how blackberry blew-the inside story

7/23/2019 How BlackBerry Blew-The Inside Story

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Inside the fall of BlackBerry: How the smartphone

inventor failed to adapt

This investigative report reveals that:

Shortly after the release of the first iPhone, Verizon asked BlackBerry to create a

touchscreen iPhone killer. But the result was a flop, so Verizon turned to

Motorola and Google instead.

In 2012, one-time co-CEO Jim Balsillie quit the board and cut all ties to

BlackBerry in protest after his plan to shift focus to instant-messaging software,

which had been opposed by founder Mike Lazaridis, was killed by current CEO

Thorsten Heins.

Mr. Lazaridis opposed the launch plan for the BlackBerry 10 phones and argued

strongly in favour of emphasizing keyboard devices. But Mr. Heins and his

executives did not take the advice and launched the touchscreen Z10, with

disastrous results

Late last year, Research In Motion Ltd. chief executive officer Thorsten Heins sat down

with the board of directors at the companys Waterloo, Ont., headquarters to review

plans for the launch of a new phone designed to turn around the companys fortunes.

His weapon was the BlackBerry Z10, a slim device with the kind of glass touchscreen

that had made Apple Inc. and Samsung Electronics Co. Ltd. the dominant names in the

global smartphone market.

But one of RIMs directors was frustrated by what he saw, and spoke out, according to

one person who was in the room. There is a cultural problem at RIM, he told the group

and the Z10 was a glaring manifestation of it.

The speaker was none other than Michael Lazaridis, the genius behind the BlackBerry,

the companys co-founder and its former co-CEO. Minutes earlier, he said, he had

spoken with Mr. Heinss newest executive recruits, chief marketing officer Frank

Boulben and chief operating officer Kristian Tear.


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Mr. Boulben and Mr. Tear had dismissively told Mr. Lazaridis that the market for

keyboard-equipped mobile phones RIMs signature offering was dead.

In the board meeting, Mr. Lazaridis pointed to a BlackBerry with a keyboard. I get this

he said. Its clearly differentiated. Then he pointed to a touchscreen phone. I dont ge

this.

To turn away from a product that had always done well with corporate customers, and

focus on selling yet another all-touch smartphone in a market crowded with them, was

huge mistake, Mr. Lazaridis warned his fellow directors. Some of them agreed.

The boardroom confrontation was a telling moment in the downfall of Research In

Motion.

Once the giant of the smartphone business, RIM, which was renamed BlackBerry Ltd. i

the summer, is now on its knees. The company reported a $965-million (U.S.) fiscal

second-quarter loss Friday, primarily because of a massive writedown of Z10 phones

that sit, unsold and unwanted, about eight months after they first hit the market. The

company is cutting 4,500 jobs, 40 per cent of its work force, in a desperate bid to bring

costs in line with plummeting revenue.

Investors, who have lived through the destruction of more than $75-billion of the

companys market value over the past five years, are still wondering how BlackBerry

managed to blow its runaway lead and became a bit player in the smartphone market it

invented.

An investigation by The Globe and Mail, which included interviews with two dozen pas

and present company insiders, exposes a series of deep rifts at the executive and

boardroom levels.

Those divisions hurt the companys ability to develop products just as it faced its

greatest challenge from more nimble and creative rivals and contributed to the

downfall of Canadas biggest technology company.

Once a fast-moving innovator that kept two steps ahead of the competition, RIM grew


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into a stumbling corporation, blinded by its own success and unable to replicate it.

Several years ago, it owned the smartphone world: Even U.S. President Barack Obama

was a BlackBerry addict. But after new rivals redefined the market, RIM responded wit

a string of devices that were late to market, missed the mark with consumers, and

opened dangerous fault lines across the organization.

Months before their boardroom showdown, Mr. Heins and Mr. Lazaridis found

themselves in another strategic standoff in which they were pitted against Jim Balsillie

Mr. Lazaridiss long-time business partner and co-CEO.

Inside RIM, the brash Mr. Balsillie had championed a bold strategy to re-establish the

companys place at the forefront of mobile communications. The plan was to push

wireless carriers to adopt RIMs popular BlackBerry Messenger (BBM) instant

messaging service as a replacement for their short text messaging system (SMS)applications no matter what kind of phone their customers used.

It was a novel plan. If RIM could get BBM onto hundreds of millions of non-BlackBerry

phones, and charge fees for it, the company would have an enormous new source of

profit, Mr. Balsillie believed. It was a really big idea, said an employee who was

involved in the project.

