It’s been a bumpy week for RIM. On Sunday, the Canadian smartphone maker’s co-CEOs tried their best to quietly resign and hand over the CEO position to their former Chief Operating Officer, Thorsten Heins. For months, investors and journalists have been calling for Research in Motion’s co-CEOs, Jim Balsillie and Mike Lazaridis — who have each taken turns running the company since it was founded in 1991 — to step down. Until Sunday, they showed no signs of doing so.
Worse, though RIM’s smartphone market share has been steadily dropping in the months since the company’s BlackBerry 7 device lineup launched (Sept. 2011), new CEO Thorsten Heins repeatedly asserted in multiple interviews that RIM has no real structural problems, and that he doesn’t plan to shake the company up much aside from hiring a new marketing officer. Tech journalists, analysts, and bloggers have been chattering like crazy, and no one seems fond of the new CEO. From a distance, he appears to be a Yes man, planted at the top to carry out already established plans.
So what’s going on here? Is Thorsten Heins actually in charge of RIM? More importantly, does the company need a huge structural and strategic overhaul, or is it mainly an image problem? Has RIM already made the changes and laid out the plan that it needs to succeed, or is it too little, too late?
Giving up the two-seated throne
Mike Lazaridis founded RIM in 1984 and Jim Balsillie a self-described jock, joined him as co-CEO in 1991. The unique dual-power arrangement had Balsillie tackling the business side of RIM and Lazaridis focusing mostly on the products and technology. For many years, it worked, but since the debut of the iPhone, two CEOs seem to be proving worse than one.
RIM has had a rough few years. The company has gone from being the biggest smartphone maker in the United States (with a massive 80 percent market share on Verizon) to a niche player that seems unable to win over new customers as the market shifts toward touch-based operating systems thanks to the massive success of the iPhone, which debuted in 2007. In 2008, RIM attempted to counter the iPhone with the Storm, its first touch-based BlackBerry, but the device was a failure. After that, the company retreated back to its comfortable, keyboarded lineup of BlackBerry Curves and Pearls. The co-CEOs many times stated that RIM’s focus on QWERTY keyboards was one of its best differentiating features. They’ve introduced more touch-based BlackBerry phones, but none have succeeded in redefining the brand. And so, a couple years ago the CEOs brushed the U.S. under the rug and focused on the international market.
“The dilemma is that the U.S. went down the high-end smartphone market and the international market grew greatly,” Balsillie said in an interview. “So the question is where you put your resources? We couldn’t do both. We were explosive growth internationally. Do we leverage core franchise and go international, or do we move higher end for the U.S. market?”
The company made the wrong choice. By focusing on the international market, it succeeded in boosting short-term profits, but the United States turned out to be a trend setter for the rest of the world, which has now begun following in its footsteps, leaving Nokia-like feature phones and BlackBerry devices for touchscreen phones running Android and iOS. They have become so popular that users began demanding to use them at work, carving into RIM’s strongest asset: businesses.
The year of hell
2011 proved to be a fascinating year for RIM. The company continued to churn out record revenues from overseas, but its position in the US market began fading fast. From October to December alone, RIM’s market share dropped from 7.7 percent to 4.5 percent due to explosive sales of competing devices. The company’s share of the world smartphone market isn’t better, having dropped to 11 percent in the third quarter of 2011 from 19 percent in mid 2010. The Canadian company’s stock has followed the same downward arrow. Between June 2008 (when the iPhone 3G came out) and June 2011, RIM’s shareholders lost nearly $70 billion, or 82 percent of the smartphone maker’s value. That same month, RIM also laid off more than 2,000 employees.
2011 was also home to two failed product launches: BlackBerry 7 and the PlayBook.
PlayBook: In April, the co-CEOs entered the blossoming tablet market with the BlackBerry PlayBook, a 7-inch tablet running a completely new operating system based on QNX, an OS that RIM purchased a couple years earlier. In an interview in Dec. 2010, Lazaridis spilled that the PlayBook was a sign of things to come from RIM and that future phones would be dual-core and run QNX as well. (These new phones later came to be known as BBX, but due to legal issues it will now be called BlackBerry 10.) This sounds grand and good, except that the launch of the PlayBook was a bit of a disaster.
