BlackBerry: The Revolution and The Fall

BlackBerry pioneered the modern smartphone market we're familiar with today. Back in the day, everyone wanted to own a BB. But how did it all go wrong for our dear BlackBerry?

In this story, I dug deep and uncovered the meteoric rise of BlackBerry and its fall from grace. It's tough to stay ahead when big competitors like Apple and Google are breathing down on your neck. Let’s get in the story, shall we?

It Began With a Pager

The year is 1992, and RIM, a small company in Waterloo, Canada, was experiencing difficulties in scaling its business operations.

Under the leadership of Mike Lazaridis, a tech genius, RIM had managed to land impressive contract deals with respected firms. However, the company wasn't making enough money to fuel the engineering vision Lazaridis began with.

Lazaridis had a high vision of revolutionising wireless communication, but his lack of business experience limited him and RIM for several years. Until he encountered Jim Balsillie, a Havard MBA alumni with a strong passion for business and finance.

At the time, Balsillie had recently left the position of CFO at Sutherland-Schultz and was looking for a new adventure when the opportunity to invest in RIM came around.

After meeting with Lazaridis and hearing his vision for wireless communication, Balsillie mortgaged his home, added his severance and life savings, and invested the money in RIM. The investment saw him receive a 30% stake in the company and the role of co-CEO with Mike Lazaridis.

With the new frame, Lazaridis focused on the engineering side of the company, while Balsillie handled everything from business strategy, to finance, and marketing.

Balsillie puts his business mind to practice, and before the end of 1992, RIM's sales revenue exceeded $1 million. While he was busy restructuring the business side of RIM, Lazaridis had enough time to work on his pursuit of wireless data communication.

In 1994, RIM started scaling slowly, building a wireless modem, wireless point-of-sale systems, and other wireless computing devices for the Mobitex network. This became the foundation for what RIM would later go on to achieve.

In 1996, RIM began shifting its business when it made the RIM 900 Inter@ctive Pager, a two-way paging device that came with an internet gateway for email, text-to-speech messaging, and a QWERTY keyboard.

While the features of this device were mind-blowing at the time, its size plus a few glitches didn't sit well with consumers, and, as a result, people didn’t like it. To add salt to injury, Mobitex, on which most of RIM's devices ran, was contemplating shutting down its network due to low customers and a high cost of maintenance. If this happens, it's the end for RIM.

While RIM was facing its struggles, email was becoming popular among business people. And tech giants at the time like Nokia, Motorola, and PalmPilot were all in the race to build the next revolutionary email device.

In 1997, amid these struggles, Lazaridis had a eureka moment and came up with the idea of a tiny QWERTY keyboard that allows you to type with your thumb. (Yeah, the whole thumb-typing thing was invented here.)

With this idea in mind, Lazaridis and the engineers at RIM began working on the next model of the Inter@ctive pager, the RIM 950. To make this a killer product, RIM found a way of tweaking the 950 to send and receive email securely over a wireless network. This was the first time a device would allow users to access email on the go.

All this may sound normal to you in the 21st century, but in the late 90's, you could only send or receive emails via wired networks or modems on PCs/laptops. QWERTY keyboards were a PC thing. I mean, how could a handheld device carry a huge PC keyboard at the time?

These two key features made the RIM 950 a revolutionary invention. It was the first time users would be able to easily carry the internet in their pockets, wherever they were. A small start-up in Waterloo, Canada, was on the verge of changing the world. But there's one small problem.

Even if RIM could pull this off, the company doesn't have enough financial power to scale the RIM 950 in a way that would have a large impact. And considering the underperformance of the previous RIM 900, it would be quite difficult to convince investors to invest.

As a result, RIM pitched their potential revolutionary pager to Bell South, a networking company they’ve worked with before.

When the executives at Bell South saw the device and what it could do, they were sold. Bell South decided to pre-order $70 million worth of the RIM 950, giving RIM the money it needed to produce on a large scale.

As production kicked off, RIM's growing expenses ate deep into their pockets, and soon again they needed cash. The 950 revolution was about to collapse.

