AN INSIDERS LOOK AT THE RISE AND FALL OF RIM

Research In Motion is in the midst of a major transition in every sense of the word. Publicly, the company is portraying a very defensive image — one that is very dismissive, as if RIM is profitable and class-leading, and the media is out of line to criticize its business, as are investors. Internally, however, there’s a different story to be told. It’s a story filled with attitude, cockiness, heated arguments among the executive team and Co-CEOs, and paranoia. We’ve spoken to multiple ex-RIM executives at length about their experiences with the company over the past few years. While most speak highly of RIM and their time in Waterloo, they also each left the company due mainly to RIM’s lack of vision and leadership. Read on for an exclusive inside look at a company teetering on the edge between greatness and collapse.

“Lightning in a bottle.” That is how one former executive described Research In Motion in its early days. “This came together at the right time, the right place, with the right technology, and Jim and Mike are extremely brilliant individuals.” Jim Balsillie and Mike Lazaridis are two irreplaceable leaders who were largely responsible for RIM’s success, our source continued. But as time progressed, Mike did not listen to the marketplace. This is obvious from the outside view, though the details surrounding why RIM is no longer a market leader — and why RIM will most likely not be able to regain its leadership position in the near future — are most interesting.

Let’s rewind a few years. Picture yourself sitting in an executive briefing at Research In Motion. You’d hear Mike Lazaridis unequivocally state time and time again that BlackBerry smartphones would never have MP3 players or cameras in them because it just does not make sense when the company’s primary customers were the government and enterprise. “BlackBerry smartphones will never have cameras because the No. 1 customer of ours is the U.S. government,” Mike Lazaridis would say in meetings. “There will never be a BlackBerry with an MP3 player or camera.”

The fact is, that RIM didn’t only miss the boat in terms of product features and device trends as we now know, but the underpinnings of the company’s consumer failure began all the way back in 2005 with bold statements like these, combined with a lack of research and development in numerous key areas.

Mike Lazaridis would say that the most ridiculous idea was to name a phone with a marketing-derived name, like the Motorola RAZR. “BlackBerry will never do that, it will always be a model number,” he said to executives. “A BlackBerry with a name is ridiculous.”

“Here we are, as young, brazen people, and we’re just like, ‘Mike, you’re missing out. There’s a trend here; it’s a social and collaborative scene in certain media circles’,” one former executive said, describing the general feeling among other executives at the company. “Now look at what’s happened 4 or 5 years later — an MP3 player, camera, name, all done reluctantly.”

“When I would work with our major carriers, I would have to go to Mike’s product development team, and ask what are we going to bring to [redacted],” and it was never a cutting edge product, one former executive told me. There wasn’t ever a three-year roadmap. Mike was always focused on small, granular features like how to make the speakerphone in a BlackBerry the best speakerphone on the market. Mike would say that people were going to buy a BlackBerry because of the speakerphone… “because they wouldn’t need a Polycom anymore.”

The three-year roadmap for RIM products focused on refining the technology in phones had already been released, rather than looking at where to add major new componentry or trying to identify or even shape future trends. “One of the main reasons RIM missed the mark with the browser was because
they were always proud of how little data usage a user would use,” a former executive said. “There was no three-year plan at RIM.” RIM would be proud of the fact that someone would only use 1MB of data in a month in 2005, and as a result, there wasn’t ever any extensive R&D done within the browser space. Over time, that misstep affected BlackBerry tremendously as competing devices began to deliver desktop-like Web experiences. “Mike Lazaridis couldn’t imagine that consumers would be spending hours watching and streaming video to their devices, he couldn’t understand it,” the former exec continued. This is why we don’t see RIM excelling in spaces like camera technology, or displays — because the company never even attempted to anticipate the smartphone trends we’re seeing today. “RIM is a reactionary company.”

I remember going to sit with the CMO of one of the largest wireless carriers, and we would deliver features like “increase battery life by 40%” in the next model, and we would get a blank look on the other side of the conference room. The executives would think, ‘so your telling me with this device I am going to sell 40% less car chargers’, there was a blank stare. “They want the flavor of the week, and the carrier’s loyalty is to their customers and what their customers want. Then try and delivery that.”

