Losing the Signal: The Spectacular Rise and Fall of BlackBerry (10 page)

Placek liked “blackberry” for a number of reasons. Lexicon had recently commissioned a “sound symbolism” study by a linguistics professor to gauge people’s reactions to sounds and letters. The professor concluded that the letter
b
, repeated twice in “blackberry,” was a positive sound evoking speed and efficiency. It was also an unexpected name for a technology product, one that would stand out, with both
B
s capitalized. Another connection was the device’s miniature elliptical keys; they resembled the tiny black fruit sacs of the blackberry. “That was important; it made it logical,” says Placek.

When Placek traveled to Waterloo in June, he carried a stack of forty cards, each inscribed with a potential brand name for RIM’s new product. As Placek presented each offering to a group of company executives, Lazaridis grew uncomfortable. Options such as “Byline,” “Outrigger,” and “Blade” didn’t impress him. The engineer who years earlier named his clunky digital advertising unit “Budgie” wanted something friendlier. When the fortieth and final name was presented, Lazaridis perked up:

“BlackBerry.”

“This is it, this is the name,” Lazaridis exclaimed. “I loved it at first sight,” he would later say. Balsillie liked the name but was a bit slower to come around. Many of their RIM colleagues, however, didn’t like the name at all. The company’s pragmatic engineers thought PocketLink perfectly explained the engineering advances of a pocket-sized product connecting people to wireless e-mails. Focus groups agreed. “They all hated BlackBerry,” says Castell. “ ‘What, was it invented by Mr. BlackBerry? Why would you name it that?’ “ he says, imitating one of the participants. “They were like, ‘We all liked PocketLink better.’ ”

RIM’s sales staff had another preference: Blade. RIM’s mobile e-mail device was the perfect tool for road warriors like them. A blade could cut through a thicket of e-mails. Lazaridis disagreed. Blade sounded cold and menacing.
After several days of debate, Lazaridis phoned Placek for help with the naming impasse.

“Mike, compose an e-mail to the people pushing for Blade,” Placek told his client. “Type out the following in the e-mail: www.blade.com. Hit send and do not, I repeat do not, look at the Web site,” Placek urged. Moments later Lazaridis heard a chorus of objections from a nearby office. “Ewwwwww,” was the cry from some of RIM’s salesmen. The Web link had taken them to an explicit porn site.

There would be no further challenges to the BlackBerry name.

The summer of 1998 was an anxious time for RIM. The company was late getting the two-way pager to market, and after it finally shipped tens of thousands of Leapfrogs to BellSouth warehouses, the company uncovered a serious flaw. A software bug caused devices to drain so much power from the batteries that they leaked white electrolytic fluid. To avoid alarming BellSouth, RIM told the carrier it was dispatching employees to upload a new software program. RIM’s sales vice president Don McMurtry and newly hired product manager Patrick Spence took a team of interns on a tour of sweltering warehouses, some located in derelict inner-city neighborhoods. The stealth rescue team spent weeks of thirteen-hour days unwrapping boxes, replacing thousands of batteries, and uploading software fixes that would stop the battery drain. “It was the kind of work you didn’t really sign up for, but we had to get the job done,” says Spence.

Balsillie made his boldest move when BellSouthWireless Data placed its initial $50 million order for Leapfrogs. The deal came after weeks of acrimonious negotiations. Under pressure from his BellSouth masters to stoke profits, Lenahan leaned on Balsillie to sharply discount the Leapfrog. The carrier had poured hundreds of millions of dollars into an expanded Mobitex network on the bet that the Leapfrog would stimulate wireless data traffic. Competitors were selling pagers at the time for about $400 each and charging monthly network fees. Lenahan wanted to lure customers to Mobitex by driving the Leapfrog’s price tag below $250 a unit. Balsillie and Lazaridis thought the demand was ludicrous. RIM would barely earn a profit. Lenahan says contract talks were “testy” because Balsillie would agree one day to terms in the sales contract and call back the next demanding a sweeter deal
for RIM. Several phone calls “ended with somebody hanging up” abruptly, Lenahan says.

