Losing the Signal: The Spectacular Rise and Fall of BlackBerry (24 page)

Meanwhile, the rush to sell consumer apps exposed one of RIM’s glaring shortcomings: it had never adequately invested in software tools or offered much support to outside developers, which frustrated many who tried to write programs for BlackBerry. “We got caught flat-footed as the nature of app development changed,” says Yach. It had never been a priority because mobile apps had never been a big moneymaker until Apple changed the game. Balsillie initially thought RIM only needed a handful of consumer apps to be competitive. “I didn’t believe in the consumer app game,” he says. “I’ll own that.”

Not only was Apple’s development platform easier to write for, its operating system also supported more vivid apps. BlackBerry’s operating system was based on Java, a computer code that corporate customers liked because it was secure, dependable, and ideal for thousands of no-nonsense business applications like programs for traveling repair service pros. Where it fell short was on graphics: Java took longer to process and was not well suited for highperformance graphics, like 3-D effects on games. “It was difficult to get the app community to rally around the platform, particularly the consumer guys, because the platform really wasn’t built effectively for them,” says Tyler Lessard, RIM’s vice president of developer relations at the time. “It was difficult to build what we’d refer to as sexy apps that had a really great user experience.” As the months went by, the iPhone app store offered tens of thousands and then hundreds of thousands of apps. BlackBerry never managed to attract more than a fraction of that amount.

RIM tried to downplay the lack of apps on its platform, arguing there was a lot of repetition or frivolity out in app world. “We don’t need two hundred fart apps,” Alan Panezic, RIM’s vice president of platform product management, told an interviewer in defense of his company’s smaller app offering compared to Apple’s.
⁴
“For us, apps are all about adding real value to the end user’s life and creating revenue for developers.” But that ignored the fact that some of the most popular apps, including Netflix and Instagram, bypassed RIM altogether.

The same problems that bedeviled app developers also thwarted RIM’s own software engineers as they began to adapt their new Torch browser onto the
existing BlackBerry operating system. It took an agonizingly long time to fix the BlackBerry code to accommodate Torch, and then the browser ran slow—but it wasn’t Torch’s fault. “The challenge we had was that the Torch browser was written assuming it had a fully featured operating system underneath it,” says Yach. It didn’t. Ever since RIM had built its first cellular BlackBerry nearly a decade earlier, it had used a variation of Java to run the device. It was a clever decision at the time: the custom-built Java operating system was so self-contained that RIM could power the entire device with a single computer chip, not two, like most other handhelds. That was a big part of the reason it was so efficient with batteries. The Java system was a versatile workhorse. It worked with different chips and different networks, ran the operating system, supported outside applications, protected the radio from interference, and contained security features that made it perfect for the tasks of its business and government users. “We had always kept costs of devices down and had very skinny operating systems,” said Yach. “It only had what it needed, nothing more. It was small and efficient, but now we needed something else.”

What made the Java system ideal to run a narrowly focused e-mail device left it ill-suited to handle the more complicated functions of a smarter smartphone. The iPhone operating system was based on the powerful software that ran full Macintosh computers. RIM, by contrast, had been patching up the same skinny operating system for years, making it increasingly unwieldy, slow, and long due for an overhaul. The system was so tangled that Lazaridis often referred to Java as “spaghetti code.”

To compete, Lazaridis realized RIM needed more than a browser: it needed a new operating system to support that browser and other features. RIM had to move away from writing proprietary custom-built code and instead use open-source language commonly used by software engineers. He had to open up BlackBerry and invite the world in before outside developers turned their back on RIM for good.

“The challenge went to the bones of the company,” says Lazaridis. “We said, ‘What this really means is we are not positioned for the future.’ And that’s what we had to get to. The tricky part is, how do you take an organization that had been so successful, had literally changed the world, and get them to embrace a whole new platform, a whole new technology, a whole new operating system—literally, a whole new language?”

