Losing the Signal: The Spectacular Rise and Fall of BlackBerry (8 page)

The sun was setting when Lazaridis finally parked his car in front of his house, hours after Hobbs’ call. At the front door he was greeted with a screaming child. After a difficult day with their cranky son, Ophelia was passing the torch. Lazaridis’s plans to craft a presentation for BellSouth had to be put on hold. He sat down to play with his two-year-old. Hours later, the youngster drifted asleep. Most working fathers would have been ready for scotch and sleep by now, but Lazaridis felt strangely energized. Time with his son had cleared his head and he was ready to write. Popping an album by rock guitarist Joe Satriani on his stereo, he began strumming his keyboard. Three hours later, he had written a roadmap for the future of mobile messages entitled: “Success Lies in Paradox.”
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Early wireless data innovators failed because they crammed multiple office tools into book-sized devices. The products were battery and bandwidth hogs and a headache to operate. Tapping out messages with a stylus was unreliable and time-consuming. Keyboards were small and difficult to manipulate. What these device designers misunderstood was that most professionals already had office computers, faxes, cellphones, pagers, and personal digital assistants. They didn’t want more technology. They wanted convenience. In 1997, that meant keeping up with a torrent of modern office messages. The introduction of voice-mail in the late 1980s made remote access to phone messages possible. What about e-mails and paging messages? If bosses were sending urgent electronic notes, surely the answer was not standing sentry at an office computer or scrambling for a phone if your one-way pager beeped an alert.

The paradox of success, Lazaridis wrote, was that handheld devices did not need more functions; they needed fewer. “We must maximize adoption by minimizing complexity” of a powerful, reliable, and simple device that filled the mobile text message gap. A reinvented two-way pager half the size of the Bullfrog with a new, doubly powerful Intel microprocessor was the answer. The new pager was formally named [email protected] 950, but it was known internally as Leapfrog. A single AA battery lasted nearly a month, and its larger screen was easily navigated with a trackwheel, a concept Lazaridis borrowed from a VCR remote control. The two-way pager also came with limited e-mail capacity. As for the keyboard, the answer was not ten fingers, but two thumbs. Leapfrog was small enough to be cradled in two hands, freeing thumbs to work an artfully curved keyboard with concave keys that minimized typos. Even the clumsiest typist would be comfortable with the device because the small screen above the keyboard allowed users to monitor accuracy. “We must revel in its limitations,” he wrote.

The best thing about Leapfrog was that there was no need to reinvent the network. Mobitex already reached 50 percent of U.S. cities. If BellSouth was willing to extend the network’s reach, Leapfrogs could toss and catch messages across a national Mobitex network. Not just simple text pages but also e-mails. Leapfrog and Mobitex had the potential to transcend the jungle of incompatible corporate and government computing systems by building wireless bridges to convey mobile e-mails. No one else had solved the mobile e-mail riddle.

“Let’s make e-mail our transport and payload and beat them all to the punch!” Lazaridis wrote.

As he rode the elevator to the twentieth floor, Lazaridis realized something was missing. He drove his hands into his pockets, rifled through his briefcase.
They weren’t there!
It was late spring, 1997, and in seconds he and Balsillie would step off the elevator in BellSouth’s Atlanta headquarters on Peachtree Street to present the results of the “Success Lies in Paradox” manifesto. But where were the two industrial foam prototypes prepared for the session? “I left them in the taxi,” Lazaridis told Balsillie and BellSouth’s Hobbs as they approached their fate in the clouds.

Delaying the meeting was impossible, Hobbs explained, because they were pitching to RAM Mobile’s owners and top executives. Hobbs gave his secretary Lazaridis’s taxi receipt to track down the driver. Waiting for the RIM duo in a conference room was Michael Kulukundis, the Greek shipping magnate and founder of RAM Mobile; Earle Mauldin, CEO of RAM Mobile’s other investor, BellSouth Enterprises; Mike Harrell, president of BellSouth Mobile Data; along with Ron Dykes, CFO of BellSouth, and Bill Lenahan, RAM Mobile Data’s boss. Hobbs and Lenahan were so excited after reading Lazaridis’s manifesto that they had invited Kulukundis and Mauldin in order to win backing for an expanded network.