However, RIM found a way out by going public on the Canadian Stock Exchange, raising about $150 million. Now that RIM has solved its financial problems, can the party begin?

The BlackBerry Revolution

When the RIM 950 launched, it was an instant hit among engineers and IT personnel.

Nokia, Motorola, and Palm Pilot were shocked to their core. RIM came out of nowhere and was about to blow them off their seats at the high table of consumer favourites. But can they?

It was obvious to the technical mind that the RIM Inter@ctvice 950 pager was a genius invention, but with its name, consumers saw this as another paging device. Hence, it was difficult to sell to them. Most people didn’t even know it could do wireless email because no mobile device could at the time.

If RIM wants wider appeal, then subsequent product releases need to employ strategic marketing and branding. As a result, RIM hired Lexicon Branding to come up with a name for its new devices.

Drawing inspiration from the shape and feel of the keyboard on the 950, the team at Lexicon Branding came up with the name 'BlackBerry'.

The name stuck, and in 1999, RIM launched the BlackBerry wireless email service, accompanied by the new BlackBerry 850, which functioned as a sort of messaging device that also had personal digital assistant (PDA) features - sending and receiving encrypted emails, an address book, a calendar, and a battery that could last for three weeks.

The features of the BlackBerry 850 appealed more to business people than to regular consumers. And because RIM knew it was a killer product, they employed an unconventional marketing approach.

Pre-launch in 1998, Balsillie invaded Wall Street, giving away 100s of BBs to business executives, politicians, lawyers, bankers, journalists, etc. RIM employees flooded tech and business conferences all over the U.S. and Canada, offering people using old-fashioned computers a BB to use freely for a month.

For corporations, BlackBerry made sense, as they could reach their employees anywhere at any time with a single address. While on the side of employees, they don't need to stay attached to their desks to receive messages from work.

As a result, this provoked massive word-of-mouth marketing from Washington to Wall Street and all across the U.S. Every business person wanted a BlackBerry, and soon companies began ordering in bulk for their employees.

Among business people, BlackBerry displaced Pagers, Nokia, Motorola, Palmpilot, and other popular mobile devices at the time. In BlackBerry's year 1, RIM's revenue increased by 80% to over $85 million—65% from contracts with telcos and 35% from hardware. Later that year, RIM went public on the Nasdaq stock exchange, raising $255 million.

Following this, RIM did another offering in November 2000, where it raised $900 million to fuel expansion into several markets across the world.

BlackBerry devices were gradually becoming a sign of status.

In the 9/11 terrorist attack of 2001, when all mobile phone systems in New York and DC stopped working, BlackBerry was the only active network, causing the BlackBerry name to be respected among powerful figures in the political and financial sphere.

To ensure they displaced other mobile phones entirely from the minds of business customers, RIM integrated voice capabilities that enabled cellular telephone calls in subsequent BlackBerry models. The BB 5810, released in March 2002, became the first BlackBerry mobile phone.

It was success upon success for RIM and its BlackBerry devices. The stars were aligned in its favour. Or was it?

While RIM was having a good time, trouble was brewing on the horizon.

Party Crashers

Earlier in 2001, RIM filed a suit against Glenayre Electronics over patents on integrated electronic mailboxes. However, this suit created an opening for an attack.

In a classic case of "do unto others as you want them to do unto you", a small company in Virginia, United States, NTP Inc., filed a suit against RIM for infringement on its patents for wireless email—the underlying feature that made BlackBerry devices popular.

RIM viewed the case as an unsubstantiated one. Who was NTP compared to RIM? They weren't a tech company in the real sense. I mean, they don't manufacture any products. So, this shouldn't be a problem, right?

What RIM didn't know was that while NTP didn't make its own products, the company had filed patents for several innovations, including wireless email systems.

To the shock of RIM, NTP won in court. The judge mandated RIM to pay NTP over $23 million in damages plus an annual royalty of 8% of all of its U.S. sales. The last part of that ruling—8% royalty—spelt doom for RIM at the time. And like most court rulings, RIM appealed.

