Losing the Signal: The Spectacular Rise and Fall of BlackBerry (30 page)

RIM’s internal challenges were the talk of Silicon Valley. “They’ve been caught flat-footed,” Jean-Louis Gassée, a Palo Alto venture capitalist and former Apple executive told the
New York Times
in April 2011. “They’ve built a tremendous company; they are people with distinguished backgrounds. They are not idiots, but they’ve behaved like idiots.”
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Internally, the company had become so dysfunctional that once loyal employees turned to blogs to vent their frustrations. A favored outlet was the tech blog
Boy Genius Report,
which had leaked many RIM product details in the past. In an open letter to RIM’s senior management team in June, a writer identified as an unnamed high-level RIM employee began: “I have lost confidence.”
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The writer anguished over internal chaos and delays, lack of discipline and accountability, and called on the CEOs to make drastic changes, including finding “a new, fresh thinking experienced CEO” to replace them. When RIM responded with an upbeat, everything-is-under-control message later that day, the blog was flooded with e-mails from past and present RIM employees about the company’s travails. One complained of “smart, talented and capable people handcuffed” by internal processes that were “destroying the company” and its people. The discontent prompted one online poster to nickname the company “Research in Mutiny.”

All Lazaridis and Balsillie had left to hang their hopes on were PlayBook and, hopefully sooner than later, BlackBerry 10, the phone that would finally deliver 4G and better browsing capabilities. PlayBook was a trial run for the powerful new QNX operating system that would power the BlackBerry 10 phone, then slated for launch in early 2012. If RIM triumphed with PlayBook it would get a second act and a springboard to operate everything from phones to home entertainment systems. Underlining PlayBook’s importance, Lazaridis agreed to leave RIM’s hectic BlackBerry 10 project in early April to promote the tablet on a media tour. BlackBerry’s eternal champion, accustomed to adulatory press, was in for a shock. In Canada Lazaridis had always been able to play to local pride. No more. When
Globe and Mail
reporter Omar El Akkad traveled to Waterloo to visit Lazaridis, he got an unexpected reply after wondering aloud what might happen if PlayBook failed. “Are you Canadian?” Lazaridis asked El Akkad, a Canadian citizen of Egyptian descent. Sweeping his arm toward RIM’s sprawling campus of buildings and nearby research institutes he and Balsillie founded, Lazaridis waved the flag, “Jim and I have
invested a whole bunch in this country and community … gosh look at the success.”

He became even more defensive with U.S. media. When
New York Times
reporter Ian Austen questioned Lazaridis about the company’s negative outlook and shrinking stock price, RIM’s co-CEO seemed breathtakingly indifferent to his shareholders’ tribulations. “Why is it that people don’t appreciate our profits?” he asked Austen. “Why is it that people don’t appreciate our growth? Why is it that people don’t appreciate the fact that we spent the last four years going global? Why is it that people don’t appreciate that we have 500 carriers in 170 countries with products in almost 30 languages?”
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Driven by his confidence in BlackBerry’s destiny, Lazaridis seemed incapable of accepting that RIM was largely the author of its own misfortunes. To him, critics were misguided nonbelievers. “I don’t fully understand why there’s this negative sentiment, and I just don’t have the time to battle it. Because in the end, what I’ve learned is you’ve just got to prove it over and over and over,” he told Austen.

What little capacity Lazaridis had for tough media questioning evaporated by the time he sat down to discuss PlayBook with BBC’s Rory Cellan-Jones in London.
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Fatigued from days of cross-Atlantic travel and frustrated with a faulty BBC camera that required Cellan-Jones to retape the interview, Lazaridis became irritable when the technology reporter shifted from PlayBook questions to a more sensitive subject. Was Lazaridis worried RIM security would be compromised by pressure from India and other nations to pry into BlackBerry messages? “That’s just not fair…. We don’t have a security problem,” RIM’s chief grumbled. “We’ve just been singled out, right, because we’re so successful around the world.” When the reporter pressed again about government interference, Lazaridis grew petulant, offering a rare public acknowledgment of the strain he was under. “We’re dealing with a lot of issues,” he told the BBC. “I think that we’re doing our best to deal with the kind of expectations that we’re under.”

