Losing the Signal: The Spectacular Rise and Fall of BlackBerry (16 page)

Nokia would not start developing in-house e-mail programs for its smartphones for at least another year. In 2006, Kuusisto bumped into Nelson at an industry conference. Nelson, who no longer worked at RIM, confirmed Kuusisto’s suspicions about RIM’s ulterior motives. “I was glad he confessed what was going on,” says Kuusisto, who saw his career at Nokia stall after the fiasco. Nelson apologized for the rough play. “I did feel bad about the impact on him. I knew it would have cost him a great deal of career harm,” he says. Other BlackBerry Connect partners did not fare much better. About forty different Connect phones were designed and none sold well.

For its part, RIM accomplished what it wanted from Connect. It distracted big competitors at a time when they might have bypassed BlackBerry. It also validated Lazaridis’s prediction that the Connect phones could not come close to matching BlackBerry security and reliability. Balsillie makes no apologies for a strategy he agrees “was a complete, pure bum steer.” It was the kind of “stealth tactic, pure
Art of War,
” he says that RIM needed to protect its core business. His tactics, he says, were no different than the cold-blooded maneuvers of Silicon Valley giants. “Show me how else you build a $20 billion company.”

Employees at RIM’s Waterloo offices had stopped working to watch an American Thanksgiving television tradition. It was November 24, 2003, and one of the world’s most influential consumers was about to reveal her shopping picks for the Christmas season. Oprah Winfrey’s staff had worked her audience into a frenzy in her Chicago studio. There was hooting, bouncing, and, on some faces, tears. Every guest would walk away with gifts that the queen of daytime
television was about to unveil during her annual
Oprah’s Favorite Things
special. Winfrey’s annual endorsements carried so much weight that stores often emptied of products she trumpeted.

“I’ve done your holiday shopping for you,” Winfrey announced as she walked into the boisterous studio. The audience grew so excited when she arrived that Winfrey had a crowd control problem. “Okay. Okay. Okay. Let me get your attention. Okay. Everybody, everybody, let’s just all breathe together. Take a deep breath.”

Finally the moment arrived that RIM’s executives had been alerted about days earlier: “My new favorite thing … oh, I love this so much,” Winfrey said. “I cannot live without this. It’s with me everywhere I go. It’s called a BlackBerry. It’s literally changed my life.” Back in Waterloo, the cheers were almost as exuberant as those in Chicago. “There was a lot of cheering, smiles, and excitement,” says sales vice president Patrick Spence. “It was awesome,” he says, the “flashpoint” at which RIM branched from corporate and government customers to the broader consumer market.

RIM had been eyeing the lucrative consumer market ever since it launched BlackBerry in 1999. At first, the small company was overwhelmed with corporate demand for the device. When it had more time and resources to focus on small businesses and consumers in the early 2000s, it faced another obstacle. BlackBerry e-mails operated on Windows and Lotus programs, expensive software that few individuals or small businesses used. Most consumers used free Web-based e-mail services such as Hotmail and AOL Mail. RIM did not have the same capacity to replicate these e-mail services on BlackBerrys as it did with Windows and Lotus programs. It solved the problem in 2002 by acquiring TeamOn.com. The Seattle-based start-up had developed software RIM needed to allow phone users to fully access a variety of Web-based e-mail, calendar, and contacts accounts.

The BlackBerry Quark model that Winfrey applauded on her show was the first BlackBerry to carry TeamOn.com software. The handset was also more stylish than the boxy, no-nonsense BlackBerrys so popular with business professionals. Sharp corners on previous devices gave way to curves, new colors replaced the solemn black case, and the device came with a color screen. Thanks to improvements in the technology, the Quark performed twice as fast and had twice the memory of previous BlackBerrys. An improved production process meant it was also faster and cheaper to make than its predecessors.

But while the new-generation BlackBerrys had full voice capabilities, few customers were using them for phone calls, and carriers stuck the devices at the back of their stores with other data products. There was a simple reason: people were embarrassed to use BlackBerrys as phones. “The form factor was weird,” says Jason Griffin, RIM’s chief product designer. “It was a calculator, a piece of toast. You’d hear these comments in our research. People didn’t feel comfortable drawing attention to themselves holding up a device that was so wide. But they loved the BlackBerry. There was a huge difference between holding it in front of you and typing and holding it to your head.”

