Losing the Signal: The Spectacular Rise and Fall of BlackBerry (33 page)

The final weeks of the Lazaridis and Balsillie era were surreal. While the board negotiated a contract with Heins, Balsillie and Lazaridis went about their jobs, telling no one, not even their closest colleagues, of the coming changes. They made their last pilgrimage to Las Vegas in early January for the Consumer Electronics Show, the industry’s annual showcase for the latest mass market technology breakthroughs. They met in private with Lenovo’s executive team, led by chairman and CEO Yang Yuanqing, to explore licensing RIM’s phone software to the Chinese handset maker. They sat down with Microsoft’s Steve Ballmer, a longtime BlackBerry admirer. Side by side they glided through the convention, stopping to stare in wonder at Samsung’s arena-sized marketing display for its high-end, Android-powered Galaxy Note smartphone. BlackBerry, Balsillie mused, was still late with its 4G phone
and had only a fraction of the marketing muscle needed to compete with the sprawling Korean manufacturer. Glad I’m almost out of here, Balsillie told himself.

RIM’s board and Watsa blessed Heins as RIM’s new CEO later in January. They shared Lazaridis’s conviction that BlackBerry 10 was the key to the company’s turnaround, and that Heins was the guy to get the product over the finish line. Watsa was so enthusiastic he more than doubled Fairfax’s stake in RIM to about 5 percent, while accepting a seat on RIM’s board. The departing CEOs agreed to remain as directors, with Lazaridis assuming a new role as board vice chairman and leader of a new internal innovation committee. Before he stepped down as CEO he would help Heins with some final housecleaning. Balsillie learned of one of the changes when he says Lazaridis invited him to a mid-January meeting. In a session Lazaridis does not recall, Balsillie says he was surprised when he walked into his partner’s office to find Heins joining the meeting. Why was he here? He was unprepared for the answer. A decision about the China joint venture had been reached, Balsillie recalls Lazaridis saying. After nearly two years of negotiations and more than $30 million of expenses on two China data centers, RIM was pulling out. A nimble tactician who had always been able to spot a roadblock or enemy a mile away, Balsillie was stunned. The parties had already drafted a preliminary agreement and eager partners, including the Beijing fund CIC, were ready to go. Why bail now? Heins, according to Balsillie, warned that the licensing deal would give low-cost Asian manufacturers the upper hand and destroy RIM’s future as a handset maker.

“Hardware is already dead,” Balsillie remembers protesting. Giant manufacturers such as Samsung were the new kings of the smartphone market, and RIM didn’t have the scale to compete in a price war. “All BlackBerry 10 will do is make Samsung rich,” Balsillie said.

Balsillie’s cynicism was blasphemous to Lazaridis, who remained at his core the science wizard from W. F. Herman High School. To his mind, the best technology would win the smartphone battle. Lazaridis responded to his partner’s outburst, according to Balsillie, by turning on him. “Jim, you are killing our hardware.”

Tensions continued to escalate in the days leading up to January 22, when the company was set to announce its founders’ departure. Watsa encouraged the CEOs to show their support for the company by each buying some RIM stock as they exited their management roles. The pair initially agreed to each
buy $50 million worth, but Balsillie, increasingly frustrated with the company’s direction, pulled out days before the announcement. It was left to Lazaridis to be the stock angel by writing a $50 million check. Protective of his legacy, Lazaridis hired prominent Los Angeles public relations adviser Michael Sitrick. It was a surprise choice for a retirement announcement. Sitrick was a bulldog crisis manager who straight-armed media on behalf of troubled celebrities like Paris Hilton and Michael Vick, the NFL quarterback sent to prison for fostering a dog-fighting ring. The veteran spinmaster, who had advised Watsa’s firm in the past, joined a crowded team of public relations advisers trying to put the best gloss on the management shakeup. RIM’s board had already hired New York heavy hitter Joele Frank for public relations advice, and Lazaridis and Balsillie had assigned internal communications staff, lawyers, and directors to oversee the wording of the retirement communique. For all the high-powered help, the message was hopelessly muddled.