When the PlayBook launched, it was clearly a nice-looking piece of hardware released before it was complete. The PlayBook software had huge bugs that required a number of bi-weekly updates to fix. Both businesses and mainstream consumers were confused about what it brought to the table. Did we mention that it lacking common apps like integrated email and calendar support? It also had next to no viable apps in its app store, and RIM’s included apps for things like podcasting were woefully broken or incomplete. We were very optimistic in our review of the PlayBook, but RIM also beat down our expectations throughout 2011, promising email, calendar, and Android app support by summer and not delivering it until…well…never. At least, not yet. These updates are supposedly coming next month (Feb. 2012).
RIM expected the PlayBook to be such a success that it manufactured 2 million of the tablets. Due to lack of demand, it has still only sold about half of its inventory, even after several price cuts, and had to write off $500 million due to the unsold tablets. Now RIM is distributing PlayBooks to developers who wish to work on the upcoming BlackBerry 10 platform.
BlackBerry 7: The second big failure of 2011 was the launch of the BlackBerry 7 platform and devices. While these devices did not have the problems of the PlayBook, they did not help RIM to recapture any momentum. Following the launch of several new BlackBerry Bold, Curve, and Torch phones, RIM’s market share began to dwindle faster than ever. Several BB 7 devices featured touchscreens, but the phones featured no marked improvement in user interface, features, or processing power. They looked a bit slicker, but RIM seemed to be mostly churning out established designs with little innovation. As a result, the company’s smartphone market share fell dramatically over the holidays as the iPhone and Android both posted record sales in late 2011. RIM became almost a complete non-player in the market, with a market share so low that Windows Phone now has a good shot at becoming the number three smartphone OS in 2012 (though Microsoft definitely has its work cut out).
Time for a “new” CEO!
So, that’s where RIM is at today. For the last year, shareholders and analysts have been calling for the resignation of Jim Balsillie and Mike Lazaridis, but neither of the co-CEOs showed any signs of stepping down. In fact, the duo wanted to retain their positions so badly that in December they offered to accept a cash salary of only $1 per year until they are able to turn the company around.
“We are more committed than ever to addressing the issues at hand,” Balsillie told analysts on a Dec. 15 conference call.
However, at that same earnings call, the duo was forced to announce the delay of BlackBerry 10, its supposed revolutionary new platform that will take its smartphones to a new level. BlackBerry 10 phones won’t hit the market until late 2012 now. Previously, it was slated for early 2012 (and that wasn’t the first delay).
Either by design or a decision by the board, Lazaridis and Balsillie stepped down on Jan. 22, handing the reins over to a single CEO named Thorsten Heins. Heins joined RIM in 2007 working as the VP of its handheld business unit, and was promoted to chief operating officer in mid 2011 in a management shakeup.
“There comes a time in the growth of every successful company when the founders recognize the need to pass the baton to new leadership. Jim and I went to the board and told them that we thought that time was now,” said Lazaridis. “With BlackBerry 7 now out, PlayBook 2.0 shipping in February and BlackBerry 10 expected to ship later this year, the company is entering a new phase, and we felt it was time for a new leader to take it through that phase and beyond. Jim, the Board and I all agreed that leader should be Thorsten Heins.”
Both Lazaridis and Balsillie will retain positions inside the company and on the board.
Thorsten Heins: The great RIM Defender
The startling thing about newly minted CEO Thorsten Heins was just how unprepared he was to deal with the battering of interviews he got on Monday, Jan. 23. He came across as qualified and knowledgeable, but with an attitude quite similar to his predecessors, arguing that RIM is doing quite well, for the most part, and he won’t be making any major changes.
The interview below, which was published on the official BlackBerry YouTube page, Heins introduces himself and seems overly excited about his job (as Alexis Madrigal of The Atlantic also notes), saying that RIM was more like a startup company when he joined in 2007 (more than 22 years after the company was founded), but has always remained ahead of the curve.
“At the very core of RIM, at its DNA how I always describe it, is the innovation,” said Heins. “We always think ahead. We always think forward. We sometimes think the unthinkable. And that is fantastic. That is the core of every high-technology company.”
In a teleconference call on the same day and throughout numerous interviews, he maintained that RIM is not in need of any major restructuring changes: “I don’t think there is some drastic change needed,” Heins said. “We are evolving. We’re evolving our strategy, we’re evolving our tactics, our processes.”