Internally, a debate had raged for a couple of years: was the BlackBerry a phone or not? The customer insights prompted “a mental shift” inside RIM, says Griffin. Of course it was a phone. Now it had to look more like one to gain acceptance from customers, says Dave Castell, who was now in charge of RIM’s fledgling retail business.

Once again, Griffin realized he’d have to strip keys from the BlackBerry so it could fit its new form and function. Griffin dusted off a concept he had tinkered with years earlier: squeezing two letters onto a single key and cutting the keyboard’s size in half. To make the design work, RIM developed a “predictive” software program that could guess which of the two letters on any key a user intended to type. The idea initially met with resistance internally, Griffin says, but the program worked surprisingly well. More importantly, Lazaridis embraced it. “It would have died if Mike hadn’t pushed it through,” says Griffin.

The new BlackBerry was called Charm. It was about 20 percent thinner than the Quark and a bit longer. With only five keys across the top and numbers positioned prominently in the middle of the keyboard it still looked like a BlackBerry—but much more like a phone. That convinced carriers to place the new BlackBerry at the front of its stores, next to the Nokias and Motorolas.

With more consumer-friendly BlackBerrys, RIM’s sales began to soar. RIM logged its millionth BlackBerry subscriber in February 2004. It hit 2 million nine months later, and 3 million six months after that.

RIM’s consumer ambitions opened a new line of conflict with carriers. They balked at paying RIM the same $10 monthly service for consumers that it
charged business users. RIM struck a compromise by lowering the monthly fee to $8.50 for corporate customers and pushing consumer fees to as low as $5. Another point of friction was RIM’s push to add new services for consumer BlackBerrys. Smartphone makers sought deeper ties with retail buyers by adding ring tones, games, Web browsers, and other applications to their phones. Carriers, however, wanted this business to themselves. If they couldn’t sell applications within their “walled gardens,” carriers worried they would be reduced to mere utilities or “dumb pipes” carrying data and voice traffic.

Nokia learned the hard way just how ferociously carriers could defend their turf. In the late 1990s the Finnish phone maker launched Club Nokia, a Web-based portal that allowed customers to buy and download ring tones. It expanded the club in 2000 by partnering with Amazon.com so Nokia customers could shop online for phones. Nokia’s mobile phone president, Matti Alahuhta, predicted Club Nokia was at the forefront of a wireless shift so seismic that by “as early as 2003 the number of mobile devices capable of Internet access will exceed the number of personal computers connected to the Internet.”
¹
Alahuhta was right about the shift, but it would take years longer and Nokia would not be leading the way. So many carriers balked at allowing Nokia to offer the service on their networks that the phone maker backed off and shuttered Club Nokia. The carriers’ iron grip prompted technology columnist Walter Mossberg to liken them to Soviet ministries.
²
They limited choice, stifled consumer services, and stalled mobile commerce.

RIM had an advantage that Nokia and other phone makers lacked: its own data network. BlackBerry messages traveled through RIM’s in-house network, which was plugged directly into the carriers. The unique connection gave RIM a back door to sneak in services carriers wouldn’t allow. In the mid-2000s RIM began shipping BlackBerrys secretly loaded with sleeper applications. Carriers and customers had no idea the applications existed until RIM sent an alert to BlackBerry users about a software upgrade. Hidden within the digital transmission was a file that unlocked the applications on the device—a Web browser and links to popular instant messaging services. Icons immediately popped onto BlackBerry home screens around the world. By the time carriers realized what was happening, millions of customers were using the Internet and exchanging instant messages on their BlackBerrys.

Initially carriers were furious. Verizon threatened to pull BlackBerry from all retail channels. “I had to speak with probably twenty different carriers about this,” says Aaron Brown, then a director of services in RIM’s product
management group. “But at that point, they realized the truth”: carriers were powerless to turn off the browsing or messaging services. Brown reminded his angry callers about the fine print in service contracts that gave RIM the right to change features and services on its phones “without permission or notice.” After a while carriers stopped complaining. Lucrative data traffic was becoming a multibillion-dollar business for the carriers thanks to the growing popularity of e-mails and instant messaging. “The key was stealthily leveraging and launching, then asking for forgiveness,” Balsillie says.

