Losing the Signal: The Spectacular Rise and Fall of BlackBerry (6 page)

Balsillie remembers the lunch, but not the outburst. If there was anger, he says, it may have been “posturing.” Perhaps borrowing a page from
The Art of War,
his outburst threw his target off as he regrouped for a new strategy. Lazaridis did not know it at the time, but Balsillie had another plan. A generator factory owned by Westinghouse Electric in nearby Hamilton was up for sale, and Balsillie and Brock, who had more financial resources after the sale of Sutherland-Schultz, were quietly looking into a possible acquisition. Lazaridis didn’t learn about the Westinghouse play until Balsillie showed up unannounced at his office. Weeks after he had stormed out of the Knotty Pine,
Balsillie was in another huff, Lazaridis recalls. This time, he explained, pacing frantically around the office, he was furious with Westinghouse and its advisers. Time had been wasted. The company had too many problems. There was no deal.

In mid rant, Balsillie stopped abruptly and turned to face Lazaridis. “What was that offer you made about a partnership?”

Lazaridis confirmed that the offer was still on the table. If Balsillie wanted to be his partner, there was one condition: Balsillie had to meet his fiancée, Ophelia, because, as he explained, “she is a great judge of character.” Mike and Ophelia joined Jim and Heidi for dinner at their house in Waterloo. When they walked away from the Balsillie home after the meal, Ophelia offered a warning to her future husband.

“He’s a shark.”

“I know. He can be one on my team.”

“As long as you remember he is a shark … it’s a good idea.”

It was a challenge squeezing through RIM’s offices on Columbia Street. Narrow rooms and hallways were crammed with desks and makeshift worktables, many of them just pressboard sheets perched on metal legs. Furniture had to be moved to allow for passing colleagues. The arrangement was so precarious that a table bearing heavy computer terminals and monitors once collapsed on startled workers.

Needing more space, RIM had abandoned its office above the bagel store in 1993, moving seventeen employees to a bland low-rise next to Lazaridis’s Waterloo alma mater. A year later, the Columbia Street suite was overflowing. Balsillie and Lazaridis graduated from a shared office to separate rooms on opposite sides of a hallway. But the two penny-pinchers knew that they needed more space. When offices opened up next door, the co-CEOs had the adjoining wall torn down. The women’s bathroom was converted into a storage room. A blue curtain divided the men’s bathroom: on one side were showers and a toilet; on the other, four desks for a new software laboratory. One of the desks belonged to Matthias Wandel, a cheeky software programmer who joined in 1993 and quickly established himself as an inventive prankster. Shortly after being assigned a bathroom desk, he attached a cable to the nearby toilet’s flusher. The other end was fastened beneath his desk. When his team eliminated a software bug, Wandel announced its demise by yanking the cord. The flushing noise prompted RIM engineers to throw up their hands and cheer.

The chaotic environment encouraged a subversive streak that soon became ingrained in RIM’s engineering department. Engineers are by nature impudent, often staging stunts to show off their technical prowess. University of British Columbia engineers, for example, grabbed headlines in 2001 by hanging a Volkswagen Beetle from the Golden Gate Bridge. At RIM, acting out was a way of coping with financial uncertainty and deadline pressure. Lazaridis set aggressive product delivery timetables for the software and hardware contracts RIM performed for a range of customers. His team understood that the company’s precarious health dictated urgency, and no one worked harder than Lazaridis, who sometimes slept underneath his desk while waiting for software to load. But the pace could be punishing.

RIM was still committed to helping get the Mobitex network off the ground and saw a big future for wireless data. “I think that, in another three years, wireless data [transmission] will be as successful as cellular phones, if not more,” Lazaridis told his hometown
Kitchener-Waterloo Record
in 1992.
¹
After developing programming tools for users to write applications for Mobitex, RIM wrote software for Mobitex users as well, including a wireless e-mail gateway service called RIMgate. But software didn’t bring in much revenue; there weren’t many wireless data customers, and they weren’t willing to pay much for it. “You learn a lot of sobering things” trying to sell software, Balsillie told a trade publication in 1995.
²
Lazaridis and Balsillie believed RIM would have to start making its own hardware if it was to ever be more than a marginal player.

Neither Balsillie nor Lazaridis were big believers in praising or rewarding RIM’s hardworking employees. The company was fighting for its survival, and the bosses wanted to keep staff sharp and hungry for success. Balsillie didn’t want staff “getting sore arms” patting themselves on the back at a time the company’s survival depended on overcoming so many obstacles. Its competitors were bigger, its customers predatory, and cash was in short supply. If RIM didn’t quickly deliver what its customers wanted, the company would not endure. One RIM manager became so obsessed with deadlines he issued an edict requiring engineers to ask permission before leaving at night. Lazaridis reversed the decree, but his company’s aggressive, need-it-yesterday approach fostered what would become a robust cynicism. “It got to the point that when schedules were made up I didn’t bother to read them,” says Wandel. “They were so made up, a fantasy.”

