BlackBerry: The Fall of a Tech Giant
Introduction to Patent Trolls
Mobile is a very particular industry. Aside from normal competition between rivals to produce the best products, there is a subset of firms that never creates or sells a thing. Their main asset is a portfolio of patents, often purchased from others, which they use to lodge complaints against successful firms rich with cash. They wanted royalties, and a deal couldn’t be struck, they’d take them to court, often not with the intention of winning, but causing enough pain to negotiate a quick, and lucrative, settlement.
It was a shakedown in every sense of the word, and in the industry, there’s a term for these companies: patent trolls.
RIM’s Encounter with NTP
RIM ran into one such troll in NTP, whose portfolio of 50 patents included one related to mobile e-mail. It didn’t make a product, it didn’t sell a service. But it was in the business of lawsuits. And as Rod McQueen, author of “BlackBerry: The Inside Story of Research in Motion,” told Allan Gregg in an interview, NTP was a mom and pop shop — but without a mom or pop.
During the trial, RIM showed that it had developed its own functioning wireless e-mail system, called “System for Automated Messages,” or SAM, in the public domain well before NTP ever invented its product. But NTP’s attorneys discovered that RIM used a more modern version of SAM software, which came after NTP’s innovation, allowing the judge to instruct the jury to disregard the demonstration.
Judicial Rulings and Settlement
Then, a turn of events, in 2003, a judge granted an injunction to ban the sale of RIM’s devices in the U.S., which accounted for 70 percent of its business, forcing the Justice Department to step in and filed a request to delay the injunction due to the large number of BlackBerry users in the federal government.
Locked in a stalemate, NTP approached RIM, willing to settle for $23 million. But Lazaridis and Balsillie refused, believing they were right. They never heard of NTP, much less copy any patents, and NTP never developed anything as advanced as RIM’s encrypted service — why should they have to pay them any money at all?
As the courtroom battles continued, in 2004, RIM celebrated its 20th anniversary by surpassing two million subscribers worldwide. Time Magazine even named Lazaridis and Balsillie and to its “Time 100″ list. But an appeals court upheld most of NTP’s claims, insisting that RIM had infringed on patents.
As litigation continued over the next few years, NTP’s painful thorn increasingly burrowed into RIM’s business dealings and future growth, and by 2005, Lazaridis and Balsillie decided the hassle was no longer worth the effort to fight it. RIM agreed to pay $450 million to settle the dispute, but within a month, the deal unraveled and fell apart.
NTP Legal Battle and Settlement
NTP then threatened to enforce a court order to shut down all BlackBerry service in the U.S.
RIM’s Costly Settlement and Legal Fallout
In 2006, after the Supreme Court refused to hear a last-ditch appeal, with an imminent shutdown on the horizon and no negotiating leverage, RIM paid the hefty price of over $600 million to settle all claims. RIM was allowed to continue to sell its products and services, and in a perverse way, it gave NTP a war chest of funds to next threaten legal action against — and sign royalty deals with — rivals like Apple, HTC, Motorola, Palm, LG, Samsung, Google and Microsoft — basically, anyone who was anyone in the industry.
RIM’s Strategy and Success
RIM’s desire to fight, though costly, was a big part of its success. Canadian companies failed when they enter the U.S., often due to a lack of toughness. Bright employees and a great product aren’t enough, and to survive, or even prosper, in the most competitive market in the world, companies need street smarts and a capacity to fight.
Lazaridis and Balsillie had shown they could go up against the best. When RIM entered the U.S., it faced major-league competition from Palm and Motorola — both with far more visibility in the consumer market. Ericsson and Nokia, meanwhile, were charging headlong into its sacred wireless-data space. Even on two fronts, Balsillie understood that it had to focus, and since security was its advantage, it locked down on enterprise.
RIM’s Market Dominance and Strategic Moves
“Who wins between an alligator and a bear?” Balsillie asked Fast Company rhetorically. “It all depends on the terrain — do they fight on water, land, or mud? So it goes with wireless.”
In the end, Lazaridis and Balsillie knew they’d defeated Palm when it replaced its trademark stylus with keyboards. And at its peak, RIM was three times the size of Motorola, a communications equipment pioneer that invented the cell phone in the ’70s.