But the plan ran into stiff opposition at senior levels. Not long after Mr. Heins took ove

as RIMs CEO in January, 2012, he killed it, with Mr. Lazaridiss support.

That was it for Mr. Balsillie. Weeks later, he resigned from the board and cut his ties to

the company.

My reason for leaving the RIM board in March, 2012, was due to the companys

decision to cancel the BBM cross-platform strategy, Mr. Balsillie said in a briefstatement to The Globe and Mail, his first public comments on his departure. He

declined a request for an interview.

Mr. Lazaridis, who declined to speak about board matters, resigned as a director this

past March after delaying his retirement by a year at the board's request.


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Now, BlackBerrys future is in doubt. This week, Fairfax Financial Holdings Ltd., a

Toronto-based investment company, announced a planto lead a $4.7-billion takeover o

the company. The offer is conditional, and requires a group of so-far uncommitted

institutional investors to back Fairfax and provide financing.

The companys near-collapse is a painful situation for Mr. Lazaridis, a gifted engineer

who co-founded RIM in a tiny Waterloo office above a bagel shop in 1984.

Its really hurting me, he said in an interview. I cant imagine what the employees

must be thinking. Everyone is talking about the most likely scenario being that it will b

broken up and sold off for parts. What will happen to the Waterloo region, or Canada?

What company will take its place?

Competition rising

Mike Lazaridis was at home on his treadmill and watching television when he first saw

the Apple iPhone in early 2007. There were a few things he didnt understand about the

product. So, that summer, he pried one open to look inside and was shocked. It was like

Apple had stuffed a Mac computer into a cellphone, he thought.

To Mr. Lazaridis, a life-long tinkerer who had built an oscilloscope and computer while

in high school, the iPhone was a device that broke all the rules. The operating system

alone took up 700 megabytes of memory, and the device used two processors. The enti

BlackBerry ran on one processor and used 32 MB. Unlike the BlackBerry, the iPhone

had a fully Internet-capable browser. That meant it would strain the networks of

wireless companies like AT&T Inc., something those carriers hadnt previously allowed

RIM by contrast used a rudimentary browser that limited data usage.

I said, How did they get AT&T to allow [that]? Mr. Lazaridis recalled in the interviewat his Waterloo office. Its going to collapse the network. And in fact, some time later

did.

Publicly, Mr. Lazaridis and Mr. Balsillie belittled the iPhone and its shortcomings,

including its short battery life, weaker security and initial lack of e-mail. That earned

them a reputation for being cocky and, eventually, out of touch. Thats marketing, Mr
http://www.theglobeandmail.com/report-on-business/read-the-letter-from-fairfax-to-blackberrys-board/article14505072/


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Lazaridis explained. You position your strengths against their weaknesses.

Internally, he had a very different message. If that thing catches on, were competing

with a Mac, not a Nokia, he recalled telling his staff.

RIM soon earned a chance to show up its new rival. RIMs early smartphones had been

hit for Verizon Wireless, one of the biggest U.S. wireless players. Frozen out of theiPhone Apple had signed an exclusive deal with AT&T Verizon executives

approached RIM in June, 2007, and asked if it could develop an iPhone killer. The

product would need to have a touchscreen with no physical keyboard. Verizon would

back the U.S. launch with a massive marketing campaign.

RIM executives jumped at the chance. At one management meeting, Mr. Balsillie called

it RIMs most important strategic opportunity since the launch of its two-way e-mail

pager.

The product was the BlackBerry Storm. It was the most complex and ambitious project

the company had ever done, but the technology was cobbled together quickly and

wasnt quite ready, said one former senior company insider who was involved in the

project.

The product was months late, hitting the market just before U.S. Thanksgiving in 2008

Many customers hated it. The touchscreen, RIMs first, was awkward to manipulate. Th

product ran on a single processor and was slow and buggy. Mr. Balsillie put on a brave

face, declaring the launch to be an overwhelming success, but sales lagged the iPhone

and customer returns were high.

The Storm campaign didnt seem so disastrous at the time: RIM was in the midst of a

torrid global expansion. In August, 2009, Fortune crowned it the worlds fastest-growincompany. A year after the Storm launch, market research firm comScore reported that

four of the top five smartphones U.S. customers intended to buy in the next three

months were BlackBerrys.

But the Storm had failed to give Verizon Wireless the Apple-killer it coveted, and RIM

soon abandoned the product. So the carrier turned to Google Inc. and its new operating


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system, Android, and built a massive marketing campaign around Motorolas Droid

phone in 2009 at the expense of marketing dollars to support BlackBerry products.