A final draft of the handout circulated by e-mail to directors and advisers on January 19, 2012, began with the statement that RIM’s board, “acting on the recommendation” of Lazaridis and Balsillie, had unanimously approved Heins as the new CEO. Much of the remaining announcement praised the leadership and devotion of the departing chiefs and their courage in sacrificing short-term gains for long-term growth by acquiring QNX and its operating system. This was hardly a reassuring message to rebellious shareholders. A board faulted for deferring to CEOs would be seen to have bowed again, this time to their proposed successor, Heins, an insider who shared responsibility for PlayBook and BlackBerry 10 delays. Instead of reassuring shell-shocked shareholders that a new beginning was under way, the company chose to honor the status quo, hailing years of strategic confusion and product failures as courageous long-term vision. The approach did not sit well with at least one director.

“Jesus Christ. What are we doing?” director Roger Martin fumed in a blistering e-mail reply to the company’s directors, CEOs, and advisers. The press release was doomed, he believed, by leading with Balsillie’s and Lazaridis’s recommendation for Heins, as their successor. To his mind, the proposed press release failed to send a clear message that meaningful change was occurring at the embattled company. “We have to remember shareholders are pissed,” Martin continued. “If Thorsten was so fantastic time and time again, why the huge problems at RIM, people will ask? … Let’s stop. Let’s think. Yes, there are persistent storm clouds and threats. Yes, this company is learning to
be a $20 billion company. I get all that. But it doesn’t give us license to stop thinking.”

Martin’s blunt response was not heeded. After a few minor tweaks the press release went out. RIM invited select Canadian and U.S. journalists to Waterloo to interview RIM’s CEOs on Sunday, January 22. Reporters were granted access to Lazaridis and Balsillie on condition they not publish stories until later that evening when RIM announced their resignations. The weekend media embargo is a public relations tactic to limit reporters’ ability to add other voices to controversial news. Critical shareholders and financial analysts aren’t usually available, so reporters have to lean on enthusiastic executives for quotes. In Waterloo that afternoon, business journalists found two remarkably upbeat CEOs. Lazaridis and Balsillie denied rumors of a falling out. They portrayed their resignations as a mutual decision that would give them more time with their families. Both spoke glowingly of RIM’s future with BlackBerry 10. “This marks the beginning of a new era for RIM,” Lazaridis told his hometown newspaper, the
Waterloo Region Record.
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The careful media management did not sway investors. Seeing little of the fresh leadership they wanted in RIM’s executive offices and boardroom, shareholders registered their disappointment on Monday by driving the stock down by more than 8 percent, to $15.56 on the NASDAQ. The new era looked too much like the old era.

Balsillie didn’t last very long in his diminished role. One month after stepping down as CEO, he dialed into a board conference call to listen to a strategy update by the new CEO. Heins and his team had prepared a PowerPoint presentation on Balsillie’s hard-fought quest for the new BBM-based service offering. It had been three months since the ugly confrontation with Monitor’s consultants, and Balsillie had convinced himself he had enough momentum to push his plan over the finish line. His pitches to carriers had yielded some support: senior officials from AT&T and Spain’s Telefónica agreed to support the concept. As soon as Heins began talking, Balsillie realized with spreading alarm that he had badly misread support for his project.

It took only three PowerPoint slides to bury Balsillie’s baby. The messaging strategy, Heins explained, without a hint of regret, would drain too many resources at a time the company was racing to launch BlackBerry 10 phones.
Worst of all, opening BlackBerry’s messaging service to other handset makers would undermine the distinctiveness of RIM’s phones, posing “significant short-term risk” to the company’s handset and service fee revenues. The answer was not diversification, but rather a “double-down” on BlackBerry 10 phones by enhancing BBM services only for BlackBerry customers. Hardware, not software, was the new boss’s mantra.

While Heins spoke, Balsillie, sitting in his home office, angrily scratched his pen across a paper copy of Heins’ presentation that had been couriered to him. He didn’t get it! One of the reasons customers were abandoning RIM was because its BBM messaging service only worked on BlackBerry phones, Balsillie thought. In a world of iPhones and Androids, it made no sense to keep the service closed. Listening to directors’ reactions, Balsillie realized his hard-fought plans were dead. Everyone, even Lazaridis, who initially encouraged the project’s team, was agreeing. “I never got the feeling any of this stuff was baked,” says Lazaridis of the SMS 2.0 strategy. “I was head down into getting BlackBerry 10 out and dealing with those elements of the company that were making money and this other plan was about spending a lot of money.” Like Heins, he was worried it would lead to a huge drop in handset sales. “Any plan that supported the core business made sense and we were in favor of. Any plan that pulled away from that, we had to think twice. If we had decided to adopt that kind of slash-and-burn strategy to gain market share we would have been then faced with a shareholder reaction. It would have been hard for us to say, ‘Look, we’re going to go after this strategy and we believe in the future these large groups of users on an instant messaging service are going to be worth a lot of money.’ Who could have said that back then? Nobody.”

