The Theory of Path Dependency

 

RIM/ BlackBerry Case
In August 2009, RIM (subsequently BlackBerry) was crowned the world’s fastest-growing company by
Fortune and market research reported that four of the top five smartphones American customers intended
to buy in the three months that followed were BlackBerrys. Four years later, however, more than $75-
billion had dropped off the company’s market value. In September 2013, the former giant and runaway
leader in the smartphone industry reported a $965-million 2nd quarter loss. This was due in part to a
massive write-down of Z10 phones that sat, unsold and unwanted, some eight months after their launch.
Consequently, the company, now seemingly a bit-part-player in the industry, was looking to cut around
4,500 jobs, 40 per cent of its workforce, as it sought to align costs with falling revenue.

This tutorial will look to explore these developments for RIM/ BlackBerry using a theory of Path
Dependency. This will require you to be familiar with the lecture material and to:

• Read the article by Silcoff, McNish and Ladurantaye (2013) from the Globe and Mail entitled
‘How BlackBerry blew it: The inside story’ (available on KEATS)
• Watch this short video entitled ‘Meet the BlackBerry Priv – nice phone, shame about the price’
reviewing the new BlackBerry Priv’ also from the Globe and Mail located here:

http://www.theglobeandmail.com/report-on-business/video/video/article27120753/

Based on these, you should then prepare answers (a short paragraph or two for each) to the questions
below prior to the tutorial. Please remember that you will need to hand in a printed copy of your
prepared answers during your tutorial class. The format guidelines for this are available on KEATS.

1. What challenges did the launch of the iPhone in early 2007 present for RIM (subsequently
BlackBerry)?
2. How successful have RIM/ BlackBerry’s responses been in this ‘post-iPhone era’? Consider the
major market, technological and organisational issues they initially faced, and the extent to which you
think these have subsequently been addressed.
3. Drawing on materials from the lecture, to what extent could the actions and choices made by
RIM/ BlackBerry be explained by a theory of (organisational) path dependency? Consider how history had
mattered for the available scope for action and contingency for the company through dominant focal
action patterns, increasing returns and/ or possible lock-in effects.

How BlackBerry blew it: The inside story
By SEAN SILCOFF, JACQUIE McNISH AND STEVE LADURANTAYE

Canada’s prized technology company is now confronted with many challenges as it tries to find a
model for survival
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 company’s Waterloo, Ont., headquarters to review plans for the launch of a new phone designed to
turn around
the company’s 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 RIM’s 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 company’s co-
founder
and its former co-CEO. Minutes earlier, he said, he had spoken with Mr. Heins’s 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 –
RIM’s signature offering – was dead.
In the board meeting, Mr. Lazaridis pointed to a BlackBerry with a keyboard. “I get this,” he said.
“It’s clearly
differentiated.” Then he pointed to a touchscreen phone. “I don’t get this.”
To turn away from a product that had always done well with corporate customers, and focus on selling
yet another alltouch 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 company’s 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 company’s ability to develop products just as it faced its greatest challenge
from more nimble
and creative rivals – and contributed to the downfall of Canada’s 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. Lazaridis’s long-time business partner
and co-CEO.
Inside RIM, the brash Mr. Balsillie had championed a bold strategy to re-establish the company’s place
at the
forefront of mobile communications. The plan was to push wireless carriers to adopt RIM’s 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 over as RIM’s
CEO in January,
2012, he killed it, with Mr. Lazaridis’s 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 company’s decision to cancel the
BBM crossplatform 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, BlackBerry’s future is in doubt. This week, Fairfax Financial Holdings Ltd., a Toronto-based
investment
company, announced a plan1 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 company’s 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.
“It’s really hurting me,” he said in an interview. “I can’t 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 didn’t 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 hadn’t 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. ” ‘It’s
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.
“That’s marketing,” Mr. Lazaridis explained. “You position your strengths against their weaknesses.”
Internally, he had a very different message. “If that thing catches on, we’re competing with a Mac, not
a Nokia,” he
recalled telling his staff.
RIM soon earned a chance to show up its new rival. RIM’s 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 RIM’s 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 wasn’t 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, RIM’s 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 didn’t seem so disastrous at the time: RIM was in the midst of a torrid global
expansion. In
August, 2009, Fortune crowned it the world’s fastest-growing 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 Motorola’s Droid phone in 2009 – at the expense of marketing dollars to support BlackBerry
products.
Verizon’s “iDon’t” campaign highlighted all the shortcomings of the iPhone that Android addressed with
its consumerfriendly 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, Android’s market share in the U.S. had grown to 23.5 per
cent from 5.2
per cent a year earlier, as RIM’s 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, RIM’s 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 RIM’s highly-customized system proved
complex and
time-consuming. RIM’s 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. Apple’s aggressive negotiating tactics had alienated many carriers, and the iPhone didn’t
seem like a