At that point, he’d had enough. “Turn that off,” he said, gesturing to the unwelcome camera. Walking away, Lazaridis gave little thought to the aborted interview. He’d assumed security questions were off the record. Besides, with BBC’s technical screwups he was running late for a plane he had to catch to New York, where RIM would be throwing a launch party the next day for PlayBook. By the time Lazaridis woke up in his Manhattan hotel room the next morning his botched BBC interview had gone viral. “It all went crazy,”
Lazaridis would later say, blaming the network for a conversation he believed was private. “It was quite a blow to his esteem,” says David Neale, Lazaridis’s friend who had been recently recruited to help promote RIM’s products. Neale had breakfast with Lazaridis that morning in New York. “This was a 180-degree swing from a celebrated can’t-possibly-do-anything-wrong visionary to a flawed, failed leader. It was a shocking experience,” he says. For RIM’s directors and executives, the debacle was further evidence that the co-CEOs were losing their grip. Balsillie was butting heads with shareholders and Lazaridis was systematically turning off the media.

“The two of them were so fragile,” says Neale with a sigh.

It was every marketing team’s worst nightmare: weeks before PlayBook’s mid-April launch, RIM’s advertising agencies and marketing staff were staring at empty whiteboards. There was a reason for the blank expanse before them: RIM’s top two marketing executives had bailed and the company had sent its ad agency packing. Balsillie and Lazaridis didn’t like any of the marketing ideas they saw. One campaign was built around the dubious slogan “Amateur hour is over.” Another promotion concept featured Tom Cruise’s profane, horseshoe-bald movie mogul, Les Grossman, from the film
Tropic Thunder.
Grossman, the idea went, would run his sleazy movie empire from a PlayBook. Yet another concept featured a young girl wielding a PlayBook to sell … painted rocks. No, no, no, RIM’s bosses complained. Why couldn’t anyone identify PlayBook’s unique appeal?

The admen didn’t have the courage to answer that question. The problem was simple: Balsillie and Lazaridis couldn’t themselves agree on who their new product was for and what made it special. “Jim was thinking enterprise and Mike knew we had to be consumer,” remembers Neale, who was parachuted in weeks before launch to throw together a marketing campaign. Like everyone before him, he struggled to find a winning idea. No surprise there, according to another RIM official, Patrick Spence, who says no one could identify PlayBook’s unique appeal because it didn’t exist. “There was nothing distinctive about it,” he says today, “[no reason for] people to get excited about it.”

RIM’s biggest marketing challenge was that PlayBook was going after the iPad market with few of the applications found on Apple’s breakthrough tablet,
which controlled three-quarters of the U.S. tablet market. Even more perplexing, PlayBook lacked the very thing that made RIM a global success: e-mail. RIM devotees who prized instant messaging would have to deploy a wireless bridge from their PlayBook to a BlackBerry and wait minutes for e-mails to migrate to the tablet. Yet another problem that you would never expect from a RIM product: the wireless bridge sucked batteries dry within hours. With PlayBook, Lazaridis had broken his own golden rule: waste not, want not. There was none of the specialized media content Tobin had promised to deliver. A final consumer turnoff: the tablet launched with only 3,000 apps, a fraction of the iPad’s 65,000 app arsenal.
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When it came to content and critical functions, PlayBook was a poor alternative to the iPad.

The half-baked tablet presented RIM’s promotions staff with a challenge. Without e-mail, contacts, and calendars, PlayBook was a poor sell for business enterprise customers. That left professional consumers, or “prosumers,” as the target audience—buyers who might be convinced PlayBook was more practical than an iPad toy. “This was the strategy we ended up with given the way the product ended up. It’s all we had,” says senior vice president Jeff McDowell. By the time Neale was called to the rescue, his team had about four weeks to come up with a concept and deliver three television spots. The results were as hazy as the product itself. Bland ads showcased the few technology advantages PlayBook had over iPad: a Flash player and multitasking operating system. The pitch line was appropriately open-ended: “Why can’t every tablet do this?”

Few would remember RIM’s PlayBook campaign and tech critics could barely muster the enthusiasm to review the flawed tablet. Warning readers against buying PlayBook, the
Wall Street Journal
’s Walt Mossberg summed up the frustrations of BlackBerry fans everywhere: “I got the strong impression RIM is scrambling to get the product to market.”
New York Times
critic David Pogue was less generous: “You read that right. RIM has just shipped a BlackBerry product that cannot do e-mail. It must be skating season in hell.”

