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BlackBerrys fundamental problem is that companies are now buying the same smartphones and

tablets that their employees use at home. So, by losing in the consumer arena, BlackBerry will
find it even harder to win in the workplace. It also faces stiff competition from the likes of
MobileIron and AirWatch, whose device-management software has adapted far more swiftly to a
world in which BlackBerrys are being squashed by iPhones and Android handsets.
http://www.economist.com/news/business/21586869-going-private-will-not-solve-companysproblems-still-jam

Leadership lessons from BlackBerry's demise


(MoneyWatch) COMMENTARY The amazing thing about startups is you have no idea if what
you're doing will go viral. And you certainly don't know when or why. One thing's for sure: When
it happens to you, it feels like you're on top of the world -- like nothing could ever go wrong.

That's so not how it works.


In 2003, a little-known Canadian pager company, Research In Motion (RIMM), came
up with a "push" email device with a built-in QWERTY keyboard. The BlackBerry
did one thing flawlessly -- it enabled corporate users to use email from just about
anywhere. Who knew that was a killer app? Nobody I knew, that's for sure.
RIM CEO's wacky new planBlackBerry: How RIM destroyed a great brand10 big
brands in big trouble
But the next thing you know, venture capitalists, bankers, and executives are
thumbing their brains out in meetings and boardrooms everywhere. The CrackBerry
was born. Suddenly, smartphones made sense, and RIM owned the market. Sales went
through the roof, topping $1 billion in 2005 and $10 billion just four years later.
But the thing about disruptive technology is it can work for or against you.
RIM was caught completely by surprise when Apple (AAPL) launched the iPhone in
2007 and took smartphones to the next level with an advanced web browser and thirdparty app support. Google (GOOG) followed shortly thereafter with its own Android
platform. Turns out a smartphone could have other killer apps. Suddenly, the
BlackBerry had company.
RIM co-CEOs Mike Lazaridis and Jim Balsillie responded with a remarkable
imitation of two deer caught in the headlights. First, there was disbelief, then
mockery, and finally, agonizingly slow, grudging efforts to catch up. And they never
once admitted they were in trouble, even as the iPhone and Android decimated
BlackBerry's market share. Even after another Apple breakthrough, the iPad, hit the
market.
Finally, after RIM had lost $70 billion in market value and was forced to take a $485
million charge on unsold PlayBook tablets, enough was enough. In January, Lazaridis
and Balsillie stepped down and, of all things, appointed a little-known insider, coCOO Thorstein Heins, to replace them as CEO. In his "coming out" conference call,

Heins wasted no time breaking out the company Kool-Aid, boldly announcing his
plan to simply stay the course, "I don't think that there is some drastic change
needed."
Last week, Heins finally came to his senses, declaring what investors, employees -indeed, everyone -- wanted and needed to hear: "It is now very clear to me that
substantial change is what RIM needs." The company also announced the departure of
two key executives, that Jim Balsillie will step down from the board, and that it's
reviewing "strategic opportunities," meaning it may not survive as a standalone
company.
Now, was that so hard? If only it hadn't taken five years.
While this sort of thing happens all the time in the business world, rarely, if ever, has
there been such an impressive example of one company's leadership doing so many
things so terribly wrong, one right after another, causing the premature demise of a
once-great brand. There are powerful lessons here for all of us.
Highly competitive global markets are brutal and unforgiving. There are only two
types of companies -- the quick and the dead. Time is never on your side. There
simply is no excuse for a "wait and see" approach when you're dealing with a
company like Apple and a breakthrough like the iPhone. Because it took five years for
RIM's executives to wake up and realize their predicament, the company may very
well bite the dust.
Diversity is a good thing. A board populated entirely by bean-counters is a bad idea.
All eight of RIM's outside directors, including its chairman and lead director, are
accountants, economists, and finance people. (No kidding. You canread their bios
here.) Like minds think alike and are subject to group-think. When it comes to
strategic oversight and corporate governance, as with so many things, a little diversity
is essential.
Always respect the competition. Former Intel (INTC) CEO Andy Grove had it right
-- only the paranoid survive. Once you've managed to create a killer app, a giant
market opportunity that never before existed, you need to do three things: scale to
keep up with demand and growth, continue to innovate, and look out below -competitors are coming after you. Don't let success go to your head. Inertia, breathing
your own fumes, will spell disaster.
Promoting from within isn't necessarily a good idea. Had IBM (IBM) promoted
from within the company in 1993 instead of hiring Lou Gerstner as CEO, there
probably wouldn't be an IBM today. Likewise, the situation at RIM calls for an
outsider. Heins was part of the problem; now he's supposed to be part of the solution.
Sorry, I don't think it works that way. It doesn't bode well that, as part of the
company's leadership, he couldn't see what so many outsiders saw long ago.
Moreover, many -- including me -- don't see him as turnaround CEO material.