Lazaridis began by talking about the coming boom in wireless data messages and unique market window for Mobitex and RIM’s Leapfrog. After several minutes, Lazaridis stopped himself. “I’m embarrassed,” he told the room. He did not have the prototypes—they’d been left in the cab. “It was a
big letdown,” Lenahan recalls. This is not what he’d invited his bosses to witness. As the meeting wound down, the doors to the room flew open and a BellSouth employee walked in with foam blocks the size of soap bars. The missing Leapfrogs! The dramatic entrance, Hobbs says, transformed a run-of-the-mill conference into a “come-to-Jesus meeting.”

The Leapfrog was a big step up from its predecessor. Lazaridis had been so dissatisfied with the work of the Montreal industrial design firm that built the Bullfrog on contract that he determined all future products would be designed in-house. He charged a twenty-four-year-old mechanical engineer hired right out of University of Waterloo named Jason Griffin with building and leading a design team. It was an expensive investment that included customized workstations with cutting-edge 3-D design software costing tens of thousands of dollars, but the decision paid off as Griffin and his team got to work.

Lazaridis felt the Leapfrog had to be as small as a pager so it didn’t sit awkwardly in a belt holster like the Bullfrog. With little space to work in, Griffin had to be as sparing as possible in the keyboard design. “We didn’t want the keys to be too tiny, so we had to get rid of every key that wasn’t needed,” says Griffin. There would be just one shift key, not two like a normal keyboard. Punctuation marks were doubled onto letter keys in a standard QWERTY configuration so those keys could be stripped out as well. The trackwheel to the right of the screen handled the job that four direction and eight function keys had done on the Bullfrog.

After experimenting with key shapes and layouts, Griffin and Lazaridis settled on a keyboard customized for the thumbs that used it. Keys on the right half were oval and tilted right, toward the right thumb, mirrored by the keys pointing the other way on the left side. Inside the device, Griffin pushed to have the keys sit on a piece of metal known as a dome, rather than plastic, the industry standard; that way, users would feel a crisp “click” every time they pressed a key, just as they did on a regular keyboard, rather than a “mushy rubbery feel, like a TV remote control,” says Griffin. It was more expensive and RIM’s manufacturing team pushed back, “but Mike said, ‘No, the interaction with the device is important here,’ “ Griffin said.

As the blocks were passed around the BellSouth boardroom, executives cupped the devices, marveling at slips of paper substituting as text on a small screen resting above small keyboard buttons. Click the plastic trackwheel to the side, Lazaridis explained, and users could scroll through any number of
messages. This was just what the worker-on-the-go wanted. “I was very excited,” Lenahan says. So were his bosses. BellSouth’s technical group blessed the device a few weeks later, committing to a $50 million order of Leapfrogs, then the company’s largest contract. BellSouth was so convinced that two-way paging was the mother lode that in 1997 it acquired full control of RAM Mobile, renaming it BellSouth Wireless Data. In addition it approved a multimillion-dollar budget to expand Mobitex by doubling its relay network of 1,200 base stations in order to reach 90 percent of the U.S. population.

“We bet the ranch,” says Hobbs.

As Lazaridis pushed RIM’s technology forward, Balsillie struggled to pay the bills. The two kept in close contact, spending hours on the phone on evenings and weekends, and fully trusted the other to handle his area of expertise. “He was a shark in the sense that he is perfectly evolved for that line of work—finance, business contracts,” says Lazaridis. “You can say I’m a shark when it comes to technology and business opportunities, but I don’t have time for banks and finance and contracts and running a company.”

When Balsillie checked RIM’s bank accounts a day after he joined the company in 1992, he was stunned to learn his entire $125,000 investment had immediately evaporated to pay overdue bills. Early on, the Harvard Business School grad kept the company afloat with low-cost loans from RIM’s largest customer, Ericsson, and an Ontario government venture agency. In 1994, he convinced the founder of a prominent Canadian technology company to invest $2 million. Val O’Donovan became a local business hero when he moved his satellite equipment company and dozens of employees from Montreal to Cambridge, Ontario, in 1979. Balsillie courted O’Donovan as a mentor, invited him onto RIM’s board, and sold him a 30 percent stake in the company.