Though journalists have harped on the comment, Heins actually seems to be arguing a different point. He isn’t saying that RIM needs no change. He’s actually arguing that all of the appropriate changes have already been set into place. In effect, he’s arguing that Balsillie and Lazaridis have done most of the hard work for him. The BlackBerry 2.0 software (impressions) and BlackBerry 10 are on track to come out this year. In a sense, Heins has merely been placed at the front door to greet the guests who no longer wish to hang out with Balsillie and Lazaridis. His video interview with CNBC affirms this viewpoint.
“Mike and Jim took a bold step 18 months ago when RIM purchased QNX to shepherd the transformation of the BlackBerry platform for the next decade,” said Heins. “We are more confident than ever that was the right path. It is Mike and Jim’s continued unwillingness to sacrifice long-term value for short-term gain which has made RIM the great company that it is today. I share that philosophy and am very excited about the company’s future.”
In multiple interviews, he also defended RIM, saying how great the company’s BlackBerry 7 devices are and how well off RIM is financially: “We have a strong balance sheet with approximately $1.5 billion in cash at the end of the last quarter and negligible debt. We reported revenue of $5.2 billion in our last quarter, up 24 percent from the prior quarter, and a 35 percent year-to-year increase in the BlackBerry subscriber base, which is now over 75 million.”
Heins also says that much of RIM’s problem in the US isn’t its devices, but how it markets them. His big plan: to hire a new head of marketing.
BlackBerry 10 and PlayBook 2.0, RIM’s last big chance?
According to his own interviews, Thorsten Heins has no big plans to shake up RIM or reset its course. This is a marked difference from Nokia, which found itself in a similar position last year. Nokia chose to hire an outsider as its CEO, going with Stephen Elop, who quickly made huge structural changes to the Finnish manufacturer. Heins is from RIM and seems to share the same exact vision as his predecessors, Balsillie and Lazaridis. He has repeatedly said that all of the necessary changes have been already made, nearly admitting that his appointment was done almost exclusively to put a new face on RIM.
If RIM has already overhauled its business, it has not been nearly as vocal about the process as Nokia was when it restructured and chose to align itself with the Windows Phone platform. There have been layoffs and the BlackBerry PlayBook 2.0 shown at CES was impressive, but it may be too little, too late for the Canadian company. Or perhaps, maybe not.
The real question is whether RIM can deliver a unique “must-have” phone experience with BlackBerry 10. After using the PlayBook 2.0, I have to say that the operating system is perhaps the smoothest tablet OS on the market and RIM’s software design seems not only more complete than it was a year ago, but far better looking as well. RIM executives at CES credited the improved look of the PlayBook software to its acquisition of Tat, an interface and design company. It’s hard to imagine the PlayBook gaining much traction without a new hardware model, but RIM seems determined to revive it using software alone. Somehow, it needs to actually accomplish this. Giving the PlayBook momentum seems key to building developer and consumer interest in BlackBerry 10 (learn more about the upcoming OS here).
But for the new platform to succeed, RIM is going to have to translate its webOS-like OS to smartphones in a far better way than HP or Palm ever did. The PlayBook has a large screen, but if RIM is to succeed in smartphones, it has to take that OS and shrink it down to a multitude of screen sizes. It will also likely have to better standardize its screen resolutions and greatly improve the power of its phones by using dual-core or quad-core processors. They will all have to be touch-based, and if RIM decides to keep pushing keyboards on a majority of handsets, its image will suffer. As great as the keyboard is, it is also a symbol of RIM’s lack of innovation in recent years. These new phones need to look and feel much different from BlackBerry 7 devices. They also need to be compatible with the PlayBook’s growing app library of more than 50,000 apps (according to representatives at CES).
Finally, RIM needs to figure out what kind of company it wants to be. The company has been straddling a thin line between being a business-only brand and a consumer brand in recent years. If it wants to win customers on either side, it needs to demonstrate clear advantages for end users over Android or iOS. It needs to be more fun to use a BlackBerry, easier, a more seamless experience, and different. That last bit remains key. It needs to be different from what it is today, and different from the competition. With the collapse of webOS and the continued struggle of Windows Phone, there is still a chance for RIM, but if it doesn’t deliver in 2012, things are going to plummet , and fast.