Capitalism is alive and well. A recent Harvard Business Review articledeclares, "the
capitalist system is under siege" and needs fundamental change because companies
are more or less evil. Look, the banking meltdown didn't change the fundamentals of
capitalism. We're all stakeholders in companies. As employees, investors, partners,
whatever, we want our executive management teams focused on delivering products
that beat the competition, gain market share, and grow revenues and profits. If not, we
end up losing our jobs, our 401Ks, our business. That doesn't mean companies should
destroy the environment in the process of growing their business. I happen to think
executives can walk and chew gum at the same time.
More than anything, RIM's premature demise reinforces that entrepreneurial success
can be fleeting. It teaches us that the companies we can learn the most from -- the
leaders that deserve our respect and admiration -- aren't the ones with a viral product,
but the ones that survive the onslaught of competitive markets and somehow continue
to thrive.
http://www.cbsnews.com/news/leadership-lessons-from-blackberrys-demise/

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.

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 get 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
a 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.
in 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
past 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
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 with 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 nonBlackBerry 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
over 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 brief
statement 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.

Now, BlackBerrys future is in doubt. This week, Fairfax Financial Holdings Ltd., a
Toronto-based investment company, announced a plan to lead a $4.7-billion takeover
of 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
be 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 entire 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
interview at his Waterloo office. Its going to collapse the network. And in fact,
some time later it 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. 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 a hit for Verizon Wireless, one of the biggest U.S. wireless players. Frozen out of
the iPhone 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. The 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 fastestgrowing company. 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 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 Android 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 vice-president of global sales, who left in 2012. There was a time when the
[wireless] carriers 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
the 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 highlycustomized 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 fixed 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 you
dont 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
leave 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 for the backlash that followed. Large corporate customers didnt want
personal applications 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,
has 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. 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 and supply 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
along. And as the company grew into a leviathan with $20-billion in annual sales, the
structure 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
former 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 the 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
acquire Ottawa-based QNX Software, a cutting-edge software maker that would
provide the building blocks for the BlackBerry 10 operating system the new
platform Mr. Lazaridis 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.
Its 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
that succeeded against challengers often did so by allowing small, cloistered teams to
develop 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
the 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
for 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
was 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?

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 a 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 to 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 smartphones in its marketing.

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

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 new 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.

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 so 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 companys 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 was 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 drive 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.

But BBM only worked on BlackBerrys. As Apple and Android took off, BBM knockoffs appeared that could function on those devices, including Kik Interactive Inc.,
founded by 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 to
open 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 overthe-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 gained 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.

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 they 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
partnerships 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 mid2011, 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
threat 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.

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 scenes 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 payback 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
close to the board. Everything else was shelved. And if that meant getting rid of
strategies that 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,
the chair of the board. The company declined, but agreed to agreed to provide answers
to written questions.

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 to 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 believe there is an opportunity for a dominant player in instant messaging and
there will be one winner-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 the 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
review: Im 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 directors werent shown the ad before it ran, and some didnt understand the
content or 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
strategic 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 hazard.

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

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
the 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
BlackBerry 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
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 volatile, competitive and ever-changing marketplace and always with
the goal of delivering the 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
BlackBerrys 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 to drive the company toward profitability.

This interview has been edited and condensed.

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

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-chief
executive 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 of 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 of directors worried the plan would distract the company from its core focus
on launching a 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

http://www.theglobeandmail.com/report-on-business/the-inside-story-of-why-blackberry-isfailing/article14563602/?page=all