Blackberry started in digital ads. “It was late 1989, five years after Lazaridis and Doug Fregin founded RIM. Their inaugural Budgie communicators never took flight because businesses didn’t share the designers’ excitement about the bulky digital advertising system. At the time RIM was surviving by designing electronic components in a berth above a Waterloo bagel store. Cash was so low that Barnstijn was sometimes paid in RIM stock.”
The founders had very different styles. “Under Brock’s leadership, no one had titles, and employees pitched in to solve problems. In return Brock sent flowers to wives when husbands worked weekends; hired babysitters if a parent employee was needed after hours. When Balsillie arrived, he asked for the tile executive vice president and made it his business to tell other managers how to do a better job.”
Blackberry won by focusing, not building a do-it-all PDA. “To chase this dream, RIM would develop a signature wireless product. That product, Lazaridis was convinced, was a mobile message device. Not the expensive and awkward Newtons and Simons that belly-flopped, but a small, simple, inexpensive device that did one thing well: send and receive device messages instantly.”
Blackberry almost died because it was dependent on one supplier. “I think we’re dead,” he said. “They’re going to pull the plug on Mobitex. We have two weeks.” Balsillie got the “dead” part. Products designed for Mobitex generated the bulk of RIM’s sales: software, modems, and the Bullfrog. RIM was so committed to the network that a new project was underway to make a more sophisticated two-way pager. Balsillie was cautious about developing another device after Bullfrog’s poor debut. Costs were rising faster than sales; it would be reckless to make another big bet. Hobbs’ call changed the stakes. This was no time for caution. RIM had to convince BellSouth that RIM had a game-changing product.
Doing only messaging allowed for other benefits. “A single AA battery lasted nearly a month, and its larger screen was easily navigated with a trackwheel, a concept Lazaridis borrowed from a VCR remote control. As for the keyboard, the answer was not ten fingers, but two thumbs. Even the clumsiest typist would be comfortable with the device because the small screen above the keyboard allowed users to monitor accuracy.”
People didn’t realize they wanted mobile email. “Handheld wireless e-mail was a breakthrough product nobody knew they wanted. Instead focus group research revealed there was no burning desire by participants to quickly read or reply to electronic messages. If they needed to reach colleagues urgently, a phone call would do.”
People hated email, until Blackberry. “Fabian and Balsillie knew this to be true from watching tapes of focusing groups several months earlier: When moderators described e-mail, viewers grew heavy-lidded. But once focus group participants actually handled the device, every-thing changed. “It takes BlackBerry a few days to grown on you,” Balsillie said.”
The sales team was aggressive. “PageWriter customers racked up massive monthly data bills, and the device’s capacity for exchanging messages didn’t compare to BlackBerry. “Hey do you get e-mail on that?” Klimstra would ask. “How would you like e-mail on your hip for way cheaper and in a smaller package?” McRoberts went further: in presentations, he began flinging the device against walls. “It just became my thing,” he says — an icebreaker to impress skeptical executives twice his age. To their amazement, it never broke through McRoberts sometimes had to chase down dislodged batteries.”
Security was key to the enterprise sale. “RIM’s in-house network gave the company the ability to guarantee the safe passage of every message. RIM designed its BlackBerry system to ensure every e-mail was automatically encoded by an encrypted code when sent. On arrival the message was decoded before appearing in the recipient’s in-box. Every company or organization that acquired a RIM server received customized encryption keys that authenticated and decoded e-mails. Once it could demonstrate and fully explain BlackBerry’s security features, RIM’s relationship with the CIO community changed. Before long, CIOs were allies, not enemies.”
The founders argued in private. “We didn’t contradict each other in from of anybody. It was pretty much the understanding we had. We could close the door and talk, but we made sure we were a unified force in the organization,” says Lazaridis.”
Patent troll strategy. “NTP’s lawyers were veterans of the Rocket Docket. In an impatient court district and before an untrained jury, they understood that cases were seldom won or lost by launching into weighty technology examinations. There wasn’t enough time and the risks of jury confusion were high. A more effective tactic was attacking the credibility of defense witnesses. If they could rattle RIM’s founder they might win over the jury.”
An options scandal hurt. “Altering fixed dates on stock options is legal as long as changes are communicated to shareholders. RIM failed to follow the rule for years. Even worse, RIM’s chief financial officer, Dennis Kavelman, publicly denied company options were backdated when questioned at the company’s annual meeting the previous summer. Two months later, on May 17, RIM announced it was restating all financial statements between 1999 and 2006 to reflect additional stock option compensation charges totaling nearly $250 million. The stock market shrugged off the financial hit.”
The CEO pushed his teams hard. “Did we push the teams too hard?” says Lazaridis. “Probably. Can you show me a company that doesn’t? I’d be hard-pressed to believe you. The pressure jobs put his iPhone team through was worse than anything I ever put on my team. The fact is, that’s how business runs.”
Apple, a lost patent dispute, and options scandal. “Apple, one of Silicon Valley’s most successful companies, was starting to outsmart RIM in the mobile world. A patent war defeat and options scandal had cast a cloud on its management. And the personal relationship between Balsillie and Lazaridis was unraveling. RIM was developing a leadership problem at a time it most needed a strong management team.”
AT&T couldn’t handle the iphone. “By 2009, users of the network-hogging iPhone were squeezing the carrier to its capacity, reducing overall network reliability for all customers. Consumers took to social media to complain about the lousy service and Consumer Reports ranked AT&T worst for dropped calls. The mobile carrier’s CEO, Ralph de La Vega, further rankled customers by warning he would have to start jacking up prices or cap data use. “
Blackberry was losing share; it’s OS was terrible. “Android siphoned away market share and became the world’s leading smartphone platform. RIM’s share of Verizon smartphone sales dropped to 14 percent in the last three months of 2010, from 60 percent a year earlier according to internal RIM data; the drop was pronounced at Sprint (from 63 percent to 22 percent) and T-Mobile (from 60 percent to 18 percent) as well.”
Blackberry Messenger was a sensation abroad. “The most compelling feature driving BlackBerry sales in the developing world wasn’t wireless e-mail but another application that had not been included with devices since the mid-2000s: BlackBerry Messenger. If you had asked me then, ‘Are you going to kill phone calls with this,’ I would have said yes.” BBM messages used little data and arrived instantaneously, making the service a welcome alternative to costly voice calling and text messaging services, especially in poorer countries. In Dubai, young women embroidered their PIN numbers on flaps inside their burqas, turning them out discreetly to encourage men they fancied to BBM them, according to a senior RIM executive.”
Products got cheaper, and Blackberry couldn’t adapt. “With cheap Androids flooding the market, he warned that his company, controlled by Aboumrad’s father in law, billionaire Carlos Slim Helu, would shift much of its business to the Google platform unless RIM slashed its prices. Balsillie concluded that RIM’s hardware business would never recover.”
sammy@blossomstreetventures.com