For Lazaridis, this meant he would be putting RIM through its biggest
transformation ever. He had to reach “a new equilibrium” for the company, and he could see that by the time he was done, he would need a lot fewer people working on software than the roughly five thousand people now reporting to David Yach. “We had no choice,” says Lazaridis. “I told Jim when we started, ‘You realize that very few companies have ever survived a platform change.’ ”

By 2009 another challenger was gaining ground in the smartphone war. The secret smartphone team deep within Google had immediately known it would have to completely change course the moment Steve Jobs unveiled the iPhone in January 2007. Ten months later, Google announced it wouldn’t make a smartphone at all; it would license its operating system, Android, for free to any handset maker that wanted it. There wasn’t much interest initially. Google had to pay HTC millions of dollars to make the first Android phone, the G1,
⁵
which sold poorly after it was released by T-Mobile two months before Storm. Carriers were leery of Google. Like Apple, they viewed the rapidly growing software company with suspicion. Google had entered the bidding for wireless spectrum in 2007, driving up prices for operators that actually needed the capacity. It was a move Verizon CEO Ivan Seidenberg likened in an interview with author Ken Auletta to “wak[ing] up the bears”—that is, wireless carriers. He warned they might “come out of the woods and start beating the shit out of you.”
⁶

But in March 2008, Lowell McAdam, the chief executive of Verizon’s wireless division, left the bear claws at home and visited Eric Schmidt at Google’s Silicon Valley campus for a friendly chat. They agreed to set their differences aside and continue talking.
⁷

After the disappointment of Storm, Verizon was still looking for its Apple killer. “We needed to get in the game,” John Stratton told
Wired
magazine in 2011. “And we realized that if we were going to compete with the iPhone, we couldn’t do it ourselves.”
⁸
Verizon decided to make a big bet on Android. Now it needed to find a phone maker. It turned to the manufacturer that had slipped through RIM’s fingers just months before: Motorola. Shortly after rebuffing RIM’s takeover entreaties in August 2008, Motorola’s new handset boss, Sanjay Jha, declared the struggling electronics company would start making Android phones.
⁹
At the time it seemed like a desperation
move by the fading cellphone maker. By early 2009—as the Storm debacle unfolded—Verizon, Google, and Motorola were working together on a new touch-screen phone to come out for the following holiday season. While Balsillie puzzled over the future of apps, Verizon shook off its past fears and encouraged Google to launch a robust and well-stocked app store for Android.
¹⁰
Google in return agreed to give its entire 30 percent cut on the sale of apps to the carrier. The walled garden RIM had struggled against for years was opening up.

Motorola’s phone had a slide-out keyboard and a full touch screen. It looked cold and unfriendly, so the team gave it a cold, unfriendly name: Droid.
¹¹
After its Storm launch fell short of expectations in fall 2008, Verizon positioned Droid as its anti-iPhone for the 2009 holiday season, backed by a $100 million marketing campaign.

The first time he saw the Droid advertisements in October 2009, McLennan was taken aback. Some commercials portrayed an alien robot invasion. Others boldly declared “iDont,” a play on iPhone that highlighted all the shortcomings of the iPhone that Android addressed, including the ability to run multiple apps simultaneously, take five-megapixel pictures, and allow users to customize the device. “It was bold and muscular,” McLennan says. “I thought it was polarizing, appealing to males, robotic, and macho.”

If the Droid invasion was meant to capture iPhone customers, however, it had a very different effect. Droid did not put a dent in Apple’s roughly 25 percent share of the U.S. smartphone market.
¹²
Instead, Droid immediately muscled away customers from Palm and Microsoft, which saw their collective share collapse over the next year. Before long, Droid was taking a bite out of BlackBerry as well. RIM’s North American sales for the third quarter, which included the busy Thanksgiving sales season, fell 5,000 units below its internal forecast of 6.2 million smartphones. It was a slight miss in an otherwise good quarter and was obscured by its mushrooming international growth. But it was a sign of things to come. The next quarter, RIM fell 652,000 units short of its internal goal in North America. Apple had trimmed RIM’s share of the U.S. smartphone market from close to 50 percent to the low 40s, but it held there until mid-2010, when RIM’s market share started shifting to Android. Google ended 2010 with the top-selling smartphone platform in the United States and worldwide, featured on nearly 80 million smartphones in dozens of countries, up from less than 1 million two years earlier.
¹³
Much of that could be traced to the opening RIM left when it failed to give Verizon
an effective rival to the iPhone two years earlier. “If Storm had worked, Verizon would never have done Droid,” says Balsillie. “When we didn’t do the job for Verizon, they gave the keys to the kingdom to Google.”