While the issue lagged in court, RIM continued releasing products and was growing steadily. Oprah Winfrey even declared BlackBerry as one of her favourite things, causing RIM’s revenue to shoot up.

In 2006, RIM began widening its target customer base from only business users to regular consumers, but at a slow pace. They launched the BlackBerry Pearl, which integrated basic multimedia features like a camera and media playback, plus the amazing BlackBerry Messenger (BBM), which was the rave of social media messaging.

But the verdict from their appeal awaits.

In 2006, a judge ruled that RIM should settle with NTP within 10 days or shut down its services in the United States. This meant losing over 11 million BB subscribers in the tech and finance capital of the world.

Considering RIM had even grown bigger than it was before the suit, NTP maintained a difficult position during the negotiations for settlement, especially on the 8% royalties.

After much deliberation, RIM settled with NTP for a whopping $615 million—an agreement that enabled them to sell their products without paying any royalties again. With the case behind them, RIM could focus entirely on growing the BlackBerry brand.

RIM launched newer models of BlackBerry into the market, introducing new features but with the same slow cadence. Some of the popular models at the time included the BB 8800 and Curve 8900.

Lazaridis didn't make radical changes when releasing newer BB models. As a result, most of the latest models had different hardware designs but the same software and features, with only a few minor tweaks.

By mid-2007, RIM had garnered over 9 million subscribers across 120 countries, a market capitalisation of about $42 billion, with sales climbing over $2 billion. They were the number one smartphone in the U.S. with a 30% market share and second globally behind Nokia.

Nothing could stop them now! However, such a statement is often not true when you walk slowly in a radical, fast-paced tech industry. Could BlackBerry be the outlier?

RIM thought dealing with the NTP lawsuit was tough, but something was cooking in Cupertino, California. Apple wants to enter the smartphone market.

Yet RIM wasn't interested.

After all, Apple was a company led by a guy with little technical experience compared to their co-CEO, Mike Lazaridis, who's had an Emmy and Academy Award for outstanding achievements in engineering to his name. Apple is good with computers, not smartphones. RIM underestimated them.

But the next challenge didn't come from outside like everyone was expecting; it happened within the walls of RIM's headquarters in Waterloo, Canada.

Earlier in the year, news broke out that RIM had backdated most of the stock options reserved for executives and employees. After investigations, it was confirmed that RIM's executives, including its co-CEOs, made $250 million from the scheme over an eight-year period. This violated the SEC and Canadian Stock Exchange rules.

Stock options allow you to purchase a company's stock at a specific price on an agreed-upon date. If the company's stock price increases, you can profit from the difference. The illegal act of backdating helps you make more money if the company's stock price was lower on previous dates.

Read more here.

As more investigations continued, RIM lost trust in the eyes of most investors, and this crumbled the relationship between its co-CEOs. Mike Lazaridis blamed Jim Balsillie for the whole fiasco, claiming he knew nothing about the financial side of the company.

In the heat of the investigations and a deteriorating relationship between RIM's CEOs, Apple debuts the iPhone.

Berries or Apples?

Earlier in January 2007, when Steve Jobs pitched the iPhone, Lazaridis didn't believe a mobile phone could have the sophisticated features that Apple promised—a powerful web browser, emails, calls, a full multi-touch screen without keyboards, a camera, 4GB of storage, iTunes, WiFi, and other amazing features. I mean, it was like trying to fit the MAC (or a computer) into a phone.

It was impossible!

For a phone, this meant poor battery life, and the heavy loading on the network would be difficult for network carriers to handle. Plus, the ease of quickly typing emails on keyboards is one of the reasons people love BlackBerry. No one would want to type on their screens.

Balsillie, on the other hand, envisioned that the iPhone would be another fellow in the long list of supposed “BlackBerry killers” that failed to catch up. And the price was outrageous—$500 for a phone in 2007?

