This is a long read so you might want to check the article on the site itself http://www.theglobeandmail.com/glob...e1987760/page1/
|RIM makes a play for its future|
By OMAR EL AKKAD
From Saturday's Globe and Mail
The Canadian technology icon has bet a lot on its new device - the PlayBook tablet. Failure could make the company a historical footnote
Mike Lazaridis, the brain behind the BlackBerry, is staring intently out a window inside RIM 10, a squat, unprepossessing structure on Research In Motion Ltd. RIM-T 's main campus. Beneath the grey, windswept sky, he sees an empire that he helped create.
The five-kilometre radius around RIM Ten is home to one of the greatest single concentrations of talent in math, engineering and science anywhere in North America. RIM occupies nearly 20 buildings in the immediate vicinity, and a large proportion of its 18,000 employees work here. But they are only part of the picture, and at the moment, Mr. Lazaridis has his eyes trained on something else. In the distance, he points out the Institute for Quantum Computing, at his alma mater, the University of Waterloo. Not far away from that is the Perimeter Institute, a world-class research centre for theoretical physics. Both were built with a portion of the billions RIM's co-chief executive officer amassed from making the most efficient and secure mobile communications devices in the world.
Mr. Lazaridis is proud of his role in turning this - RIM, the city of Waterloo, the university, the institutes - into a hotbed of innovation. But he is bothered, too, because he believes people don't understand how much all of this is really worth.
"Maybe we're just not good at promoting ourselves. Maybe that's the Canadian way," he says. He wonders out loud whether he and RIM's other CEO, Jim Balsillie, should have just taken their show to Silicon Valley. Maybe then they would get the recognition they deserve. "You know, maybe we should have left Canada a long time ago, rather than staying loyal patriots for the country. Jim and I have invested a whole bunch in this country and the community. But our records speak for themselves. Yeah, we've have some hard times, but gosh, look at the success."
It is the refrain of a frustrated man - frustrated by a problem he can't easily solve because it's not a math or engineering question. It is a problem of perception. Less than four years after it briefly became Canada's most valuable corporation, RIM is being challenged to show it hasn't lost its edge.
One Wall Street analyst calls the BlackBerry "a broken brand," left in the dust by the design wizards at Apple Inc. and losing market share to hungry foreign competitors - and many investors buy this gloomy line of thinking. RIM's stock, which is down by two-thirds since mid-2008, is priced as though they believe the company's profits are about to decline - even though RIM has posted a series of record quarters, is adding millions of new users, and is prospering in fast-growing overseas markets.
So Mr. Lazaridis and Mr. Balsillie, after guiding their company through a decade of mind-blowing growth, are caught in a major fight. And in his hands, the 50-year-old co-CEO is holding RIM's latest weapon, a rectangular slab of glass, plastic and metal that weighs less than a pound.
In the span of just one year, RIM conceived and built the PlayBook tablet, which goes on sale next Tuesday. But unlike smart phones - a category RIM basically invented, and over which it enjoyed a near-monopoly for years - this time the company is following, not leading.
Apple has a one-year head start and its iPad dominates the fast-growing tablet market, and for all of RIM's past success, almost no one gives it a chance of catching up. When Gartner Inc., an IT consulting firm, released a new forecast on the topic last week, it projected that 85 per cent of tablets will run on systems designed by Apple or Google by 2015. RIM will be running a distant third, it said.
This is one of the most important moments in the history of Canada's most important technology company - not because RIM needs to sell millions of PlayBooks or beat the iPad to survive (it doesn't), but because it must prove that it has a second act.
A lot more is riding on the PlayBook's success or failure than the trajectory of a single company. Since the slow death of Nortel Networks, RIM has moved to the centre of the Canadian technology sector. It spawns new startups or acquires them, spends a healthy proportion of its $1.3-billion research and development budget in Canada and is the largest employer of co-op students in the country. No other Canadian-controlled business offers as much opportunity for bright Canadian engineers and mathematicians to find meaningful work at home.
The PlayBook is a litmus test for innovation in this country. Though not manufactured here, in most respects it is a made-in-Canada device. It was designed in Waterloo; the critical piece of software inside it - the operating system that makes everything else on it run, known as QNX Neutrino - is a Canadian invention. So is its web browser, and much of the technology that encrypts data flowing to and from the device to make messages more secure.
Much of this, in particular QNX, will become the standard for every piece of hardware the company makes from now on, including all its phones.
"I think we were very successful at combining all this Canadian-built technology into the PlayBook and into our super-phone future," Mr. Lazaridis says. If the technology works, he sees it as a potential springboard into much bigger things for RIM - an entryway into everything from car entertainment systems to home automation.
The PlayBook is a part of the blueprint for taking RIM deeper into the consumer market, as well as finding growth in its traditional base of government and corporate clients. It's an audacious strategy. If it succeeds, RIM just might regain the ground it has lost in the smart phone market, while finding new sources of revenue. And one day the PlayBook may come to replace the universal remote control, as the tablet already has done in Mr. Lazaridis's own living room.
