, along the lines of what Jobs did when he returned to Apple or Lou Gerstner's remarkable transformation of IBM. Is Heins a Gerstner? And does he have enough support from the Board to make that sort of change? I guess we're going to find out."

A final analysis comes from the man whose company pulled the rug out from under RIM in 2007. Speaking in late 2010, he said, "They must move beyond their comfort area into the unfamiliar territory in trying to become a software platform company. I think it's going to be a challenge for them to create a competitive platform and to convince developers to create apps for yet a third platform after iOS and Android. With 300,000 apps on Apple's app store RIM has a high mountain ahead of them to climb."

That man, of course, was Steve Jobs.