Why RIM went blooey (Part one)

In May 2010, I went to Washington, D.C. as part of the U.S. book launch and had lunch with two friends who live there. One of them arrived at the restaurant excitedly holding a new iPhone and she would not stop talking about it. Right then, I knew BlackBerry was in trouble. I’d read about the lineups at release dates, but this was my first encounter with a devotee. I thought to myself, I published that book about BlackBerry just in the nick of time. Since then, it’s been all down hill for Research In Motion (RIM). At the peak, Jim Balsillie was personally worth $3.4 billion and Mike Lazaridis about $3.6 billion. Their net worth is now $385 million and $408 million respectively. That’s still a lot of money, but how would you like to lose 90 per cent of your net worth?

• Reason number one, more competition. Three years ago, BlackBerry dominated the smartphone market in the U.S. and is now a distant third with a 16 per cent market share far behind Android with 47 per cent and iPhone with 30 per cent. RIM can talk all it likes about Indonesia or Nigeria or Latin America but those markets are mostly low-end phones with slim margins. The market that really matters is the U.S. I was in Arizona in February, pulled out my BlackBerry, and the man next to me said, “You must be the last man in America with a BlackBerry.” When people talk like that, the buzz has gone and the buzzsaw has begun.

• Two. Founder Syndrome. Jim was not in fact a founder, the unheralded Doug Fregin actually co-founded RIM with Mike in 1984, but when Jim joined in 1992, RIM had only fourteen employees compared to 15,000 today. Mike and Jim succeeded for so long they thought they would always succeed and didn’t need to listen to what users were saying or what the market was telling them.

• Three. RIM proudly points to their 75 million subscribers and notes that each of those people brings in money every month from the carriers who share what they get with RIM. Right now, that’s about $5 a month. Excellent cash flow. But it used to be $15 … and it will continue to shrink.

• Four: It’s not unusual for tech companies to rise and fall. Nortel is another homegrown example. In the 1990s, everybody had a Palm Pilot. Today, nobody’s heard of it. Yahoo used to be everybody’s favorite but has lost its way. In the last five years they’ve had four CEOs. AOL just sold 800 patents to Microsoft for $1.1 billion because they’re under attack and need the money.

• Five: Jim and Mike were co-CEOs starting in 1993 until they recently stepped down. For a long time, being co-CEOs worked and then it didn’t work. In a story in the current issue of Toronto Life, writer Andrea Mandel-Campbell claims the split began at the time of the stock options backdating fiasco in 2007. She does not cite a specific source, saying Mike was angry to have been roped into that. He felt Jim should have had his back. The Toronto Life story may be right … but I have my doubts. I saw both Mike and Jim many times after that problem and noticed no particular strains between them. Still, there is no question they built separate internal empires and grew further apart. The strengths they drew from each other slowly dissipated. After a while, one plus one no longer equalled three.

• Six: Succeeding in global markets is not for the faint of heart. When I was researching my book I thought the people at RIM were tough enough. I was wrong. Look at Mark Zuckerberg, the founder of Facebook. He just paid $1 billion for Instagram, a company with twelve employees. He wanted their location data – it was like one newspaper buying the subscriber list of another newspaper – but he also feared Instagram’s potential rivalry. Zuckerberg’s actions reminded me of another successful tech entrepreneur, Andy Grove, of Intel. When Grove wrote his memoirs, the title was “Only the Paranoid Survive.” Mike and Jim were insufficiently paranoid. They thought they would go unchallenged forever.

To be continued ….