Verizons iDont campaign highlighted all the shortcomings of the iPhone that Andro

addressed with its consumer-friendly user interface.

Rather than hurt Apple, the Droid and other Android-powered phones began to steal

share first from Palm and Microsoft, and then RIM. By December, 2010, Androids

market share in the U.S. had grown to 23.5 per cent from 5.2 per cent a year earlier, as

RIMs dropped by 10 points, to 31.6 per cent, according to comScore. By late 2011,

Android commanded 47.3 per cent of the U.S. market, while RIM had just 16 per cent.

A shift by smartphone users

This post-iPhone period was an era of strategic confusion for RIM. The overall state of

the industry was a bit schizophrenic, said Patrick Spence, RIMs former executive vic

president of global sales, who left in 2012. There was a time when the [wireless] carrie

tried to keep data usage predictable. Then it shifted to a period of trying to drive much

more usage in different packages, when the iPhone became compelling.

If there were new rules of the game, RIM would require new tools. The summer after th

Storm launched, Mr. Lazaridis bought Torch Mobile, a software development firm that

created Internet browsers for mobile phones.

But the process of moving, or porting, the Torch browser onto RIMs highly-

customized system proved complex and time-consuming. RIMs technology was based

on Java computer code and an operating system built in the 1990s, while the Apple and

Android systems used newer software platforms and standards that made it easier to

build friendlier user interfaces. This really meant we were not positioned for the

future, Mr. Lazaridis said. In order to survive, RIM would have to change its DNA.

RIM executives figured they had time to reinvent the company. For years they had

successfully fended off a host of challengers. Apples aggressive negotiating tactics had

alienated many carriers, and the iPhone didnt seem like a threat to RIMs most loyal

base of customers businesses and governments. They would sustain RIM while it fixe


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its technology issues.

But smartphone users were rapidly shifting their focus to software applications, rather

than choosing devices based solely on hardware. RIM found it difficult to make the

transition, said Neeraj Monga, director of research with Veritas Investment Research

Corp. The companys engineering culture had served it well when it delivered efficient,

low-power devices to enterprise customers. But features that suited corporate chief

information officers werent what appealed to the general public.

The problem wasnt that we stopped listening to customers, said one former RIM

insider. We believed we knew better what customers needed long term than they did.

Consumers would say, I want a faster browser. We might say, You might think you

want a faster browser, but you dont want to pay overage on your bill. Well, I want a

super big very responsive touchscreen. Well, you might think you want that, but youdont want your phone to die at 2 p.m. We would say, We know better, and theyll

eventually figure it out.

Trying to satisfy its two sets of customers consumers and corporate users could leav

the company satisfying neither. When RIM executives showed off plans to add camera,

game and music applications to its products to several hundred Fortune 500 chief

information officers at a company event in Orlando in 2010, they werent prepared forthe backlash that followed. Large corporate customers didnt want personal application

on corporate phones, said a former RIM executive who attended the session.

Meanwhile, it turned out consumers didnt care so much about battery life or security

features. They wanted apps. Apples iOs and Googles Android systems were relatively

easy for outside software developers to use, compared to BlackBerrys technically

complicated Java-based system.

Blackberrys apps looked uglier than those programmed in more modern languages,

and the simulator used to test the apps often didnt recreate the actual experience, said

Trevor Nimegeers, a Calgary-based entrepreneur whose software company, Wmode, ha

developed apps for BlackBerry. Further, RIM exerted tight control over developers

before it would sign off on their apps for use on BlackBerrys, stifling creativity.


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Developers wanted to be embraced, not controlled, Mr. Nimegeers said. As a result,

hot apps such as Instagram and Tumblr bypassed BlackBerry.

A split company

One key to RIMs early success was its corporate structure. It is unusual for a company

to have two CEOs Mr. Lazaridis focused on engineering, product management andsupply chain, while Mr. Balsillie looked after sales, finance and other corporate

functions but for a long time, it worked. Mr. Lazaridiss side of the shop made the

phones, and Mr. Balsillies sold them. The two men were collegial and collaborative.

Below the top executives, however, the two sides of the company didnt always get alon

And as the company grew into a leviathan with $20-billion in annual sales, the structur

sometimes made it difficult to get definitive decisions or establish clear accountability.

That contributed to a chronic problem for RIM: speed. They were always slow to

market, and there were always delays in launching, said James Moorman, an analyst

with S&P Capital IQ Equity Research. It was compounded by miscalculating the speed

at which the consumer market changed.