Balsillie was caught off guard. Heins had been quietly undermining his strategy for months by pushing other executives to reject the plan because it would hurt handset sales. To Balsillie’s horror, the board bought the “flawed logic … hook, line, and sinker,” Balsillie says. He hung up the phone and walked out of his office to find Peric. “I’m resigning from the board,” he blurted. That night he decided to sell all his RIM shares after the company released its quarterly results in March. That same month RIM disbanded Balsillie’s BBM messaging team, prompting most to leave the company.

Lazaridis hung on for another fifteen months. If he thought life would be easier with his mercurial partner gone and a trusted lieutenant in the CEO seat, he was wrong. Like Balsillie, Lazaridis bristled at being an observer in
a company he founded nearly three decades earlier. In his new role as chairman of the innovation committee, he had imagined a new life at RIM as a thinker-in-chief who oversaw handset innovations. It was his turn to be Mr. Micsinszki, his beloved shop teacher at W. F. Herman High School, turning the younger generation on to the wonders of wireless technology. But it didn’t turn out that way.

The first tradition to go was Lazaridis’s habit of dropping in on engineering labs to offer his thoughts on BlackBerry designs. Comments he made about BlackBerry 10 features and designs weren’t always welcome and Lazaridis found himself barred from the labs. Heins, he later learned, had complained to RIM’s chair, Barbara Stymiest. There could only be one CEO and Lazaridis had to stop undercutting Heins’ authority. Without a specific invitation from Heins, RIM’s founder was no longer free to wander through the labs, and many of the suggestions on his long list of improvements to the phone weren’t adopted.

Another shock was Heins’ decision to change the name of the company Lazaridis had founded three decades earlier to BlackBerry. Research in Motion would be no more as of the July 2013 annual meeting—a move that rankled many old-timers. The biggest humiliation came just before a board meeting in the latter half of 2012. Lazaridis caught up with two of Heins’ key outside recruits, new chief marketing officer Frank Boulben and chief operating officer Kristian Tear. When he pressed them on their views about the smartphone business, he was shocked to hear them say the market for BlackBerry’s signature keyboard device was dead. RIM would be proceeding to market first with an all-touch smartphone. Lazaridis’s strategy had been to introduce two BlackBerry 10 devices, one with a keyboard and touch screen and one with only a touch screen. The new management team seemed poised to abandon the one thing that distinguished RIM from its competitors.

Shortly after the board meeting started, Lazaridis addressed the room. “I get this,” he said, pointing to a BlackBerry with a keyboard, “It’s clearly differentiated.” Then pointing to a touch-screen phone, he said, “I don’t get this.” To turn away from a product that had been so prized by long-term corporate customers, and instead focus exclusively on selling another all-touch smartphone in a market crowded with them, was a huge mistake, Lazaridis warned fellow directors. “This is our bread and butter, our iconic device,” he said. “The keyboard is one of the reasons they buy BlackBerrys.”

Some directors agreed, but Heins’ new management team held firm,
sources close to the board said. “They believed everything was going to full touch” and that the QNX-designed system was clearly superior to what was available on other mobile operating systems, says one source close to the board. To Lazaridis, betting everything on yet another touch screen was too risky. Heins and his team relented slightly. The all-touch-screen Z10 would be issued first, followed months later by a BlackBerry 10 phone with the traditional keyboard and touch screen.

Not long after the meeting, RIM’s founder decided that a BlackBerry without keyboards meant a RIM without Lazaridis. He explained his decision to RIM’s board at a March 28, 2013, meeting by reading a pointed letter. In front of a hushed room, Lazaridis, emotional at many points during the reading, recalled in blunt language the high and low points of RIM’s three-decade journey. He reminded directors of RIM’s astonishing rise from a penniless start-up to Canada’s largest technology company, “a pioneer, innovator, and global leader in the telecommunications market.” He conceded “missteps” had been made in recent years but, seemingly unable to dwell on RIM’s leadership failings, blamed much of the company’s woes on “negative and inaccurate media” stories that he believed were “fueled by short-sellers.”