After weeks of haggling, the companies had a deal. BellSouth announced in August 1998 a plan to sell RIM’s Leapfrog for an introductory price as low as $249 until the end of December. The cost rose to $359 in 1999. Balsillie signed off on the terms, but he wasn’t happy. Once again a big company was trying to push RIM around. On top of that, BellSouth insisted on an exclusive right to sell the device. At $249 each, Balsillie believed BellSouth was asking for too much.

Weeks after the carrier announced its deal with RIM, Lenahan learned at a wireless industry conference in Orlando that the exclusivity deal he believed he had with RIM wasn’t quite so exclusive. On September 23, BellSouth’s archrival, American Mobile Satellite, issued a press release announcing a “close relationship” with RIM to sell the Leapfrog two-way pager on its ARDIS network. The release quoted Balsillie praising American Mobile as an “important partner” that was “instrumental” in the success of the new pager.

“Lenahan was spitting feathers,” says Rogers’ marketing head, David Neale, who had breakfast with the BellSouth executive minutes after the deal with ARDIS was announced. Neale and a handful of executives from parent company Rogers Communications spent the rest of the meal listening to Lenahan rage about the betrayal. “I hated to lose a deal to ARDIS,” Lenahan says. “I felt that because of the relationship we had with RIM and Balsillie himself, we should have gotten more respect.”

As far as Lenahan was concerned, Balsillie had verbally agreed to sell Leapfrog solely to BellSouth. Balsillie concedes he never dissuaded the carrier’s top officials from thinking they had an exclusive but argues BellSouth’s terms were so punishing that RIM had to protect itself with another carrier partner. Lenahan says his initial response was to cancel the contract. After some “hard conversations” with Balsillie and a few exchanges between the companies’ lawyers, BellSouth stuck with the deal. The carrier’s relationship with RIM, however, would never be the same. Lenahan would be wary about future deals with RIM. “They were on notice. If this kind of thing happened again, there wouldn’t be a second order,” Lenahan says.

Balsillie recalls the ARDIS deal as the moment RIM put formidable U.S. carriers on notice that the Waterloo bantamweight could play just as rough as the big guys. Steering RIM, he says, meant being “massively scared shitless and fucking terrified” that carriers or competitors would one day toss the
company over a cliff. After “trying to bob and weave” around bigger hitters for years, he saw a unique chance to grab the advantage when ARDIS came calling. He correctly gambled that BellSouth was in a corner because it had already signed its contract to buy the Leapfrog, a pager its network badly needed.

Recalling the controversial transaction, Balsillie throws his hands in the air and breaks into a broad grin: “I played the leverage,” he laughs. “Welcome to business.”

Balsillie’s cutthroat tactics were designed for competitors and pushy customers that he believed threatened RIM. Company employees knew better than to cross him. He had a short fuse and could be unforgiving when staff didn’t follow orders or weren’t prepared. Some RIM employees believed the best strategy was to steer clear of the prickly boss.

Not everyone—or everything—listened to the advice. Late one evening in RIM’s offices on Phillip Street, RIM’s radio software prodigy, Matthias Wandel, had a close call when demonstrating his latest gadget to some colleagues. He had created a small car out of knobs and plastic scraps that was designed to run on software code embedded in a tiny radio. The vehicle was programmed to respond to basic signals. When its front bumper hit an obstacle, the car backed up, turned, and continued its journey.

After a few crashes into desks and walls, the car started rumbling down a narrow hallway. It traveled without interruption until it neared the end, where two offices sat on either side of the hall. When the car lurched toward one of the open doors, Wandel and the engineers went quiet. It was Balsillie’s office. Before the car reached the threshold, however, it veered unexpectedly toward the other room, Lazaridis’s office. Watching the car disappear into the office, the engineers started laughing.

“Even this thing is afraid to go into Jim’s office,” one said.

Justin Fabian drew a BlackBerry out of his holster, holding it aloft.

“Just give them a taste,” he said, snapping the device back into its black sheath.

A moment later, he again slapped leather.

“Cradle it in your hands like it’s a valuable object,” he said. “Get them interested.”

Back into the belt holster it went.

“But you don’t want to satisfy their curiosity just yet.”