Sometimes, feedback from customers that might inspire changes would die at middle

management, because senior executives didnt want to bring it to Mr. Lazaridis, a form

insider said.

The split company also lost a major unifying force when chief operating officer Larry

Conlee retired in 2009. Mr. Conlee was a whip-cracker who held executives to account

for decisions and deadlines, establishing a project management office. Many insiders

agreed that after he left, a slack attitude toward hitting targets began to permeate the

company. There was a gap after Mr. Conlees departure, Adam Belsher, a former RIM

vice-president, told The Globe last year. There was no real operational executive on th

product side that would really get teams to hit deadlines.

After relying on its own technology for so long, Mr. Lazaridis decided the companys

next advance would come from outside. In April, 2010, RIM announced a deal to acqui

Ottawa-based QNX Software, a cutting-edge software maker that would provide the


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building blocks for the BlackBerry 10 operating system the new platform Mr. Lazarid

knew the company needed.

QNX was a specialist in industrial controls that used up-to-date software tools to run

applications ranging from 911 call centres to wireless broadband services in vehicles. It

technology was the perfect core for smartphones and tablets, RIMs leaders felt.

Mr. Lazaridis decided to take a page from the business strategy book The Innovators

Dilemma by Clayton Christensen. The book outlines how established organizations tha

succeeded against challengers often did so by allowing small, cloistered teams to develo

their own disruptive products, free from the influence of the rest of the organization.

Mr. Lazaridis decided he would isolate the QNX team and get them to focus solely on th

new operating system, while leaving existing programmers to work on products for its

existing platform, BlackBerry 7. Eventually he hoped QNX, led by its CEO Dan Dodge,

would retrain his entire organization.

But first, RIM had to answer a key question: If it wanted to remake the BlackBerry on

the QNX system, what was the best way to do that? Should it move over some of its old

Java-based applications, or rewrite them all from scratch? If the company abandoned

Java altogether, what would it mean for third-party developers who used it?

These were not easy decisions. Discussions among the senior leaders in Mr. Lazaridis

organization dragged on for a year far too long, according to several insiders.

Eventually, the decision was made: BlackBerry 10 would be built from scratch. The

problem with that approach was that a new team was being entrusted to recreate the

BlackBerry. Those who had created the original system were still working on devices fo

the BlackBerry 7 platform. Once again, the company was split.

We had bought a powerful operating system and needed to move to it. But the BB7 wa

late, Mr. Lazaridis said. Every week, I was getting requests for more hires, more

resources. The conundrum was, how do I pull resources off the BB7 to rewrite all the

apps on top of QNX?


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PlayBook pain

The QNX teams first assignment was to work on an operating system for the PlayBook

RIMs answer to Apples successful iPad tablet. Mr. Lazaridis saw the work as a

precursor to the BlackBerry 10 line of smartphones and was impressed by what the team

brought to the product. It helped our developers experience the power and elegance of

QNX, he said.

But the QNX team was overwhelmed and needed to draw heavily on the companys

other resources to complete the PlayBook. Similar issues arose later on the BlackBerry

10. The tablet, originally slated to come out in the fall of 2010, didnt appear until April

2011, and it failed to sell. It was an awkward accessory to RIMs smartphones, and

lacked e-mail, contacts and apps. Once again, RIM had missed the mark: Tablets that

sold well worked as standalone devices, which the PlayBook wasnt.

Some questioned the wisdom of launching the PlayBook in the first place, feeling it was

needless and costly distraction. And the decision to isolate QNX also created tensions

and morale problems: Those who werent on the team worried about their future.

To me, the most logical thing would have been to integrate the operating system

organizations into one, said one senior executive who was caught up in the fray. Then

youd have a whole team, not 150 people sitting around saying, I dont know what Im

going to do next, and another 150 people saying Im over my head.

Meanwhile, RIMs lack of an advanced smartphone meant that it continued to bleed

market share to Apple and Android, especially in the United States. In December, 2010

Verizon Wireless announced it would invest in fourth generation (4G) LTE technology

accommodate the growing demands of customers who wanted to surf the Internet on

their phones. It signalled to device makers that it would look to feature 4G smartphone

in its marketing.

RIMs 4G phone effort was the BlackBerry 10, but it was far from ready. RIM executive

tried to make an engineering argument to carriers that 4G technology was no more

efficient than 3G, and that its Bold phones were just fine. Mr. Lazaridis, Mr. Heins and


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chief technology officer David Yach were trying to reshape the argument because they

knew our products couldnt go there, a former executive said. It was a fight to stay in

[promotional] programs with carriers. We lost channel support and feature ads.