Instead of developing ways to respond to the iPhone, Balsillie was busy bidding for professional hockey teams. The iPhone wasn't a problem. Or was it?

In year 1 of the iPhone, it sold like wildfire, with a revenue of $630 million from 1.4 million units while grabbing 4% of the U.S. smartphone market share in the process. By comparison, RIM sold over 10 million BB units in the same year, causing a 50% increase in sales.

Who cares about the iPhone when you have such huge sales?

RIM continued shipping its buttoned Java-based BlackBerry products to the market. And it sold well—even better than the iPhone. But Steve Jobs wasn't done throwing punches.

Everything changed in 2008 when the second model of the iPhone entered the market, offering a 3G internet connection, an updated OS, and the App Store—the first of its kind. Apple was giving developers the freedom to reach iPhone users for free. It was revolutionary!

As a result, iPhone sales skyrocketed in the first half of 2008. Apple was gradually eating up RIM's BlackBerry market share.

In response, RIM released the BlackBerry Bold 9000 with the same old Java-based OS but accompanied by web browsing and a slightly impressive camera. It was an iconic phone but compared to the iPhone 2,... meh.

On top of this challenge, Google's Android OS launches, making the competition a tougher one. The race is on.

RIM Strikes Back

In the summer of 2008, RIM decided to make a full touch screen semi-keyboardless device for their next BlackBerry release after receiving a huge contract from Verizon. And off they went with the BlackBerry Storm.

As its name suggests, RIM aimed to storm the smartphone industry through what they call the SurePress technology.

They were combining a touchscreen and a keyboard as one element.

The BB Storm debuts, and ironically, it caused a storm for RIM instead. The screen was unresponsive and difficult to type on, plus the software was old, glitchy, slow, and didn't support third-party apps or WiFi.

RIM had to replace the entire first batch—over 1 million units—it shipped into the market.

In 2009, RIM attempted to correct its mistake by launching the Storm 2, but it met mixed reactions in the market.

While RIM was carrying out all of these launches, its operating system remained the same old Java-based software that developers didn't fancy. Compared to iOS and Android, Java was an outdated piece of software.

As a result, when the BlackBerry app world launched, it didn't attract developers, as it managed only 3,000 apps. In contrast, the App Store had over 85,000 apps.

Despite this, RIM was named the fastest-growing company in the world by Fortune magazine, largely because of its market capitalisation and quick recovery from the shock of the global financial crisis.

By the fourth quarter of 2009, RIM had begun losing steam as the company missed its sales target by over 650,000 units.

The iPhone, on the other hand, was gaining market share rapidly. It was the perfect device for regular consumers, as it enabled them to access interesting applications that were hard to come by before.

However, BlackBerry maintained the upper hand among business users because their phones were somewhat majorly targeted towards them. But not for long.

In January 2010, Apple went after RIM's major customers by releasing the iPad. The iPad's large screen made it perfect for presentations and drawings, which was critical for business users.

Apple was offering the ultimate business and casual solutions package with the iPhone and iPad. This was a huge blow for RIM. And within the next few months, BlackBerry sales declined significantly in the U.S.

In February 2010, Verizon announced it was investing heavily in 4G technology and tasked RIM with building 4G-enabled smartphones. RIM declined the offer.

At the time, BlackBerry devices featured 2.5G networks, and the engineers at RIM weren't sure of a 4G network for smartphones. I mean, they didn't even do 3G; why would they want to go all the way to 4G? Would this decision cost them?

RIM shifted its focus to changing BlackBerry's ageing OS to something smarter and, as a result, acquired Canadian firm QNX Software Systems to help develop the new operating system. A change that many felt should have come a long time ago

RIM was finally ready to strike back this time. They were about to launch an era of "superphones."

Chasing The iPhone

However, before they could breathe an air of relief, Verizon ditched them and moved over to their fiercest competitor, Apple, in a partnership that would power the launch of 4G-enabled iPhones.

As the news reached RIM’s headquarters, they panicked and rushed the release of their new tablet product, which was to help win back business customers - the BB Playbook. It was a total disaster!