Just twenty-two and fresh out of college, Phil McRoberts hung on Fabian’s every word. It was August 1998, and Fabian, RIM’s vice president of sales, was showing the newly hired sales rep how to pitch technology. The trick, Fabian said, was to reveal the fun and tactile pleasure of using a BlackBerry. Fabian and Balsillie knew this to be true from watching tapes of focus groups several months earlier: When moderators described e-mail, viewers grew heavy-lidded. But once focus group participants actually handled the device, everything changed. “It takes BlackBerry a few days to grow on you,” Balsillie said.

The key was to get buyers to take it for a trial run. Once they knew what a BlackBerry felt like, RIM had them. They wouldn’t let go. It was important at first to offer prospective buyers no more than a feel, though—“a taste,” as Fabian put it. It was part sales tactic and part defensive move: with giants like Microsoft and Motorola crowding into the wireless data business, the less
said about the elaborate invisible system that made BlackBerrys work, the better, Balsillie warned.

BlackBerry’s guerrilla sales tactics called for a new breed of salespeople. Balsillie told sales VPs Fabian and Don McMurtry to spike résumés from cellular and computer industry veterans. No jaded old-timers: Balsillie wanted young recruits, brave pioneers—“wireless e-mail evangelists.”
¹
The ideal candidates were middle-class Canadians from small towns who had been class valedictorians: young men and women who were energetic, competitive, confident, and game for adventure—hungry outliers much like Balsillie.

RIM found most evangelists, like McRoberts, from the co-op business program at nearby Wilfrid Laurier University. Prospects had to show they could think on their feet. McMurtry tested interviewees by tossing a pen at them. “Sell it back to me,” he said, a trick also used by the notorious Wolf of Wall Street, stockbroker Jordan Belfort. Evangelist Eric Klimstra won over McMurtry by convincing him to buy advertising on the pen. Once RIM’s sales team was in place, Balsillie earmarked $5 million for a launch campaign—peanuts compared to a huge product rollout from the likes of Microsoft. There would be no glossy advertisements, launch parties, or celebrity spokespeople like supermodel Claudia Schiffer (a Palm pitchwoman). Instead, RIM offered thousands of free tastes. Within a few months, as BlackBerry gained initial market acceptance, Balsillie changed the plan to what he called the “puppy dog pitch”; prospective customers would be allowed to take the device for a free one-month trial, as in “take this puppy home; if you don’t like it, bring it back.” The idea was that few would do so after falling for a new object of affection.

McMurtry was still in the office on the night of September 9, 1998, when the phone rang. It was Fabian, in Boston. “Get the team down here immediately,” Fabian said, “It’s a sell-a-thon!” Fabian and Klimstra had landed in the middle of a marketing brawl between two of the world’s leading software makers. Microsoft was staging a national sales show in the backyard of Cambridge, Massachusetts–based Lotus, maker of popular e-mail and spreadsheet programs. Microsoft’s corporate e-mail offering, Exchange, was about to surpass Lotus’s market lead, and the Cambridge company was not taking the challenge quietly. Shuttles plastered with yellow Lotus ads offered free
rides to conference goers arriving at Logan International Airport. Outside the conference’s exhibition hall, Lotus employees handed out branded T-shirts and buttons and invitations to a Lotus-sponsored “Boston ‘E’ Party.” If attendees wore Lotus shirts inside, they could win Red Sox tickets.
²

While Microsoft and Lotus duked it out, Fabian proceeded with RIM’s guerrilla marketing campaign. He had chosen this venue to reveal the first advance peek at BlackBerry, which would be launched four months later. More than four thousand information technology executives and experts attended the three-day show at Boston’s Fleet Center, ordinarily the home of the Bruins and the Celtics. Fabian and Klimstra walked the floor in search of anyone using mobile communicators. The most popular was Motorola’s two-way pager, the PageWriter 2000. It was easy for RIM’s evangelists to impress Motorola users. PageWriter customers racked up massive monthly data bills, and the device’s capacity for exchanging messages didn’t compare to BlackBerry. “Hey, do you get e-mail on that?” Klimstra would ask. “How would you like e-mail on your hip for way cheaper and in a smaller package?” By the end of the first day, Klimstra’s pockets bulged with business cards. “It was like shooting fish in a barrel,” he said. The next day, McMurtry and a few more evangelists were on the first plane to Boston.