The PlayBook debacle and mounting delays of the BlackBerry 10 harmed the

organization in other ways.

For years, Mr. Yach and Mr. Lazaridis had enjoyed a close working relationship. But as

the well-regarded Mr. Yach began to question the companys ability to hit deadlines on

products, his views were dismissed and he was made to feel he wasnt a team player,

damaging their relationship, observers said. He left the company in early 2012.

The PlayBook flop merely added to the sense of a company in decline; 2011 became a

significant turning point for RIM. As it became clear the brand was getting trounced in

the market, and the BlackBerry 10 project was hit by significant delays, the stock

plunged, falling from $69 (Canadian) in February to less than $15 by the years end.

The pressure mounted on Mr. Balsillie, Mr. Lazaridis and the board. In January, 2012,

they stepped aside as co-CEOs and handed it over to Thorsten Heins, a German

executive who had run the companys handset division.

Almost immediately, there was division about how to roll out the BlackBerry 10. The

original strategy had called for the company to launch an all-touchscreen version first,

because sales were still going well for the companys BlackBerry 7 keyboard phone.

But by 2012, sales of BlackBerry 7 phones had lost steam, and Mr. Lazaridis, now depu

chairman, felt the company should switch its priority to getting a keyboard version out,

to meet the demand from BlackBerry die-hards.

This is our bread and butter, our iconic device, he told an executive at the company.

The keyboard is one of the reasons they buy BlackBerrys.

Mr. Heinss 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.


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To Mr. Lazaridis, abandoning the companys competitive advantage in the hopes

consumers would embrace yet another touchscreen was too risky a strategy, setting up

the showdown at the board last year. In the end, management agreed to continue

developing the Q10 keyboard phone. But the all-touchscreen Z10 would be launched

first.

By the time the first BlackBerry 10 smartphones were unveiled in January of this year,

market observers generally agreed that the products were two years too late a view

widely shared among many senior RIM insiders.

Buying QNX was the right play ultimately, said Mr. Spence. But we didnt make the

turn fast enough. Everyone underestimated the complexity involved in building the ne

system.

A BBM plan

For 20 years, Jim Balsillie and Mike Lazaridis operated in tandem, building an

increasingly successful partnership that allowed each others strengths to flourish.

They shared an office in their early years, even possessing each others voice mail

passwords.

As RIM grew, they worked in separate buildings but spoke several times a day. They

had a relationship I wish I had with my wife, one mid-level executive said.

But they had different personalities and their lives seldom intersected outside the office

They have barely spoken since leaving the company.

For Mr. Lazaridis, science was both a job and a pastime. Mr. Balsillie was brash,

competitive and athletic, and wore his reputation for being aggressive, even bullying in

meetings, as a badge of honour. If anything, he viewed that outward toughness as a job

requirement, not unlike tech CEOs such as Steve Ballmer at Microsoft Corp. or Apples

Steve Jobs. Show me how else you build a $20-billion company, he once confided to a

colleague. If I was Mr. Easy-going, they would kill BlackBerry.


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The two rarely disagreed on key strategic moves until their last year together. Mr.

Lazaridis believed BlackBerry 10 would herald RIMs renaissance. Mr. Balsillie wasnt s

sure.

Mr. Balsillie was concerned that Google had commoditized the smartphone market by

making its Android operating system available for free to any handset maker. By 2011,

wireless carriers were warning him that they would be ordering fewer BlackBerry

products unless he dropped his prices to match rival manufacturers.

So Mr. Balsillie pushed an alternative plan.

The idea started with Aaron Brown, the executive who oversaw the services division at

RIM. By 2010, this division was earning $800-million per quarter in revenue from the

monthly service access fee it charged mobile carriers for every BlackBerry subscriber.

More than 90 per cent of that was profit. Carriers tried to chip away at those fees

Google and Apple didnt charge them but RIM always pushed back. Mr. Balsillie was

particularly insistent on keeping the service fees. But the executives knew the company

weakening position in devices would increase pressure on services revenues as well.

Even after its terrible year in 2011, RIM still had several advantages, including close

relationships with the worlds major carriers. It also had BlackBerry Messenger.

RIM developers created the BBM app in 2005 to enable users to communicate not by e

mail but by using their devices personal identification numbers or PINs. It was the

first instant messaging service built for wireless devices, and it caught on quickly. It wa

reliable, free, always on and users could send as many messages as they wanted at no

extra cost, unlike basic text messages. PINs were random codes, not phone numbers or

e-mail addresses, enhancing privacy. That made BBM extremely popular in countries

where citizens didnt enjoy as many freedoms as Western democracies, and helped driv

handset sales there.