Unrelenting pressure led to increased mischief. Wandel regularly invited
colleagues into the parking lot to smash faulty prototypes with a sledgehammer. Another recreation was detonating large batteries. One engineer reconfigured a pipe gun, known as a potato cannon, to launch broken components into nearby fields. Others let off steam on local baseball diamonds. The RIM baseball team sported T-shirts with the initials DEM. Alluding to the company’s uncertain fate, the letters were a play on the Latin phrase
Dextera Domini
—the right hand of God.

The South Lawn of the White House was dotted with colorful tents that sagged under a heavy midday sun. It was July 22, 1993. Representatives from technology companies were gathered to show off the latest in mobile communications. President Bill Clinton led an entourage through the tents. Stopping at one, he examined a thick glass tablet and black electronic pen created by Eo Inc., a Silicon Valley start-up. Push the stylus across the surface of the EO Personal Communicator, Clinton was urged, your handwriting will automatically convert into a digital text message, poised to fly across radio waves to the person of your choice. Reflecting on dozens of American victims claimed by recent flooding in Illinois and nearby states, the president moved the stylus across the tablet: “Al, stop the rain in the Midwest. Thanks, Bill.”

Minutes later, Clinton cited the message in a speech to a large gathering on the White House Lawn. Vice President Al Gore, an early wireless technology champion, was there. Joining them were Federal Communications Commission officials, media luminaries, and dozens of technology executives.

“I got to send the vice president that message over there and it’s nice to know he’ll be able to stop the rains in the Midwest within a few moments, remote control,” Clinton said. The wireless note, he explained, was the beginning of a “new era of human communications.” The Internet was taking off, updated federal technology laws were in motion, and a spectrum of radio channels was slated for auction to private companies wanting to build new wireless roadways for portable digital communications. These “information skyways,” Clinton promised, were “a new avenue to send ideas and masses of information to remote locations in ways most of us never would have imagined…. Wireless hand-held computers and phones will deliver the world to our fingertips.”

Clinton was right about the dawn of a new wireless data age. His timing, though, was off by several years. Mobile data ventures of all sizes were foundering
because portable communicators were too expensive, slow, or complex. In the early 1990s, when less than 5 percent of North Americans owned a cellphone, mobile messaging remained a sci-fi fantasy.

A year after Clinton scratched out his message on the EO Personal Communicator, the device was history. Buyers were turned off by its bulk and its price tag, fully loaded, of $4,000. Bigger players didn’t fare much better. Apple Computer entered the wireless game in 1993 with a personal digital assistant called Newton MessagePad. For $699, consumers got a glass-covered notebook, with an electronic pen for writing documents, faxes, and messages. Unlike its namesake, the Newton was no genius. Indeed, its bumbling handwriting recognition feature soon invited widespread ridicule.
Doonesbury
’s creator, Gary Trudeau, featured the clumsy Newton in a 1993 comic strip that depicted him scrawling: “I am writing a test sentence” on the tablet. After several garbled electronic interpretations, the Newton yielded a last, desperate translation: “Egg freckles?” Apple abandoned Newton in 1998.

IBM launched a revolutionary phone at Disney World in Orlando in late 1993 called Simon. The phone offered mobile calling, an address book, calendar updates, faxes, and e-mails. Simon was a hit with technology buffs but flopped in the consumer marketplace. The machine was complicated and carriers lacked network capacity for the data-hogging phone. Simon passed away in 1995.
³

One company that would draw millions of users to Clinton’s promised superhighway was not invited to the 1993 White House event. Its DNA, however, was inside the EO Personal Communicator that shuttled the president’s message. Embedded inside the doomed tablet were software programs guiding the message to a radio network. The software creator was Research In Motion.
⁴

Three years after Clinton’s promise of a new communication era, the wireless data highway was going nowhere. The trade publication
Mobile Data Report
captured the frustrations of an impatient marketplace by lamenting the slow pace of innovation in 1995, which it called “the year of dullness.”
⁵
Carriers and product makers charged too much for mobile devices that conveyed tiny amounts of data at mulishly slow speeds, the magazine complained. The only bright spot, it wrote, was a little Canadian company destined to “have a big impact” after unveiling a small, low-cost radio modem card that connected devices to the Mobitex network.