“Mike is really brilliant, and superior beyond his years, and what he’s doing with Stephen Hawking and the Perimeter Institute for Theoretical Physics is compelling,” he continued. “There are hundreds of millions he’s put into it, but that doesn’t have anything to do with what RIM’s facing, and what’s in front of them, and the market is asking for them to change their ways.”

“Back a handful of years ago, if someone had a phone at work that wasn’t a BlackBerry they paid for it,” another executive who no longer works at Research In Motion said. “I was at a Fortune 500 organization a few weeks ago, and people were carrying a corporate issued BlackBerry in their left pocket and their own personal iPhone in the right pocket.” He continued, “The fact that people are spending their own money to buy the iPhone, when their company is giving them a ‘free BlackBerry’ sends quite a message to RIM,” says one of our sources.”

They were both stunned that someone could have a corporate-issued phone that could handle some consumer needs, but still walk around with two devices. There were and are many paradigms at RIM. In the corporate world, especially at large companies, the senior executives would buy a BlackBerry as soon as it came out. They would then give their old devices to employees beneath them, and these BlackBerry phones would eventually make their way down through the corporation. This isn’t the case anymore, and now those people that used to receive the hand-me-down BlackBerry devices are asking for shiny new phones.

Jim and Mike got along very well, I was told by multiple current and former RIM employees. The interesting thing, however, is that when they have disagreements, Mike wins all of the internal arguments. “Jim, given his background, doesn’t have the pedigree to compete with Mike on an academic level.” As a result, perhaps, I was told that things have slowly deteriorated between the two co-CEOs. Jim and Mike have “titanic” arguments in the halls of RIM headquarters on various subjects, and we’re told it’s quite open. Stories of explosive fights bleeding out into the hallways and even lunch spots in Waterloo have filled Research In Motion. It used to be that only vice presidents or above would get the privilege of listening to Mike and Jim debate — behind closed doors or in the boardroom. Regular employees now hear the arguments as well, and “they aren’t insulated for that. It’s unnerving. It makes for a nervous environment, and many employees are looking to jump ship. Most people are just uncertain as to what the future holds [for RIM].”

“When you hear Mike talk about the latest and greatest, it’s been the same thing for ten years: security, battery performance, and network performance. RIM has positioned battery life and network performance for years. People are not concerned with iPhone battery life,” one source told me. Network performance, to Mike, trumps any innovation a device like the iPhone offers. “Mike is convinced people won’t buy an iPhone because battery life isn’t as good as a BlackBerry,” a different source said. Mike apparently is in disbelief that people can use over 15GB of data on their iPhone and Android devices, and he feels that people will buy smartphones based on network efficiency, even though carriers with tiered data plans in developed markets love customers who use monstrous amounts of data.

While RIM has always viewed carriers as customers rather than end users, carriers have long been trying to find a different partner that doesn’t charge network fees. Since all BlackBerry devices use the BlackBerry NOC, RIM gets a piece of the data plan users pay on their bills each month. And RIM is the only manufacturer whose products are configured in such a way. “Carriers have always tried to negotiate the fees they pay RIM. They try everything to get that dropped or lowered, but that has been the one holy grail of RIM that has not been touched. ”

An ex-executive who had been responsible for a number of carrier partners for RIM recently told me that the data network fees paid to RIM were definitely the number one cause of heartburn from carriers, and a big point of contention.

If you look at RIM’s global revenue today, the story it paints isn’t a good one as far as driving new business and revenue channels. “They essentially just channel stuff,” a former exec said. For instance, when RIM wants to sell to a new market, it will go to two or three primary carriers and make those carriers purchase a set amount of devices up front to stock the channel for what is typically the remainder of the calendar year. Then RIM will sell those devices at full margin. It’s a great quick and easy profit from the channel. So RIM has now opened up three new carriers in a new country, let’s say, and it had them each purchase “X” thousand units each. Now, RIM can report to the Street that it shipped 700,000 devices at full market value.