BBMs developers added a few clever elements that also made it addictive. For example

users would know when a message had been delivered and when it had been read,

marked D and R. Today there are 60 million monthly active users.


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But BBM only worked on BlackBerrys. As Apple and Android took off, BBM knock-offs

appeared that could function on those devices, including Kik Interactive Inc., founded b

Ted Livingston, a former RIM co-op student. Today Kik, boasts 85 million users, more

than BlackBerry (which sued Mr. Livingston for allegedly copying its program). Others

such as WhatsApp, are even larger. Instant messaging is the killer app of the mobile

era, Mr. Livingston said. We think there will be a Google or Facebook-sized company

that comes out of this category.

RIMs Mr. Brown believed he could tap into this unfolding trend. While working with

Mr. Balsillie on other projects, around late 2010 and early 2011, he began to talk up the

concept of offering BBM on other mobile platforms.

Mr. Balsillie loved it. At the time, some carriers were pushing for rebates on their

monthly service fees. Mr. Brown was willing to comply if the carriers would agree toopen new parts of their business to RIM. He and Mr. Balsillie struck upon an idea: Why

not give carriers the opportunity to offer BBM to all their customers no matter what

devices they used?

Most wireless executives were not fans of instant messaging services and other over-

the-top apps such as Skype because they eroded the carriers revenue from text

messaging.

To counter that threat, carriers banded together to develop a standardized rich

communication service (RCS) platform that would enable their customers to exchange

text messages, videos, games and other digital information. But the initiative has gaine

little traction; one commentator recently labelled RCS a zombie technology.

SMS 2.0

Mr. Balsillie began floating the idea that carriers could instead offer BBM as their own

enhanced version of text messaging, generating revenue for carriers while providing a

cut for RIM. He called it SMS 2.0. (SMS stands for short message service.) RIM

would agree to reduce the fees it charged for services, in exchange for gaining access to

hundreds of millions of non-BlackBerry users.


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He and Mr. Brown discussed several options. For example, carriers could offer BBM as

part of a standard talk and text plan for entry-level smartphone users. Because of its

extra functions, BBM would save customers from having to buy a data plan.

Or, carriers could offer an expensive plan that included BBM and other offerings from

BlackBerry, including one gigabyte of cloud storage on which they could keep photos or

songs. The carriers could then sell extra services such as radio through BBM. It would

also make the wireless companies customers stickier less likely to defect since th

couldnt move stored data to rival mobile carriers as easily.

The SMS 2.0 plan was a throwback to RIMs move a decade earlier to form partnership

with mobile providers and share revenues. It was a chance to make BBM the dominant

chat messaging service, and would have created a new story

for the BlackBerry brand.

A few carriers responded positively to Mr. Balsillies initial entreaties and by mid-2011,

he was calling SMS 2.0 the companys top strategic priority.

To round out the strategy, and build a suite of cross-platform services, RIM made a few

acquisitions, such as instant messaging firm LiveProfile. The service had about 15

million users and worked on Apple and Android devices, giving BBM the entre it

needed to those platforms.

But the plan deeply divided the company. BBM was still an important driver of

BlackBerry sales. Making it widely available to competitors represented an added threa

to RIMs faltering handset business, led by Mr. Heins at the time. Many inside the

company felt a cross-platform BBM made sense, but only when BlackBerry 10 was out.

Mr. Balsillie and proponents of his plan felt that would be too late.

Its fair to say [the risk to handset sales] was a shared concern of everybody I spoke to,

said former RIM executive Mr. Spence. But it was hard to deny the fact [carriers text

messaging] revenue was declining. These carriers were looking for a solution and this

was a potential solution.


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One former executive felt Mr. Balsillie was overestimating the revenue potential of his

software-driven strategy. As Mr. Balsillie talked up SMS 2.0, Mr. Heins and his team

increasingly cast doubt on it internally. He was absolutely canvassing behind the scene

working to kill it, said one company insider.

As for Mr. Lazaridis, he was supportive of launching BBM for rival operating systems,

but was concerned about the costs and risks involved in building out the SMS 2.0

strategy, said a source close to the board. We werent in a position to be investing in

free services that required massive capital expenditure [and could provide] zero paybac

for maybe a few years if were successful, the source said. Like others, Mr. Lazaridis

worried about handset sales.