If Apple’s arrival and Storm’s failure had left Balsillie in a state of strategic confusion, the ascent of Android made RIM’s situation even more complicated. RIM wasn’t just competing with one or two handset makers, but with dozens, even hundreds—all given a new lease on life by Google’s smartphone platform, licensed for free to any taker. “The game had changed for RIM,” says Balsillie. “We were no longer marching to Pretoria. Now it was about surviving.”

RIM’s sales VP, Craig McLennan, was bracing for another bad meeting with Verizon. Nearly a year had passed since Balsillie had turned down the carrier’s half-billion-dollar demand for the Storm debacle. Now, RIM’s share of Verizon smartphone sales was in free fall, from 96 percent in the third quarter of 2009 to less than 40 percent by early 2010 as the Droid captured a significant chunk of its business. RIM couldn’t afford to make another mistake with Verizon. But as he entered a Barcelona hotel accompanied by his other CEO, Mike Lazaridis, McLennan sensed RIM was indeed about to once again let down the largest wireless carrier in the United States.

It was February 2010 and a delegation of RIM executives was in the Spanish cultural and corporate capital for the wireless industry’s big annual convention, which had uprooted from Cannes several years earlier. Verizon had sent out word to the handset manufacturers: it was investing billions of dollars in the latest network technology, known as 4G, to deliver significantly faster wireless Internet speeds than 3G. The carrier expected to roll out its 4G network at the end of the year and wanted to make sure its handset suppliers were ready.

Unlike rival handset makers, Lazaridis didn’t come to Barcelona armed with 4G device prototypes, but with a physics lecture. He was never shy about teaching carrier executives how network technology worked—Lazaridis often knew better than they did—or explaining how “new” and “more expensive” rarely translated into better performance. If the science wasn’t sound, he’d say so. “One of the things that we’ve really internalized here at RIM is the belief in the numbers … and the general understanding of physics,” Lazaridis
had told an interviewer two years earlier. “The bottom line is that physics rules…. In a high-tech environment, if you don’t understand the physics of your particular industry or your particular technology [or] the limitations imposed by those physics or mathematics, it’s really at your peril.”
¹⁴

He was usually right: the performance of the latest and greatest network technology often fell short of the hype. He’d seen carriers invest tens of billions of dollars to upgrade their networks to 3G, when in his mind 2.5G still sufficed. “BlackBerry worked perfectly on 2.5G. It was all you needed,” says Lazaridis. “So any upgrade to the network to some new technology, from a BlackBerry value proposition, provided only cost, complexity, and delay.” Lazaridis and his engineering team had studied 4G technology and knew how Verizon’s existing system worked. Now he was going to explain to Verizon why they were wrong about 4G.

Verizon Wireless’s marketing vice president, Jeff Dietel, ushered Lazaridis, McLennan, RIM handset boss Thorsten Heins, and the CEO’s chief technology adviser, radio engineer Mark Pecen, into a hotel meeting room where a half dozen Verizon counterparts awaited them.

Lazaridis had no 4G devices to show them. Instead, he told the Verizon team he didn’t think the carrier could pull off its 4G plans. It would be difficult to do the network upgrade based on its existing technology, he said, because that would require its network technology supplier Qualcomm to make a heavy investment of its own. “My message was that I thought that 4G was amazing,” says Lazaridis. “I thought 4G was going to happen. I just didn’t believe there was a need for us to build 4G devices to work [with Verizon’s existing technology] ever. I thought when they go to [4G] they would phase out” their existing technology standard, known as CDMA, in favor of an updated technology better suited to 4G. Lazaridis had long harbored doubts about CDMA and couldn’t foresee how RIM could build a device for such a network. RIM had no existing products large enough to fit the chipsets and antennae required for 4G. It would have to make much bigger devices, and they would burn up batteries quickly and cost $100 more each to produce. “It was an ugly solution. It was big. Lot of parts,” says Lazaridis. RIM had been testing a 4G phone in its lab, but Lazaridis didn’t like its battery performance and had the project stopped.