Research In Motion was reinventing itself in 1996. It had gained notice in
the industry by making radio modems that connected laptops, delivery trucks, and other mobile data users to the Mobitex network. But Lazaridis and Balsillie had even greater ambitions: to make their own device. They started by making a point-of-sale terminal that stadium vendors could use to sell merchandise and food to fans in their seats in 1994; the machine was briefly used in the SkyDome where the Toronto Blue Jays played, but it didn’t do well otherwise. What RIM needed was leverage in a field dominated by muscular companies demanding punishing terms, Balsillie believed. Ericsson and Rogers squeezed RIM by stalling payments of licensing fees.

Then, in 1996, the Skokie, Illinois–based modem maker U.S. Robotics dealt the company a devastating blow. Four months after ordering $16 million of wireless modems from RIM, U.S. Robotics reneged on the deal, potentially stranding RIM with insufficient cash to pay a multimillion-dollar loan borrowed to cover the cost of manufacturing the large modem order. “We were very vulnerable,” says Balsillie, “a frog being cooked.” If the company did not find new customers for the rejected modem cards it would not be able to repay its bank loan.

U.S. Robotics later asserted in legal proceedings that the modems were defective. Balsillie had a different take: he saw another wolf trying to wound RIM by squeezing its cash flow. The Skokie company was led by a former hippie named Casey Cowell who started building modems in his bathroom in 1976 in his early 20s.
⁶
From there he muscled past established players to build U.S. Robotics into a $2 billion industry leader, snapping up other modem makers along the way. One of his targets was RIM. “For their size they were very independent and aggressive. Those were qualities we liked to have,” Cowell says.

From Balsillie’s perspective, if U.S. Robotics couldn’t buy RIM, it would make the company’s life difficult. U.S. Robotics agreed in December 1996 to end the dispute and resume purchasing modems, this time at a higher price. That arrangement lasted less than a year. In August 1997, U.S. Robotics again refused to buy the modems. The ensuing legal conflict dragged on until an arbitrator ordered U.S. Robotics to pay $2 million in July 1998.
⁷

Balsillie learned his lesson after U.S. Robotics’ first cancellation. To survive, the pint-sized company needed new customers. Balsillie’s prayers were answered by two of his most industrious salesmen: Don McMurtry, a RIM veteran of four years, and Justin Fabian, two years out of university. When Balsillie asked the pair for leads, McMurtry reached for a stack of faxes on
his desk, all inquiries from buyers. The sales team had previously paid little attention to the requests. RIM barely had enough capacity to make modems for U.S. Robotics. When he went over the faxes again, McMurtry realized a lot of Korean technology companies were inquiring about the modems.

Months later, in January 1997, Canadian prime minister Jean Chrétien and a team of provincial premiers and corporate chiefs flew to Korea on a trade mission. Included on the trip were three young executives who were pretty well unknown to the rest of the Canadian delegation. Balsillie, McMurtry, and Fabian worked fast in Korea: they signed deals negotiated earlier to sell more than ten thousand modem cards, enough to keep RIM alive. For the RIM trio the trip was a victory lap. “We dumped a lot of radio modems,” McMurtry says. After the bruising encounter with U.S. Robotics, RIM’s co-CEOs would remain wary of U.S. tech behemoths. “It was really the awakening for Mike and Jim as to how savage the computer industry is,” McMurtry says.

The U.S. Robotics experience had a profound impact on Balsillie. RIM could no longer operate as an obliging laboratory of ideas, a place where innovator-in-chief Lazaridis shared thoughts about wireless data innovations. In a jungle of technology predators, the small company had to be as ruthless as the giants. For Balsillie, every potential customer, supplier, and business partner was a potential opponent. “It was a massively predatory and high-stakes gambit all day, every day,” he remembers. “If you’re sentimental and emotional, you’ll get eaten up. You’re dead.”

The dark view was a stark contrast with Lazaridis’s sunny faith that RIM was destined to succeed through innovation. “Jim believed everyone was out to kill us and he couldn’t trust anyone,” Lazaridis says. “I had a different point of view. I liked long-term relationships. I believed our capabilities allowed us to succeed.”

Though philosophically opposed about many things, the partners were united in a belief that RIM needed a more ambitious strategy to prosper. Balsillie was convinced they had to borrow from the playbook of the ravenous technology trailblazer, Microsoft. Based in Redmond, Washington, Microsoft had transformed itself into a global titan by positioning its core product, the MS-DOS operating system, as an invasive force inside the nation’s computers, grabbing an ever-bigger share of desktop applications. By the mid-1990s, 86 percent of U.S. computers operated with Microsoft systems delivering everything from Internet searches to games.
⁸