But Mr. Balsillie was increasingly convinced that SMS 2.0 was the way to go. After

pitching the plan to CEOs of 12 of the largest wireless carriers in the world in late 2011,he believed he could sign up at least one major U.S. carrier insiders say AT&T was

interested as well as Telefonica and one or two other European carriers. Thats all it

would take, he felt, to convince others to adopt BBM en masse.

But other RIM executives who were part of the growing SMS 2.0 team also encountered

resistance.

Mr. Balsillie was pushing to formally launch SMS 2.0 at an industry conference at the

end of February, 2013. But with the company under mounting pressure to overhaul its

top leadership, he and Mr. Lazaridis handed the reins to Mr. Heins in late January.

A few weeks later, Mr. Heins killed the SMS 2.0 strategy, backed by Mr. Lazaridis.

We had to get the BlackBerry 10 out, and we couldnt be distracted, said a source clos

to the board. Everything else was shelved. And if that meant getting rid of strategiesthat didnt fit, or werent complete, or required resources, I think [Mr. Heins] did the

right thing.

The Globe and Mail requested interviews with Mr. Heins and with Barbara Stymiest, th

chair of the board. The company declined, but agreed to agreed to provide answers to

written questions.


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Asked why he shelved SMS 2.0, Mr. Heins said in an e-mailed response: There are so

many [instant messaging] alternatives in the marketplace that we wanted to be careful

launch only when we felt we could clearly differentiate our offering.

Mr. Balsillie, no longer an executive but still a board member, urged directors to

reconsider, but they backed the new CEO. Mr. Balsillie couldnt abide by the decision.

He resigned from the board in late March, then sold all his stock. Few people knew the

reason for his departure, including his long-time co-CEO, Mr. Lazaridis.

BlackBerry did launch a version of its BBM application last weekend for iPhones and

Android devices, but simply as a stand-alone app. Andrew Bocking, the executive who

oversees BBM, said that with built-in capabilities to have group chats, share photos,

calendar items and other features, it really takes BBM to a whole other level I believ

there is an opportunity for a dominant player in instant messaging and there will be onwinner-take-all.

To those who championed the SMS 2.0 strategy, most of them now gone, RIM should

have been well on its way there already.

A fizzled launch

Finally, close to six years after Apple unveiled the iPhone, the long-awaited BlackBerry

10 made its debut at a glitzy launch event in January, featuring singer Alicia Keys as the

companys global creative director. It was a minor detail in a much larger story, but th

made-up title and meaningless job irked some who wondered why the company was

distracting itself with celebrity endorsements while in the fight of its life.

The Z10 device itself won a number of positive reviews. The New York Times David

Pogue, who previously had predicted that the BlackBerry was doomed, began his reviewIm sorry. I was wrong. But eight months later, its hard to see the launch as anything

other than a total business failure, given the sheer volume of unsold smartphones now

written off.

The marketing campaign was confusing and vague: An ad that ran during the Super

Bowl failed to explain what made the product distinct. A source close to the board said


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directors werent shown the ad before it ran, and some didnt understand the content o

the slogan, Keep Moving. There were no lineups, and no buzz for the product

nothing like the frenzy of publicity that seems to surround the launch of each new

version of the iPhone.

Once again, the market had shifted, and there was little demand for the Z10 in an era

where sophisticated operating systems were commonplace and phones were getting

cheaper. The one advantage the BlackBerry may have had over its rivals a physical

keyboard wasnt present in the first model to hit the market.

The only people still clamouring for a new smartphone from BlackBerry were in it for

the keyboard, said S&Ps Mr. Moorman. Then they come out with a touchscreen.

Anyone who wanted a touchscreen was already gone.

As it turns out, both Mr. Balsillie and Mr. Lazaridis were proven right. It was hard

enough to compete in a commoditizing smartphone market. Leading with the wrong

product on top of that only made BlackBerrys task more hopeless. Mr. Heinss strategi

errors only compounded the challenging situation he had inherited.

The product was difficult to sell for other reasons. One company insider said it could

take close to an hour for young sales staff to demonstrate the product in dealer stores.

And many long-time BlackBerry users found that the new system was too different from

the classic BlackBerry experience for their liking. Many of the little moments of

delight, as they are called in the company, were forgotten or overlooked by the QNX

developers who lacked ties to the companys past. For example, users cant hit u and

look at the last unread message in their inbox, nor can they easily shift to the next or

previous e-mail, as they could on older BlackBerrys. Pocket-dialling is a constant hazar

Meanwhile, the company was slow to provide service to business users such as helpin

them to transfer applications they had written for the old BlackBerry system. Software

developers were left with dead-end investments after learning they would have to

rewrite their apps for the new system if they wanted to remain part of the BlackBerry

world. Many simply didnt bother.