RIM’s Transition and Challenges
“The market for wireless data is 400 times larger than it was five years ago, and we’ve been there from the start,” Balsillie told Fast Company. “How could we not be confident?”
When established rivals neglected the enterprise market, RIM — nimble and smart — found an opportunity to wedge in and grow while incumbent players lay complacent. But the pendulum had swung. In 2007, when Steve Jobs stepped on stage to introduce the iPhone, RIM had become the establishment — the leader in enterprise.
RIM’s Shift and Apple’s Emergence
Bill Gates once said if a company was to be truly innovative, its leaders must bet the business every few years — basically, to go into areas that, historically, have not been their strength. For RIM, that was the consumer market.
Apple, meanwhile, was just such a company. Hungry for an industry to revolutionize, it now became the innovator, challenging RIM in the neglected consumer market.
Financial Turmoil
Heins announced the grim financials. It wasn’t pretty. The plan for a turnaround, the Z10 and Q10, which run on a new QNX platform, had failed. In 2012, the company reported a first-quarter loss of around $520 million on sales of $2.8 billion, down from about $5 billion a year ago.
Heins said RIM would cut another 5,000 employees, but even more drastic steps would be needed, whatever that meant.
Decline of Market Dominance
RIM was terrifically profitable by bringing texting and mobile e-mail to the masses. But by 2010, its market share had plummeted to just 10 percent, down from around 45 percent a year earlier. The “CrackBerry” addicts had grown tired of RIM: just one-in-three owners planned to stay with it when they bought their next device. The stock price plummeted by 75 percent in one year, and in 2011, co-CEOs Mike Lazaridis and Jim Balsillie stepped aside to give control to Heins. But not even he could staunch the hemorrhaging.
Challenges Amidst Competition
These are dark days for BlackBerry. The iPhone and Android devices have largely replaced it as the smartphone of choice, leading the company to form a special committee to explore a fast auction that’s expected to finish by November, according to the Wall Street Journal.
Color Screens Controversy
Over a decade ago, Lazaridis was asked whether RIM would add color screens — a feature that had popped up in handsets in Asia. “Do I need to read my e-mail in color?” he said, according to Brian Blair, then an analyst at Bank of America. Lazaridis argued that color screens were impractical due to expensive costs and high battery drain. But, of course, a few years later, after rivals had transitioned, it would follow suit and add them.
Shift in Market Dynamics
History, it seems, does repeat itself.
“We had a very, very successful recipe of what BlackBerry was all about. There were four main pillars: battery life, typing, security and compression,” Heins told CIO Magazine in an interview in 2012. “Then, there was a shift. With LTE it was important actually not to save network resources, it was important to load the networks, to sell data plans and sell data volume.”
Misinterpretation of Market Changes
In other words, BlackBerry didn’t miss on innovation — it had always improved messaging, e-mail and security. No, instead, it had missed on understanding the changes in the market.
Overconfidence in Product
The root of its problems can be traced back to overwhelming confidence in its basic BlackBerry product, according to the Wall Street Journal, which interviewed more than a dozen former RIM executives and those who worked closely with the company. RIM rose to prominence by giving devices to employees, having them bring the smartphones into their offices, and then pressuring the CIOs and IT managers to adopt and buy them for the company. Balsillie’s guerilla marketing targeted individuals, but its product, with encrypted servers and easy-to-use mobile e-mail, was aimed at Fortune 500 companies and government agencies.
Corporate-Centric Strategy
That strategy — to win over corporations before branching into the general-use market — is a time-honored tactic. The telephone, for example, began as a business tool for banks and big businesses before becoming a mainstay in the home. The same can be said with the PC and offices and the Internet with the military. Technologies often begin as business-only tools, due to the high costs needed to develop them, and Lazaridis and Balsillie believed smartphones would follow that same trend.
RIM’s Focus on Enterprise
By 2006, corporations were driving the overwhelming majority of RIM’s revenues, and its leadership declared that enterprise would continue to be its focus. IT administrators, and those who controlled the purse strings, wanted secure, easy-to-deploy and manageable devices. So, the company worked to deliver them a series of boring, catch-up products in the Pearl and Curve.