threat to RIM’s 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 company’s engineering culture had served it well when it delivered
efficient, lowpower devices to enterprise customers. But features that suited corporate chief
information officers weren’t what
appealed to the general public.
“The problem wasn’t 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 don’t 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 don’t want your phone
to die at 2 p.m.’
“We would say, ‘We know better, and they’ll 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
weren’t prepared
for the backlash that followed. Large corporate customers didn’t want personal applications on
corporate phones, said
a former RIM executive who attended the session.
Meanwhile, it turned out consumers didn’t care so much about battery life or security features. They
wanted apps.
Apple’s iOs and Google’s Android systems were relatively easy for outside software developers to use,
compared to
BlackBerry’s technically complicated Java-based system.
Blackberry’s apps looked “uglier” than those programmed in more modern languages, and the simulator
used to test
the apps often didn’t 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 RIM’s 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. Lazaridis’s side of the
shop made the
phones, and Mr. Balsillie’s sold them. The two men were collegial and collaborative.
Below the top executives, however, the two sides of the company didn’t 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 didn’t 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. Conlee’s 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 company’s 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, RIM’s leaders felt.
Mr. Lazaridis decided to take a page from the business strategy book The Innovator’s 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 team’s first assignment was to work on an operating system for the PlayBook, RIM’s answer to
Apple’s
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 company’s 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,
didn’t appear until April, 2011, and it failed to sell. It was an awkward accessory to RIM’s
smartphones, and lacked email, contacts and apps. Once again, RIM had missed the mark: Tablets that
sold well worked as standalone devices,
which the PlayBook wasn’t.
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
weren’t 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 you’d have a whole team, not 150 people sitting
around
saying, ‘I don’t know what I’m going to do next,’ and another 150 people saying ‘I’m over my head.’ ”
Meanwhile, RIM’s 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.
RIM’s 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 couldn’t 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 company’s ability to hit deadlines on products, his views were dismissed and he
was made to
feel he wasn’t 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
year’s 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 company’s 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
company’s
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. Heins’s 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 company’s 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 didn’t 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 other’s strengths to flourish.
They shared an office in their early years, even possessing each other’s 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 Apple’s
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 RIM’s renaissance. Mr. Balsillie wasn’t 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 didn’t charge them – but RIM always pushed back. Mr. Balsillie was particularly
insistent on
keeping the service fees. But the executives knew the company’s 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 world’s
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 didn’t enjoy as many
freedoms as
Western democracies, and helped drive handset sales there.
BBM’s 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 knock-offs 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.”
RIM’s 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 “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 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 couldn’t move stored data to rival mobile carriers as easily.
The SMS 2.0 plan was a throwback to RIM’s 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. Balsillie’s initial entreaties and by mid-2011, he was
calling SMS 2.0 the
company’s 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 entrée 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 RIM’s 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.

“It’s 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
weren’t 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 we’re 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. That’s
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 couldn’t be distracted,” said a source close to the board.
“Everything
else was shelved. And if that meant getting rid of strategies that didn’t fit, or weren’t 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 couldn’t 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 company’s “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: “I’m sorry. I was wrong.” But eight months
later, it’s
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 weren’t shown the ad before it ran,
and some didn’t
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 – wasn’t 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&P’s 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 BlackBerry’s
task more
hopeless. Mr. Heins’s 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 company’s past. For example, users can’t 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 didn’t bother.
“The decisions we made over the last two years were made within the context of a volatile, competitive
and everchanging 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 everchanging 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
timeconsuming 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 isn’t about me; this is about our employees and our customers. One of BlackBerry’s 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 company’s wireless network systems in Asia.
In the summer of 2010, RIM’s 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 world’s
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
RIM’s
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 RIM’s 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 RIM’s CEO in 2013, the China plan was shelved. Mr. Heins
declined in a
statement to discuss the abandoned venture.
Jacquie McNish and Sean Silcoff

References
1. www.theglobeandmail.com/report-on-business/read-the-letter-from-fairfax-to-
blackberrysboard/article14505072

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