Losing the Signal: The Spectacular Rise and Fall of BlackBerry (20 page)

While Lazaridis chased a new path with Project Storm, Balsillie pursued a once unthinkable opportunity in a northwest Chicago suburb. Schaumburg, Illinois, had been Motorola’s home base since 1976, to accommodate its expansion into communications equipment, pagers, semiconductors, and Quasar televisions. Its greatest success came in the 1980s and 1990s when it parlayed its pioneering cellphone technology into a global powerhouse, earning dominant market shares in North America, Asia, and Europe. By 2006 cellphones accounted for two-thirds of Motorola’s $43 billion in revenues. The glory days, however, didn’t last. Preoccupied with internal turf battles, Motorola’s “warring tribes” had missed threats posed by BlackBerry and iPhone. It had focused most of its attention on sleek phone designs, such as the ultrathin Razr, failing to grasp that software-powered smartphones were the future. Motorola “didn’t have the DNA or the people” to understand the software, former CEO Ed Zander told
Chicago Magazine.
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By the time Balsillie came calling in the spring of 2008, Motorola was under seige.

Motorola’s core mobile device sales were rapidly shrinking, tumbling nearly 40 percent in 2008 from the year before to $12.1 billion. Operating losses in the group, nearly doubled to $2.2 billion in the year, a humbling decline that prompted cantankerous shareholder activist Carl Icahn to wage a noisy battle to dismantle the company. Motorola’s misfortunes, Icahn complained in a public letter to shareholders, were the legacy of “blunders” by management. Under pressure, CEO Zander left the company, and its new chief, Greg Brown, was directed by Motorola’s board to explore a sale of its mobility business. When RIM got an overture from the U.S. company’s investment bankers, Balsillie and RIM’s senior executives jumped at the chance to acquire the struggling mobile division. Despite its market woes, Motorola had a treasure chest of assets. Its cellphone operations and global market channels could help RIM keep pace with runaway BlackBerry demand. Motorola phone hardware could be repurposed with BlackBerry operating systems and software. If a deal could be worked out, RIM would have more clout to face Silicon Valley rivals.

What Balsillie prized most of all was Motorola’s vast arsenal of intellectual
property rights. There were an estimated seventeen thousand issued mobile patents, most of them for dated cellphone technology that was more valuable in the legal arena, where RIM and its competitors faced a constant onslaught of patent lawsuits. RIM’s dealmaker was obsessed with intellectual property after the emotionally scarring NTP war. He lobbied governments on both sides of the border and spoke to business groups to push for reforms that might prevent the legal brinksmanship that nearly flattened RIM. Washington and Ottawa were receptive, but progress was slow. In this vacuum, tech companies strengthened their legal rights by acquiring patent collections from struggling rivals. With Motorola’s patent chest, RIM would hold a much stronger hand against patent trolls and competitors alike.

Balsillie and senior RIM executives and bankers met frequently in Schaumburg with Brown and his team during the spring and summer of 2008. Balsillie initially believed the takeover would happen. Motorola was under enormous pressure from investors to sell its mobility business. Motorola’s weakened condition did not prevent it from slapping a rich price tag on its mobility unit. Brown, according to people familiar with the talks, wanted $10 billion for the money-losing division. The asking price, billions more than RIM was willing to pay, didn’t include patents. All Motorola put on the table were dated factories, weak phone products, and a bloated staff. After studying Motorola’s books, RIM concluded the division could only survive if thousands of jobs were eliminated, a mass execution that would be left to RIM. “We didn’t want all these people, but they said, ‘That’s your problem,’ “ remembers Balsillie, who, in the end, opposed shouldering what he considered “a hell of a burden.”

After six months of negotiations, talks ended in August. For Motorola, the missed opportunity was devastating. With no buyers and a deepening global financial crisis, Motorola went into a tailspin. Mobility sales tumbled further and the company cut another 10,000 employees, reducing Motorola’s total employee count to 60,000 from a peak of 150,000 in the late 1990s. Balsillie walked away believing Motorola Mobility was worth little more than its patents. He would later regret undestimating RIM’s long-standing adversary.