Decline of BlackBerry Brand
Over time, though, the BlackBerry brand — once seen as a synonym for the opulent — lost its luster among a cache of confusing names. RIM customized those models, each with different display sizes and internal components, to suit the needs of the various carriers, and the complexity was made more difficult when — at the height of its success — the market began a seismic shift, coinciding with the release of the iPhone in 2007.
RIM’s Reaction to the iPhone
“How much presence does Apple have in business? It’s vanishingly small,” Lazaridis told the Guardian in an interview. “I haven’t seen one,” Balsillie later said, a week after the iPhone hit store shelves. “You watch these things, but you really have to just focus and do your job.”
Lazaridis and Balsillie brushed off the growing popularity of Apple, perhaps to reassure investors, but internally, they were just as dismissive, particularly of the short battery life of the iPhone. As an engineer, Lazaridis obsessed over each milliwatt of power, ensuring BlackBerrys lasted for weeks on a single charge. And he couldn’t understand why anyone would buy the iPhone, when it died after a few hours of use, according to Canadian Business.
Debates and Tensions Within RIM
Instead, Lazaridis believed consumers would prefer to type e-mails on keyboards instead of touch displays, and its superior security would keep IT departments faithful. RIM would cede the general-use market and continued to lean on enterprise to fuel its success — because eventually the market would transform.
Inside RIM’s walls, executives debated whether it had the right strategy — whether it should target core customers in corporate or consumer. It was clear Apple and Google had redefined the smartphone, and RIM needed to adapt to aggressively target consumers — not simply businesses. But for that, it first needed to scrap and redesign its interface and Web browser, as well as attract developers to write apps for its fledgling platform. Smartphones had evolved from RIM’s core strength — communication — to media consumption.
The Rise of BYOD
Those events created tensions and eventually rifts between various camps in the firm. At one meeting, Balsillie was asked if RIM should worry about the BYOD transformation in the market — some executives believed the threat was real, while others argued its stable base in enterprise would hold steady. Balsillie took the view of the latter view, according to the Wall Street Journal.
Technologies did begin to merge, but not in the way Balsillie had anticipated — from corporate to consumer. Instead, employees started to bring their personal devices to work, a trend simply known as “bring your own device,” or BYOD. More often than not, though, that meant the iPhone and Android devices, which started to carve out a place in enterprise, displacing the stalwart BlackBerry.
Decline of RIM’s Market Position
Balsillie mistakenly believed RIM’s rise was due to decision-makers who loved its security. Really, its success sprang from the army of near-fanatical, ground-level employees who brought them in the backdoors of Wall Street and Capitol Hill. Now, with the rise of BYOD, consumers wanted enterprise devices that also featured cameras, games and Internet browsing, which BlackBerry lacked. So they brought in Apple and Google devices and pressured IT departments to adopt them.
RIM was losing its hold on both enterprise and consumer markets, and its closed system left it with an isolated, barren ecosystem, ill-equipped to compete with the flourishing world of iOS and Android.
Failure to Adapt
BlackBerry’s leadership had failed to see the market shift, and its decision to continue on enterprise at the cost of general-use cost it dearly. By 2015, according to Fortune, employees, and not CIOs, will buy more than half of business devices.
RIM’s Downfall
RIM’s plunge seemed sudden, but the downfall had been a longtime coming. BYOD was the iceberg to RIM’s Titanic. Executives were clueless to what consumers wanted. In 2010, for example, an internal report found that buyers increasingly favored Apple’s touch-only devices to RIM’s tactile, thumb-friendly keyboards. But RIM ignored the early warnings.
Delayed Response
RIM, in fact, wouldn’t produce a full-touch device until Verizon and Vodafone executives, worried that Apple’s growing dominance would give it outsized influence in the market, approached RIM to collaborate on a product to challenge the iPhone.
The Storm Debacle
But rather than shutter enterprise and go headlong into consumer products, Lazaridis designed the Storm, a hodgepodge touch hybrid with a rather innovative screen that physically clicked when pressed, yet still lacked the plethora of features and apps of iOS and Android.
Failed Attempts
“Vodafone started really rushing around saying, ‘Help us build an innovative competitor to the iPhone’,” Pieter Knook, a Vodafone executive at the time, told the Wall Street Journal. The Storm was a pale imitation of the iPhone — and it bombed.