Conference goers hadn’t seen anything like the BlackBerry. At a time when primitive two-way paging was considered the new new thing and Internet browsing was still a novelty, a device offering instant access to office e-mails was startling. Initially, the miniature keyboard baffled conference attendees. Some scrunched fingers to try to type on the tiny keyboard as they would on their personal computers. Others poked at the tiny keys with a pencil. Klimstra quickly corrected them, demonstrating how thumb-typing worked: you had to cradle the device in your hands, with thumbs hovering above the keyboard to type. “Trust me, you get used to this quickly,” he said. He encouraged people to
feel
the project to see how sturdy it was, and dashed off messages to everyone he met, instructing attendees to remember when he sent the e-mail and to check the arrival times when they logged into computers; that way they would understood how quickly BlackBerry worked.

In coming months, RIM evangelists fanned across the United States spreading the BlackBerry gospel. In airports, they approached anyone with a laptop or handheld device.
³
McMurtry demonstrated how his product was more rugged than Motorola pagers by dropping BlackBerrys on tables and concrete floors. McRoberts went further: in presentations, he began flinging
the device against walls. “It just became my thing,” he says—an icebreaker to impress skeptical executives twice his age. To their amazement, it never broke, though McRoberts sometimes had to chase down dislodged batteries. Once he sidearmed the device so hard in a roomful of IT executives it took out a chunk of boardroom paneling. To McRoberts’ relief, everyone laughed.

RIM’s CFO, Dennis Kavelman, approached Balsillie in the late summer of 1998 with an idea. Months after hitting the Toronto Stock Exchange with an initial public offering, RIM’s stock was going nowhere in Canadian capital markets, trading well below its IPO price of C$7.25 a share in 1997. Local investors don’t get RIM. Maybe it’s time to court international investors, Kavelman concluded. RIM was still in its messy legal battle with U.S. Robotics and some local financial analysts were publishing negative reports about the Waterloo company’s prospects. Balsillie grew so frustrated with hometown naysayers he rebuked one analyst at a public meeting for asking a “dumb” question about RIM’s chances of survival.

RIM’s largest shareholder delivered more bad news in September 1998, selling 3 million shares, one-third of its holding in RIM’s stock. Five years earlier, Waterloo satellite equipment maker COM DEV International had bought the stake in RIM. COM DEV founder Val O’Donovan was a mentor to Balsillie and a strong presence on RIM’s board. The companies were so close that when RIM officials took guests on a tour of its facilities, visitors were also shown COM DEV’s nearby operations. By 1996, however, the partnership was fraying and COM DEV spun its RIM shares off into a separate company controlled by O’Donovan, which then sold down its RIM stake on September 3, 1998. RIM was days away from announcing quarterly results. The optics were terrible, leading some investors to fear the worst, since an insider was selling during the company’s sensitive preearnings “quiet period,” a contravention of RIM’s trading policies for officers of the company. O’Donovan resigned from RIM’s board at Balsillie’s insistence.
⁴

To Balsillie, the setbacks were wearying evidence of Canadian hostility to hometown success. Fellow Peterborough resident and celebrated author Robertson Davies called it Canada’s “tall poppy syndrome”: the inclination to cut down those standing above the crowd.
⁵
The solution, RIM’s executives
decided, was to go where poppies can never grow too high. For months, Balsillie and Kavelman had discussed cross-listing RIM on New York’s NASDAQ exchange and had even brought in a U.S. tech brokerage, NationsBanc Montgomery Securities, as part of the underwriting syndicate for the IPO a year earlier to warm up American investors. Kavelman tested the waters when he traveled to Manhattan in September 1998 to speak to an investor conference hosted by the boutique Connecticut banker Soundview Technology Group. Officially he was there to promote RIM’s two-way pager, the Leapfrog, but some in the audience were less than enthusiastic. “I don’t want yet another e-mail address,” Michael Gartenberg, Gartner’s influential research director, complained. “When will someone finally give us the ability to access corporate e-mail on the go?” Kavelman saw his opening, pulling Gartenberg aside to demonstrate his BlackBerry, still months away from a public launch. “It was love at first click,” Gartenberg recalled years later.
⁶
“The first time I saw a BlackBerry, I knew it was going to change the game.”