There is a small white building on Columbia Street, close to the University of Waterloo, where BlackBerrys were sent to be tortured. Beatings took place in
a concrete-floored lab with a white, corrugated-steel ceiling, from which pipes, wires, and row after row of high-voltage lights hung. This was where RIM’s quality assurance team tested the limits of new BlackBerry models. Phones were thrown in swirling industrial tumblers, shaken by robotic arms, dropped on cement, and subjected to extreme temperatures. Afterward, a confidential report on phone flaws was circulated to product managers and executives. The meticulous attention to quality resulted in a low phone return rate, just 3 percent.

In the summer of 2008, the quality assurance team was itself a target of abuse. RIM had to ship hundreds of thousands of Storm phones to Verizon and Vodafone. That was a problem because the new phone kept getting failing test grades. The floor of the quality assurance lab offered grim proof of Storm’s fragility: shards of glass and parts everywhere. The phone’s hardware engineers rejected the test findings, however. The problem, they insisted, was the quality assurance team. The pneumatic pistons that repeatedly poked Storm touch screens were too rough. These phones were not traditional BlackBerrys encased in hardy metal and plastic—they were glass-covered. Storm had to be tested by humans, the engineers insisted. So they pulled in University of Waterloo students to test the phones in the quality lab. The dazed students sat in chairs repeatedly poking the glass screens of test phones for hours. The screens survived the rhythm of human touch, but other problems soon became evident.

Storms frequently crashed. The touch screen, which hovered over a hidden dome to allow digital menus, icons, and a keyboard to be poked and clicked, was stiff, cumbersome, and unreliable. Storm was specifically designed to overcome the iPhone keyboard’s biggest flaw. Millions of Americans dispatched botched, often comical messages because of iPhone’s unreliable, seemingly subversive autocorrect function. Type the word “pens” and “penis” might appear. “Your dad and I are going to Disney” might turn into “Your dad and I are going to Divorce.” Storm was designed to eliminate this annoyance with a glass screen that activated BlackBerry software only when a user clicked down on the screen. The floating screen, however, became less reliable the farther a user’s finger moved from the center. Poke the letters
a
or l, letters at the opposite end of the keyboard’s home row, and the activation signal grew so weak that the phone’s software sometimes misunderstood the command and responded with the wrong letter. “It needed work,” Craig McLennan, a RIM sales vice president who oversaw the Verizon relationship,
recalls thinking when he got his hands on the device for the first time in summer 2008. “It wasn’t ready for game time.”

RIM insiders weren’t the only ones to find fault with Storm. RIM handpicked a few loyal customers to give the company feedback after testing early versions of the phone. One was Alexander Trewby, a vice president of mobile development with one of RIM’s largest clients, Morgan Stanley. The Storm phone Trewby received in the spring of 2008 lasted an hour. “It just turned off and then we could never turn it on again,” he says. When he finally got a Storm that worked he was surprised how much he disliked it. “From a hardware perspective, it was an automatic fail,” says Trewby. “With the iPhone, where you tapped the screen, it was just a much more elegant solution, as opposed to physically pressing something and waiting for the click. The Storm felt a lot more machine-like, more mechanical, as if it was less electronic, less done by sensors. It was very much about hardware. It wasn’t about software. We knew straight away it felt it was a wannabe. It was not as visionary, modern, as fun to use as an iPhone was. The device was dead on arrival.”

More shocking to Trewby was Lazaridis’s reaction when Trewby raised concerns about Storm at a private event for corporate customers during a BlackBerry conference in Orlando in May 2008. Lazaridis glared at Trewby, whom he knew, and then turned to an aide and complained: “I thought there weren’t going to be any press in here.” The
Wall Street Journal
that day had broken the story of Storm’s impending arrival, enraging Lazaridis, who hated seeing BlackBerry product details routinely leaked to tech blog sites. But his response was as troubling to Trewby as Storm’s faults. Lazaridis had turned to Trewby in the past for his thoughts on new BlackBerry features, and now he was treating him like a stranger. Lazaridis seemed to be in such denial about Storm’s flaws that he was shooting the messenger. A RIM executive wrote Trewby to apologize for the CEO’s reaction, but the damage was done. A huge BlackBerry fan, the London executive began doubting the Canadian company. “It gets you scared because you realize they’re slipping,” he says. “His back was obviously up.”