AT&T’s Endeavor
Then, in 2010, AT&T approached RIM to develop a touch device to match Apple. AT&T was going to lose its exclusive right to the iPhone, and to continue its success, it needed another marquee device to help differentiate itself from Verizon. The partnership produced in the Torch, but like Verizon’s Storm, it fell far short of the iPhone, hobbled by faulty hardware and lackluster software.
Apple and Google, meanwhile, gobbled up more market share.
Hail Mary Stopgap
As a Hail Mary stopgap, Lazaridis began to poach top executives from rivals, assemble a new marketing team, and look for acquisition targets, culminating in its buyout of QNX Software Systems, maker of a mobile operating system for automobiles and medical devices. RIM was struggling to keep up with iPhone and iPad, and it saw QNX as the backbone of its own tablet, dubbed the PlayBook.
Challenges with PlayBook
“[Lazaridis] came in to that sales meeting about as arrogant as you could be,” a former RIM executive told Fortune. “The feeling at that time was that we were substantially behind Apple in the smartphone category. But he had no doubt that we would succeed given the products we had coming.”
But the same issues that plagued RIM’s smartphones sunk the PlayBook — and it was a disastrous flop. The barriers between work and home had already been knocked down.
Dual-Headed Leadership
Early on in RIM’s history, the co-CEOs agreed to split up tasks: Lazaridis on engineering and Balsillie on business — and it worked out well. They shared a room, then separated into offices next to each other, then moved to buildings a 10-minute drive apart to be closer to their respective teams. They still kept in contact with one another, but the unique, dual-headed leadership structure had grown to instill a deep-rooted dysfunction in the split-personality company.
Consensual Decision-Making
Due to their unique teamwork style, Lazaridis and Balsillie preferred consensual decision-making, and the process often included bringing vice presidents on board with a proposal. According to Canadian Business, former employees said plans would only continue ahead with widespread agreement. Consensus worked well in RIM’s startup days, but it adds confusion in a large corporation with multiple vice presidents involved.
“Gaining consensus to get something done was next to impossible,” a former employee told Canadian Business. “It just stalls all innovation.”
Internal Communication Breakdown
One former employee said the problem became so bad that internal deadlines weren’t taken seriously. And as a launch date quickly approached, multiple teams working on the project would realize they would miss the deadline — but nobody spoke up, under the belief that another team was even farther behind.
“Everybody just kept their mouths shut, waiting for somebody else to break,” the former employee told Canadian Business. Since those teams weren’t fully communicating, executives who oversaw them had little idea to the source of the problem.
Management Turmoil
Amid its turnaround plans, Lazaridis concentrated on the comeback device to run on its next-generation QNX platform, dubbed BlackBerry 10. So the QNX group reported directly and solely to Lazaridis, bypassing Balsillie and other top executives, which rankled management, according to the Wall Street Journal. Meanwhile, Balsillie, to buy the company more time, boosted short-term revenue by striking up licensing deals that allowed carriers and smartphone makers to piggyback off RIM’s proprietary technology, like its secure network and BBM messaging service.
In theory, the strategy seemed sound. But the different teams under them often clashed with one another. And in 2011, all those issues culminated into a train wreck of a year, almost too painful to list: the PlayBook flop, BlackBerry 10 delays, massive network outages, followed by its largest wave of layoffs.
Downfall and Restructuring
As RIM spiraled downward, blame and tensions escalated within the dysfunctional company. By 2012, with shares at an eight-year low, the board, led by Lazaridis and Balsillie as co-chairmen, decided to end their two-prong structure, agreeing to step down as CEOs.
“The CEO structure worked well for many years and allowed each of the co-CEOs to focus on their areas of strength,” RIM said in a statement.
Soon after taking the helm, Heins, a Lazaridis lieutenant, scuttled Balsillie’s licensing strategy to focus on a streamlined portfolio of BlackBerry 10 phones. Then, he brought in outside talent to break down the separate internal kingdoms. But by then, RIM had missed the paradigm shift. The company had ignored the pleas of executives within the company to change and now, it was too little, too late.