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The decisions we made over the last two years were made within the context of a

volatile, competitive and ever-changing marketplace and always with the goal of

delivering the vital technology that our customers need, Mr. Heins said in a written

response to questions about the success of the BlackBerry 10 launch. While he called th

launch a significant accomplishment and one that involved the reinvention of our

company, he acknowledged it did not meet our expectations.

As for Mr. Lazaridis, he has not given up on the enterprise he founded 29 years ago.

He is still a minority shareholder in BlackBerry, and continues to be the subject of

rumours he may join a group to buy out his former company.

Mr. Lazaridis declined to discuss any such plans, but it is clear he believes the

BlackBerry story is not over.

Many companies go through cycles. Intel experienced it, IBM experienced it, Apple

experienced it. Our job was to reinvent ourselves, which we all believed BB10 would do

he said.

The fact that a Canadian company was able to compete in that space with two of the

largest tech companies in the world is a big deal. People counted IBM, Apple and other

companies out only to be proven wrong. I am rooting that they are wrong on BlackBerr

as well.

With reports from Tara Perkins, Omar El Akkad and Iain Marlow

--------------------------------------------------------------

AN INTERVIEW WITH CEO THORSTEN HEINS

Did you make the most of the strategic opportunities before you when you

became CEO? Did you make the right choices? Are there any you would

reconsider?

When I was appointed CEO in January, 2012, I knew there were challenges and

opportunities for all of us at BlackBerry. We had an aging OS and no LTE product, for


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example. What we have created with BlackBerry 10, BES 10 and BBM is a reliable and

secure foundation to enable us to continue to innovate and create new opportunities.

The decisions we made over the last two years were made within the context of a volatil

competitive and ever-changing marketplace and always with the goal of delivering th

vital technology that our customers need and creating value for our shareholders.

How do you feel about the way things have turned out with the BlackBerry

10 launch?

We launched a new platform that delivers a new and different user experience, an

experience that was engineered for people who value extreme productivity, but the

downside is that there is a steeper learning curve when it comes to adopting any new

technology that is disruptive, and I believe that contributed to the slower sales.

Why was BlackBerry 10 so late?

As you know, there were delays during the process, but we are proud of what our team

has developed and brought to market. The integration of the new features into the

platform proved to be more complex and thus more time-consuming than anticipated.

The issues were not related to the quality or functionality of the features in the software

but rather the time required to manage the integration of such a large volume of code

and prepare it for commercial use globally.

Has this been difficult for you personally?

This isnt about me; this is about our employees and our customers. One of BlackBerry

greatest strengths is its talented, committed and passionate employees. And that is why

the recent reduction to the work force was particularly challenging and difficult, albeit

necessary, to address our position in a maturing and more competitive industry, and todrive the company toward profitability.

This interview has been edited and condensed.

--------------------------------------------------------------


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Why the China plan was shelved

One of the many strategies that became a casualty of internal feuding at Research In

Motion Ltd. was a confidential plan for a China-backed venture to sell the companys

wireless network systems in Asia.

In the summer of 2010, RIMs chairwoman Barbara Stymiest and then co-chiefexecutive officer Jim Balsillie approached the state-owned fund China Investment Corp

(CIC) with an overture to form a joint venture. According to people familiar with the

discussions, Mr. Balsillie and CIC reached a preliminary understanding in 2011. Under

the plan, Beijing agreed to approve RIM as the official supplier of wireless operating

systems in China, one of worlds biggest and fastest growing mobile markets that was

virtually closed to foreign competitors.

A new China-based company would be formed and owned by CIC, RIM and a handful o

Chinese mobile phone makers. The venture would sell Chinese-made phones which,

under a licensing agreement, would operate on RIMs core software.

Beijing was very keen to do this deal, said one person involved in the talks.

Mr. Balsillie championed the venture as a lucrative window into the tightly controlled

Chinese market. But according to insiders, RIM co-CEO Mike Lazaridis and a number o

directors worried the plan would distract the company from its core focus on launching

new smartphone, the BlackBerry 10.

While RIMs executives debated the China strategy internally for nearly two years, its

potential Asian partners were left in the dark. We heard nothing. The whole thing just

frittered away, said one person close to the Chinese partners.

Shortly after Thorsten Heins was appointed RIMs CEO in 2013, the China plan was

shelved. Mr. Heins declined in a statement to discuss the abandoned venture.

Jacquie McNish and Sean Silcoff

how blackberry blew-the inside story

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