By the time Kavelman left the conference, he and his BlackBerry had been swarmed by other Wall Street professionals curious to see what he had shown the Gartner executive. Kavelman called Balsillie from the airport. The time was right to move on a NASDAQ listing, he told Balsillie. There was something else. “Jim, we need to get someone from sales down to New York right away,” Kavelman said. “I have tons of business cards already. People want BlackBerry.”

It was the fall of 1998 and Eric Klimstra felt his stomach flutter as his boss, Jim Balsillie, with one hand on the steering wheel and an ear fastened to his cellphone, sped from Waterloo to Toronto. Engrossed in negotiations with a BellSouth official, RIM’s chief ignored his young passenger during the eightyminute drive. With nothing to do, the recently hired computer science grad reviewed his instructions from Balsillie for their forthcoming meeting with Intel, creator of the powerful semiconductor chip embedded in BlackBerry. Intel was getting its first look at the near-finished device; if the Silicon Valley giant was interested and ordered a batch of devices for its senior executives, other U.S. businesses would take the small-town Ontario company more seriously.

To Balsillie, meetings were corporate theater. You had to memorize your
part before the curtain rose. Usually, Balsillie was the leading man, but he was willing to take on any role his team required for customer meetings. He could play the flinty, ice-veined negotiator or maintain a quiet presence, depending on what was needed. Tyler Nelson, who led several key business development initiatives after being hired by Balsillie in mid-1998, says: “Jim would say, ‘If you bring me into a meeting, use me for effect. What do you want me to do?’—but you had to make sure he was 100 percent [onside]. If not, a meeting could go sideways fast.”

Once Balsillie approved a meeting agenda, everyone on his team was instructed to stick to the script. “I hate being thrown off by others in a meeting,” Balsillie says. “I get edgy when people are not prepared.” Even though Intel was a RIM partner, Balsillie was wary. You could never be certain of any customer, supplier, or competitor. Meetings were a potential minefield. “You learn quickly that this is serious business,” Balsillie says, “and you don’t make an independent move unless you know all aspects of the plan and exactly what you’re doing, because the penalty for a misstep is severe.”

Overprepared and inexperienced, Klimstra knew his role: to answer technical questions. Otherwise, Balsillie had told him, say nothing. While Klimstra viewed Intel as a friendly ally, RIM’s chief saw the semiconductor giant as a dangerous, tricky heavyweight whose every employee lived by former CEO Andy Grove’s mantra, “Only the paranoid survive.”

The meeting started well enough. Balsillie explained how BlackBerry could be synchronized with a user’s desktop computer calendar and contacts. You just have to put the device in this cradle, he said, pointing to a prototype. Normally, the cradle would have had a cable connecting it to the computer, but the cord was missing from the demonstration. One Intel executive, Sean Maloney, VP of worldwide sales, was confused. “What are you saying, how does it do that?” Maloney asked.

Klimstra saw why the Intel executive was puzzled.
He doesn’t realize there’s supposed to be a cable connecting the cradle to the computer,
he thought. Balsillie appeared stumped too, saying nothing. To Klimstra, the lengthy silence that followed was agonizing.
This must be my cue,
he thought. Clearing his throat, Klimstra piped up: “That cradle is just a mock-up.” Maloney nodded as Klimstra explained it would normally have a cable attached. Balsillie turned to Klimstra. “Eric,” he said, growing cold with fury. “Don’t you ever, ever, ever, ever”—Klimstra’s stomach twisted with each “ever”—“interrupt me in a meeting again.”

After an awkward silence, Balsillie continued the presentation.

As they filed out after the meeting, Maloney’s eyes met Klimstra’s. The young evangelist could read the look:
“Kid, I’m sorry if I got you fired.”

Outside, Balsillie was unapologetic. “Never interrupt me when I’m in the zone,” he said. “I was very specific in directing them in a certain way and I didn’t want to go down any other path.” It wasn’t that Klimstra had said anything wrong. What bothered Balsillie was that he had said anything at all. “He could have been about to take us over a cliff” by inadvertently blurting out a corporate secret as he explained how the system worked, Balsillie says of his strict stick-to-the-script rule.