RIM’s founder worked closely with software and hardware teams to oversee the integration of the new touch screen with the company’s existing software. It had been a problematic marriage from the beginning because the poke-and-click touch screen was so unreliable that it activated the wrong responses unless its software was in good working order and various components were assembled with care. While Conlee pushed far-flung foreign and
domestic parts suppliers and contracted manufacturing companies to stay on schedule, Lazaridis fended off complaints from company veterans begging for more time. Quality shortcomings forced RIM to delay delivery four months past the initial June deadline. Problems persisted and soon the October ship date looked impossible.

The first phones rolling off production lines suffered from what RIM engineers called “high infant mortality rates,” a greater chance of failing in early life. The problems persisted as the Christmas selling season approached. If the phones were not shipped before late November, there was a good chance Verizon would walk from the contract. RIM senior executives agreed it was better to ship a flawed product than no product at all. To engineers, Lazaridis repeated the same mantra: “We’ve bet the company on this. It’s critically important. We have to get this done.” When problems persisted, Yach says Lazaridis grew frustrated. “He was almost incredulous that it couldn’t be done,” he says.

Lazaridis’s conviction that RIM could deliver a new phone within a year came down to faith, a deep abiding confidence in himself and his company. A follower of the Christian Science movement and Emmet Fox’s sermons on the transformative power of human will, Lazaridis believed people could, if sufficiently determined and talented, shape their own destiny. The fabulous success of BlackBerry only cemented that belief. Where would RIM be if not for his and Balsillie’s persistence in the face of countless near-fatal reversals and product challenges? BlackBerry lived because Lazaridis and Balsillie never gave up. Ever. “Mike believes that the mind can will things to happen,” Balsillie says. And Lazaridis always aimed high. He didn’t just want to catch up to Apple. Storm had to be better than the iPhone. “Mike thought of himself as Canada’s Bill Gates. He wanted to beat Steve Jobs,” Balsillie says.

For his part, Lazaridis says the rush with Storm was unavoidable: RIM couldn’t afford to say no to the biggest contract in its history. Besides, RIM’s engineers had done the impossible before, pushing out the Pearl in less than a year while juggling other phone launches. He was confident the magic would work again with Storm. “This is a team that prides itself on pulling off miracles, pulling all-nighters, working hard, solving the most complex problems, getting things done on time, getting things done under the wire. This is a team with a can-do spirit,” he says. At first Lazaridis’s faith appeared to pay off. RIM had assigned a team to hand-assemble Storm phones before they moved to mass production, and the results were impressive. Under expert
hands, the movable screen had been carefully calibrated to react to user clicks. The phones worked flawlessly and Verizon’s executives, according to RIM officials, loved the early samples. It was a different story when the phones were mass-produced by RIM’s manufacturing partners in Mexico and Europe.

Racing by what Balsillie calls “the seat of our pants,” the company pushed Storm out the door in time for Black Friday, November 28, the busiest shopping day of the year in the United States. Verizon and Vodafone had tested and approved the phone, but RIM knew they were shipping an unfinished product. Balsillie remembers the weeks before the launch as a nervous time. After years of high-speed typing on BlackBerry keys, Balsillie was dismayed at Storm’s delayed response to touch-screen clicks. “It was slow,” he says, like someone walking with ten-pound bags tied to each leg. When he took his concerns to Lazaridis, Balsillie says: “Mike said he’ll fix it. You trust him.” Other employees were not so optimistic, some privately referring to their new product as a “shit storm.”

Critics were merciless about RIM’s new offering. “Head-bangingly frustrating,” said
New York Times
columnist David Pogue in a scathing critique two days after Storm went on sale.
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“Storm had more bugs than a summer picnic,” he wrote, going on to list a litany of complaints: “Freezes, abrupt reboots, nonresponsive controls, cosmetic glitches.” Raising a question quietly asked by numerous RIM employees, the
Times
reviewer concluded, “How did this thing ever reach the market? Was everyone involved just too terrified to pull the emergency brake on this train?”

British actor and gadget reviewer Stephen Fry was similarly caustic. A fan of Apple products and BlackBerry’s Bold, Fry complained about the absence of wi-fi, a free local network application available on iPhone. As for Storm’s touch screen, he described the “judder, lag and jerk” of the click-screen keyboard as “a painful horror.”
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He compared typing an e-mail to “an antelope trying to open a packet of cigarettes.” Storm, Fry concluded, “is the Edsel of smartphones, an absolute smeller from top to bottom.”