After multiple sequential quarters of opening up new countries, there’s obviously a lot of volume there. Though the consensus of many is that RIM is nearing capacity with this strategy. The company now has to rely on the old school model of growth within these existing channels, and just as we’re seeing in North America with the tide changing now that long-standing BlackBerry customers are moving to other platforms and devices, that will happen in countries outside of the U.S. and Canada that have been stuffed with BlackBerry phones. Growth will slow to a stall in these markets, one source told me, and the problems will be compounded by the fact that a lot of these devices are not being sold through to end users. “They’re selling a screen with a giant calculator attached to it. It’s not a cool device anymore.”

As far as the PlayBook is concerned, RIM’s initial 500,000 shipments weren’t even sold at full margin. “RIM’s thought process was that they hoped if they put a product in a carrier’s hands that was less than full margin, it would entice the carriers to apply whatever number of discounts against that to bring it to market at an even lower price — a subsidy on the tablet. RIM isn’t making any money on the PlayBook.” To complicate matters, however, Jim Balsillie told the carriers at the 11th hour that the PlayBook wouldn’t have native email and would require the Bridge app in order to receive emails and provide calendar functions. “RIM is notorious for dropping these bombshells at the 11th hour on the carriers, and the PlayBook not having native email was a shock to the carriers.” They were all expecting a BlackBerry with a bigger screen. RIM was hoping to blow through the 500,000 units and have carriers take orders for millions of additional PlayBooks, but that has not happened yet. Mike Lazaridis looks at it as, why aren’t people buying this tablet when it has the most powerful engine with respect to multitasking, and supports Flash? But consumers have spoken pretty loudly a number of times, and Mike unfortunately leads the product side and continues to miss the mark with the masses, a former RIM executive told me. “I don’t even see anyone in Waterloo walking around with a PlayBook that doesn’t work for RIM,” another former RIM employee said.

“People really think Mike has lost his touch and vision. He’s paranoid. It’s not uncommon to see him walking around campus with bodyguards in tow,” one source told me. “This is a small community of folks in Waterloo. There’s what? 100,000 people and 30,000 of them are students, and it’s an understated place. Sure there are millionaires but no one drives anything fancier than a 5-series BMW. For Mike to be on campus with bodyguards is very peculiar. It’s very Orson Wells-like.” Another former employee I spoke with doesn’t find the fact that Lazaridis has bodyguards to be odd at all due to his stature. RIM’s other Co-CEO, however, is a completely different person.

“Every year, Jim Balsillie and COO Dennis Kavelman would take all the executives to Redtail golf course for a day of R&R with great meals, great VIP service, and every year one executive would not ever go.” Mike could not understand why everyone would go and have a golf day. In fact, he supposedly hated it and he never showed up on purpose, I was told.

“Jim chasing the NHL teams, that caused some separation between Mike and Jim,” one former executive stated. When Jim was in the midst of buying an NHL team, the NHL hired a large group to work on the project, and it had countless former RIM executives called for testimony on what Jim Balsillie was really like — all of the “TMZ dirt,” as one source described it. One executive BGR spoke to refused to talk to the NHL when they reached out, however many others were happy to open up. While this former exec did not have an issue with Jim, it was hypothesized that those with an axe to grind lobbed some dirt at the NHL and it’s most likely one of the reasons they didn’t allow him to proceed with a purchase.

Multiple former executives also spoke of a notable divide between Mike, an internal product guy, and Jim, who focuses more on external partner relationships, in how they each react to leaks from inside the company. “I remember this one time when we had a new device coming out and it leaked to BGR.” Mike lost his mind for a few weeks. He couldn’t fathom how something like this would happen, and he constantly threatened to fire any employees who leaked any information. “He had this ‘you’re either with us or against us’ attitude, and he went off the rails. Every product is Mike’s baby”. On the other hand, Jim would try and spin things, I was told. He would get everyone excited, “you know, here it comes, he’d roll with it and have the attitude that they’re boosting the hype of the device, they’re pre-selling it for us, and so on. That was the message Jim would take.”