Making matters worse, some of RIM’s long-standing carrier partners hated the tablet. By bridging PlayBook to BlackBerry phones for Internet access, RIM aimed to save consumers the cost of a separate wireless data plan. Customer savings, however, meant lost revenue for RIM carriers, none of whom were eager to see PlayBook succeed without the extra data plan. AT&T refused for months to certify PlayBook for sale to customers. Behind the scenes,
the carrier made a number of demands, including compensation for lost data revenue. “AT&T was mighty harsh,” remembers Balsillie. “It was a messy time.” Messier still because RIM’s only other sales channel, consumer electronics stores, were ill-prepared to sell the devices. RIM shipped PlayBooks to major retail clients, such as Best Buy, which had preserved premium display space for the new product. Unfortunately, RIM had neglected to create a demo program to showcase and explain its latest product. With no helpful presentation on the screen of the device, shoppers were left to rummage around PlayBook programs on their own. Countless PlayBooks were immobilized after customers armed the devices with passwords, which the sales staff couldn’t unlock. “This happened hundreds of times,” says McDowell. Batteries were another headache. They drained so quickly that display tablets conked out, a problem some stores remedied by plugging what were supposed to be mobile PlayBooks into electrical outlets.

As PlayBook troubles piled high, the public veneer of RIM’s unified leadership began to crack. During his ill-fated media tour, Lazaridis insisted, as he does to this day, that PlayBook’s awkward e-mail bridge was a practical, money-saving solution for customers. Balsillie, however, realized the company’s new product had none of the features valued by BlackBerry’s loyal customers. In the middle of the first week of the product launch, Balsillie made an astonishing pronouncement to the
Wall Street Journal.
Addressing consumer concerns about PlayBook, he said, “We will have if you want [direct e-mail access] within … sixty days.” In addition to undermining his partner, Balsillie threw RIM engineers for a loop. They’d have to scramble to get native e-mail up and running on the PlayBook.

From conception to delivery, the PlayBook launch was an unqualified corporate fiasco: production teams were out of sync; the product itself was rushed; its marketing strategy, one of the company’s biggest, was a disaster. RIM’s CEOs weren’t even reading from the same script during public appearances. “I saw a lot of confusion,” said Larry Conlee, who returned briefly to RIM in mid-2011 after PlayBook’s launch to relieve Don Morrison, then undergoing treatment for prostate cancer. “It seemed all parts of the company had problems. I was shocked by the degree of it.” PlayBook was the manifestation of RIM’s internal problems—“a crippled product” that should never have shipped, Conlee says. Had he been at the company earlier, he says, “I probably would have laughed first and yelled second. ‘What do you mean you want to take e-mail off?’ “ When he read through internal records and met
with team leaders, Conlee was dismayed to see how RIM had devolved from a hardworking army of team players into splintered squads of finger pointers. No one took ownership for PlayBook’s failures. “It was just …” Conlee pauses, thinking back to the grim summer of 2011. “Chaos is a good word.”

Lazaridis and Balsillie believed they had time to set their floundering company on a more profitable course. Overseas sales were strong and it seemed no one could touch its core market, with BlackBerrys outselling iPhones ten to one among business and government users.
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The other advantage was that RIM had no debt. By 2011 it was sitting on nearly $3 billion in cash and investments, enough money, the CEOs agreed, to buy RIM time for a turnaround. Their visions of saving RIM, however, were so diametrically opposed that they further polarized a company that was becoming incapacitated by internal strife.

Lazaridis believed the solution lay in the new BlackBerry 10 smartphones. His focus was on overhauling RIM’s operating system to be more competitive with Apple and Android smartphones. Despite the market failure of PlayBook, the “flawless” performance of its QNX operating system promised to sweep in “a renaissance for the company,” with a powerful new platform for BlackBerry 10 devices, Lazaridis says. The new QNX-based smartphone, originally expected for 2011, would be ready for release by early 2012, he told the board.

Balsillie emerged from his strategic fog with another plan. His vision of a new software-and-services business had evolved to the point where he now believed it represented a more prosperous future for RIM than turning around its flailing handset business. Lazaridis had asked Balsillie in early 2010 to find global partners for pending BlackBerry 10 software. Balsillie embraced the idea. Dreaming big as always, Balsillie and director Barbara Stymiest approached Felix Chee, the Canadian representative of China Investment Corp., at a dinner for U.S. president Barack Obama during the G20 summit in Toronto in June 2010. Chee had made a fortune for the Beijing-based fund by placing contrarian bets on Canadian resource companies caught out by the financial crisis. He saw the potential for another score when Balsillie and Stymiest asked if CIC would back a licensing venture offering Chinese phone makers rights to BlackBerry 10 software. Chee thought they would seize the
chance to leap past foreign firms such as Nokia, which dominated domestic handset sales.