RIM was growing steadily—revenue doubled to C$4.2 million in its 1995 fiscal year from two years earlier, and doubled again to C$8.4 million the following year. The company hired dozens of employees and took over more space in its rented building, but its small size left RIM vulnerable to any glitches. By spring 1996, RIM was in a precarious spot, with U.S. Robotics balking at paying RIM and the Bank of Montreal threatening to call a loan. Balsillie teamed up with his young CFO, Dennis Kavelman—his wife’s cousin—to see what opportunities Canadian stock markets offered.

In the early 1990s, big technology players were rare in Canada. Natural resource companies dominated domestic stock exchanges, and there was nothing comparable to New York’s NASDAQ market, which catered to technology start-ups. Few promoters or financial analysts went to bat for small Canadian tech stocks.

When Balsillie and Kavelman made their pitch to Bay Street, Canada’s equivalent of Wall Street, the big Canadian investment banks treated them like small fry. The typical fee charged by Bay Street banks was about 7 percent of any money raised through a securities offering. In exchange for an exclusive eighteen-month investment banking relationship, Bay Street firms offered only “best efforts” to help the Waterloo company raise capital. “One of the big bank dealers told him, ‘Come back when you need $50 million,’ “ says Daniel Hachey, then an investment banker with independent brokerage Midland Walwyn who got to know Balsillie. “He felt he was getting the message: ‘You’re not big enough or good enough for us right now; come see us when you’re a more serious player.’ ”

One underwriter was different: Griffiths McBurney & Partners, an upstart investment banker that specialized in junior mining and tech companies. Balsillie visited GMP hoping the firm could help RIM sell C$15 million of securities. But after one day of visiting GMP clients in Toronto in May 1996, investors pledged to invest C$90 million in RIM. One, Frank Mersch, a well-known local fund manager, was so taken by the RIM story he offered C$50 million on the spot for an entire RIM securities offering. Balsillie drove home that night feeling much better about RIM’s financial prospects. Now, he and Lazaridis had to find an excuse for raising more money than they’d anticipated. They upped their needs to C$30 million when Lazaridis said it would be nice to build a factory. RIM then raised C$32 million by selling “special warrants,” a popular financing mechanism for small Canadian companies not quite ready to go public; it gave investors the right to convert their investment units into shares when the company did list. RIM paid off its loan and was out of financial trouble.

In October 1997, Balsillie parlayed BellSouth’s commitment to buy the Bullfrog into a C$115 million initial public offering at C$7.25 a share on the Toronto Stock Exchange; it was the largest Canadian technology IPO of its time. The warrants investors more than doubled their money, and suddenly the struggling entrepreneurs from Waterloo were wealthy, at least on paper: Lazaridis’s 9.8 million shares were worth C$71 million, while Balsillie’s 8.1
million shares were worth C$59 million. They celebrated by taking the IPO check back to RIM headquarters for employees to pass around.

RIM’s engineers were at it again. In early 1998 voice-mails circulated around the office. Each delivered messages in a robotic baritone reminiscent of Freddy Krueger, the gruesome killer of
A Nightmare on Elm Street.

“Why won’t you die?”

“Welcome to my nightmare.”

“Come to Freddy.”

The engineers exchanged these joke messages as Leapfrog neared the final stages of development. The spark was BellSouth Wireless Data’s push to add gimmicks to the two-way pager. The latest was a service that enabled senders to convert text messages to spoken messages sent to recipients’ voice-mail. Senders could select from four preprogrammed digital voices. One was a dead ringer for Freddy. The contrivance was an affront to RIM engineers who worked tirelessly to create a reliable, efficient communicator. BellSouth’s Freddy Krueger murmurings were like hanging fuzzy dice on the Hubble telescope.

“This kind of stuff really bothered Mike,” Balsillie says. “It was debasing his product.”