The Playbook failed at BlackBerry's selling point of lightning-fast emails—the very thing that made RIM a success in the beginning. It had no calendar or contact features, which were necessary for business users. In addition, the Playbook's QNX OS was difficult for developers to build applications for.

As a result, sales tanked, causing RIM's stock price to suffer a meltdown. The iPhone and Android had relegated BlackBerry to the sidelines.

While RIM was suffering from these huge losses, its co-CEOs, Jim Balsillie and Mike Lazaridis, didn't bother reconciling their differences since the stock options backdating issue. This was affecting the company seriously.

By June 2011, RIM was already bleeding cash very fast, and, as a result, they laid off 20% of their workforce. The increasing decline of RIM caused a stir in the market, and shareholders demanded that Balsillie and Lazaridis resign from their positions as co-CEOs.

The icing on the cake was when RIM experienced a server failure in October 2011 that wiped out communication capabilities for 70 million BlackBerry subscribers worldwide. BlackBerry customers couldn't use their devices for three days.

As sales dipped further, Jim Balsillie came up with an amazing idea. BBM was one of the few features that still made BlackBerry devices popular. Instead of focusing more on the hardware business, why not license the software and make it available on both Android and iPhone? He called it SMS 2.0.

Balsillie was envisioning what WhatsApp or LINE of today stood for—even more. But Lazaridis and the board at RIM disapproved. They felt the whole idea would make BlackBerry devices lose their appeal. Pinging was the thing that made BlackBerry phones special. Many also suggested that Lazaridis disapproved because of the bad blood between him and Balsillie.

In December 2011, RIM's market capitalisation reached a low of $7.4 billion, down from $63.6 billion in 2007.

When January 2012 came, Jim Balsillie and Mike Lazaridis resigned from their roles as CEOs.

Under new management, RIM looked set to make a comeback by launching a new set of BlackBerry 10 devices that allowed Android applications. But it was too late.

The 4G iPhone 5 launched in September 2012, quenching any buzz the BB10 looked to generate. iPhone and Android took over the market from the original smartphone champ.

RIM was later renamed BlackBerry Ltd. in 2023. It tried to stay in the smartphone market for a while by producing more BB10 smartphones like the Z10, Q10, BB Passport, Keyone, etc. But the race was over.

BlackBerry Ltd. stopped making smartphones in 2016 and now operates as an enterprise software company.

My Two Cents

• You aren’t the only one that can come up with something revolutionary. If you want to maintain that leading position, you have to continue being revolutionary in your approach.

  BlackBerry did something difficult by manufacturing wireless mobile devices. They relaxed and believed that Apple couldn’t achieve the “impossible.” And we all know how that panned out.

• Never stop listening to customers and the market. Stop assuming you know what's best. Always listen to the market.

• You can’t beat a big competitor by rushing to the market. It took Apple about five years to develop the iPhone. BlackBerry didn’t plan a weighted response for the iPhone. Instead, they rushed to the market without understanding the dynamics of a changing smartphone market.

• Companies should have a conflict-resolution mechanism that ensures key executives stay on their A-game. If Lazaridis and Balsillie had reconciled earlier, they would have formulated a working plan together to save the company.

Post Credits

Did you know?

• BlackBerry was internally called Pocketlink by RIM employees. The name was later changed after feedback from outsiders indicated that the name was boring.

• There’s a BlackBerry movie that was released earlier this year. But like most movies, a lot of the scenes are based on fiction.

Some interesting links I came across during the week:

• Charlie Munger, vice Chairman of Berkshire Hathaway, shared some funny insights about investing in this short video.

• This Founders podcast’s episode on David Ogilvy is so good.

Sources

Research, no motion: How the BlackBerry CEOs lost an empire

BlackBerry/RIM's revenue from fiscal year 2004 - 2023

Balsillie, Jim And Mike Lazaridis

Research In Motion Ltd

The history of Blackberry: The best BlackBerry phones that changed the world

Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of BlackBerry by Jacquie McNish & Sean Silcoff

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