By 2005, everyone wanted BlackBerry. Carriers who wouldn’t give RIM the time of day two years earlier were lining up; the company had one hundred carriers in the pipeline, and at the rate RIM was going it would take years to sign them all up. Balsillie wanted them all selling BlackBerry within twelve months. For Balsillie it was important to keep everyone happy. If he couldn’t, somebody else would. Balsillie did not want to leave a void in an unserved market for a rival to fill. To speed up the recruitment process, he hired Frenny Bawa, a banking and high-technology executive and sister of RIM’s chief legal officer Karima Bawa. She scaled back the company’s onerous carrier contract process and paperwork; contract implementation times dropped to four weeks from thirteen months. RIM added all one hundred carriers in just over a year, and even more the year after that.

As the company added new customers, it began to lose familiar faces. Long-time RIM employees who had been key to the company’s early success struggled to find their place in a much larger company. Some, like early sales VPs Don McMurtry and Justin Fabian and programmers Gary Mousseau and Matthias Wandel, felt lost and disenfranchised inside a growing multinational machine, removed from or at odds with the CEOs with whom they had once worked so closely. They began to leave, spent and anguished after living through such an all-consuming experience. Some veered into entirely different careers; Fabian, the expert salesman, became a nature photographer, while Wandel got into woodworking. “Over the years, the company has changed itself into a large telecom company, and I was only willing to follow this so far,” Wandel wrote on his LinkedIn page, summing up his fourteen years with the company.
³

Having muscled its way into the MENS Club, RIM, the small new player,
easily outsmarted its bigger, less agile competitors. By late 2005, rivals such as Nokia, Motorola, Siemens, and Palm were working on wireless e-mail-enabled smartphones to stop the march of BlackBerry. They were hopelessly behind, and their latest offerings showed they still had a lot of catching up to do. “None of these devices represented a breakthrough in terms of user experience,” says John McKinley, who was now AOL’s chief technology officer. “They lacked any compelling case to enterprises why they would be a better value proposition to the entrenched BlackBerry user bases.”

BlackBerry’s popularity introduced a new compulsiveness to modern communications. The corporate world had been the first to succumb: Intel chairman Andy Grove told
USA Today
in May 2001 that BlackBerry “should be reported to the DEA” it was so addictive, while Salesforce.com CEO Marc Benioff called it “the heroin of mobile computing.”
⁴

Users were becoming so attached to BlackBerrys they couldn’t put them down. Lazaridis once admitted that he, his wife, and their two school-aged children preferred to chat at the dinner table through BlackBerry e-mails.
⁵
British actress Mischa Barton was tabloid prey after she reportedly ignored her dinner host Lord Frederick Windsor at Kensington Palace to catch up on BlackBerry messages.
⁶
But RIM also counted royals, cardinals, and world leaders among their most dedicated users. The American political drama
The West Wing
captured the zeitgeist in a 2006 episode when deputy White House chief of staff Joshua Lyman, played by Bradley Whitford, misplaced his BlackBerry for ten minutes. “Why would you think it would be okay for me to be cut off from the world like that?” he barked at an assistant. “Electronically stranded for ten minutes—it feels like an hour!”
⁷

Twitchy BlackBerry fans predictably drew critics and withdrawal strategies. A 2006 study by researchers from MIT’s Sloan School of Management warned that chronic BlackBerry users were developing “an inability to disengage from work.” Etiquette experts called for BlackBerry-free zones.
⁸
One Toronto advertising agency penalized employees who overused their devices.
⁹
In Chicago, the Sheraton Hotel offered to store handhelds for guests to allow them to “reconnect with the hotel experience.”
¹⁰

It was as pointless as commanding the tide to roll back. Many users couldn’t even go to the bathroom without pulling out their BlackBerrys, sometimes with disastrous results. A repair service in Houston received a hundred BlackBerrys a week that had been dropped in the toilet. One of the worst offenders was Balsillie himself. Three of his handsets were flushed out of action after
they tumbled into toilets. One of the porcelain drops occurred shortly before he was due to board a transatlantic flight. RIM’s support staff “went nuts,” Balsillie says, loading a new phone before he stepped on the plane. “Boy, was I scolded for that.”