This was not the future of wireless communications Lazaridis had promoted in Atlanta a year earlier. He and his engineering team believed in a new era of instant, efficient, and mobile e-mails. BellSouth executives loved Leapfrog, but they weren’t ready to embrace RIM’s e-mail vision. The core market for the new device was two-way paging, they insisted. More than 40 million North Americans were now using one-way pagers in a market dominated by Motorola. Leapfrog was going to crack the market open for BellSouth because of the device’s groundbreaking capacity to send and receive paging messages.

To Lenahan, mobile e-mail “was the next generation” and his struggling network had no time to wait. “You have to sell what you have today, not what’s coming. Paging happened to be what we were selling.”

Lenahan’s concerns were understandable, but he misunderstood how quickly businesses would flock to a service that brought order to the chaos of digital chatter. By the mid-1990s e-mail had moved out of university labs and
into everyday life. Hotmail, the Internet-based e-mail service, launched in 1996, attracting millions of users and the attention of Microsoft, which acquired the start-up in 1997. E-mail even went Hollywood in 1998, turning up as a digital matchmaker in the Tom Hanks–Meg Ryan romance,
You’ve Got Mail.
In business, electronic mail was now the medium of choice. At the time, mainstream e-mail programs such as Microsoft Outlook or Lotus Notes were moored to company desktops or laptops that communicated with each other through a central server. Data could only be sent wirelessly through special modems and a subscription to a network such as Mobitex, but the process was expensive and cumbersome.

With the Leapfrog still in development, RIM engineers first experimented with using the Bullfrog themselves in 1997. RIM engineer Perry Jarmuszewski regarded the Bullfrog as a plaything until he got lost on a trip to San Francisco. With no map and no cellphone he e-mailed a friend back in Waterloo to ask him how to find the famous curved switchback section of Lombard Street. Within minutes an e-mail returned with directions. “That’s when the lightbulb went off,” Jarmuszewski says. “I didn’t have to call anyone and I got my answer instantly. [I realized] this thing is going to revolutionize communications.”

RIM employees discovered that in addition to sending and receiving paging messages, it could channel e-mails. By making a small change on each employee’s desktop in-box, they were able to forward work e-mail to a separate Bullfrog pager address. The discovery was liberating for RIM employees suddenly able to read business correspondence from car and home on the clamshell mobile device. “Once you got this thing in your hand it evolved e-mail pretty quickly into instant messaging,” says David Castell, who received a Bullfrog when he was hired as product planning manager by RIM in 1997.

It didn’t take long for RIM employees to see how invaluable and distracting mobile e-mail could be. In meetings they would often only see the top of Balsillie’s forehead. RIM’s hypercompetitive co-CEO had become one of the world’s first mobile e-mail addicts, conducting meetings while scanning his Bullfrog for the latest from sales staff, customers, and investors.

The Bullfrog was far from perfect. The biggest headache was responding to e-mails. Messages arriving on Bullfrogs were conveyed to the device by the user’s desktop e-mail program. Hit reply and the message returned only to the user’s desktop in-box, instead of the original sender. When the Mobitex network crashed, a frequent occurrence, new e-mails set off a frenzy of unwanted
responses. BellSouth automatically returned error messages to senders during an outage. This meant that any new message forwarded by a user’s desktop to a Bullfrog was greeted with an error alert that was automatically forwarded right back to the device. This self-perpetuating loop of error alerts continued until the network recovered. Some RIM employees returned from holidays to find hundreds of error messages in their in-boxes.

When it became clear that BellSouth had no interest in promoting Leapfrog’s e-mail capacity, Lazaridis decided RIM would press ahead with a plan to refashion Leapfrog as an e-mail device. One day in early summer 1997, Lazaridis summoned software engineer Gary Mousseau into his office. Lazaridis started scribbling excitedly on his whiteboard as he talked. “Gary, we’re going to solve this two-mailbox problem,” he said. “We’re going to do something big. We’ll build a product that works with Outlook and Exchange,” Microsoft’s recently launched corporate e-mail system.