But if the strategy fails, then arguably so does RIM. At the very least, it would relegate it to No. 3 status for a long time to come, a poor cousin to Apple and Google - two companies that five years ago were not even in RIM's business of wireless communications. It would also damage Canada's prospects for a more innovative economy.
The inside story of how the PlayBook came to be is, depending on how you look at it, either the story of a renaissance or a last stand.
A tablet evolution
They started out thinking small.
For years, RIM has struggled with the challenge of moving beyond the smart phone. Some of its corporate customers had asked for what can be described as a BlackBerry laptop, which would combine RIM's famous security features with a larger screen and keyboard.
But Mr. Lazaridis and the rest of the company's executive group had many competing priorities.
They were developing new products like the BlackBerry Bold to defend their share of the market against an onslaught of competitors, not just Apple but HTC Corp. of Taiwan and South Korea's Samsung Electronics Co. Ltd. They were trying to capture a larger share of the consumer audience with phones like the touch screen BlackBerry Storm, which ultimately flopped. Quietly, they were also investigating new avenues for growth, such as embedding RIM products into cars for hands-free calling.
By early 2010, though, RIM executives decided to try a tablet. The engineering SWAT team assembled to draw up such a device had originally envisaged modest improvements to existing RIM products - essentially, a souped-up BlackBerry. Users would be able to view documents on a larger screen, but it would run on the same software and perform the same tasks.
That all changed with the iPad's announcement in January. Though the Apple tablet looked a lot like a bigger iPhone, it was clearly something new. Here was a device capable of playing high-resolution video, music, and displaying quality colour photography - a perfect tool for long commutes. Consumers went crazy for it. (Apple has sold more than 15 million so far.)
Suddenly, RIM was under pressure to think in more ambitious terms.
The PlayBook would need to have a lot more muscle in the hardware, so the user could do more things, faster. It would need new software, too, because RIM's aging operating system was past its prime.
An operating system is the main piece of software on a device that allows all other software to function. As such, it's one of the most important bits of technology in any computer or mobile phone. RIM's had been designed mostly to handle text-based communication, such as e-mail, the BlackBerry's original purpose. It didn't display some content well or at all, such as video and some web graphics.
RIM had stumbled on to a solution to this problem in 2009, when it was working on getting into automobiles. Its partner on the project, a U.S. company called Harman Kardon, happened to own a maker of operating systems, called QNX.
QNX makes some of the best operating systems on the planet, so reliable that they are used in critical infrastructure such as nuclear power plants, where a software crash would be potentially catastrophic. A version of QNX's operating system powers the Canadarm.
RIM executives asked Harman if QNX was for sale, and for $200-million, completed the purchase in the spring of 2010.
"[The iPad] validated what we were doing," Mr. Lazaridis says. "It gave us extra insight. That's why we went out and we beefed up the horsepower of the thing to run QNX rather than what we were building ourselves."
With RIM's army of engineers working on the technical details, it was time for the designers to figure out what the thing should look like. Mr. Lazaridis called Todd Wood, RIM's head of industrial design, into his office.
"Mike asked me, 'What would you think of a bigger BlackBerry?' " Mr. Wood says. The task was twofold: create something that actually looks different than older BlackBerrys, but sets a design precedent for future ones.
Mr. Wood sent his people out into the real world to look for inspiration. They came back with a theme. Many of the things people carried around with them - paperbacks, Moleskin notebooks, DVD cases - seemed to conform to a certain size.
If the PlayBook was to be truly mobile, Mr. Wood believed, it would have to be roughly the same size, something a person could hold with just one hand, unlike the iPad. The designers and the engineers agreed a seven-inch screen would meet that goal and still be able to fit the PlayBook's brains - a high-powered circuit board sandwiched between two batteries - inside.
Over the summer, Mr. Wood's team of industrial designers began to build the first PlayBook mockups, first out of foam, then plastic, and finally the initial working versions, which were in place not long before Mr. Lazaridis took to the stage at San Francisco's Moscone Centre last September and unveiled the PlayBook to the world.
"This is one of the most exciting times in our history," Mr. Lazaridis told the audience, holding the prototype in his hand.
Its size is one of the most remarked-about aspects of the tablet - it is about half the size of an iPad. The fact that the PlayBook, at $499 (U.S.), is the same price as the base model of the Apple tablet is a sticking point for some tech experts, and likely will be with many consumers too.
But back inside the boardroom at RIM Ten, Mr. Lazaridis is in the midst of a demonstration to show why the smaller size isn't a liability. Using a single cable, he has hooked up the PlayBook to a giant Panasonic television and is playing a Star Trek clip found on YouTube in high definition.
Once it loads, the picture quality is excellent. The CEO's point: You can hook the PlayBook up to any size screen you like. What matters is how well it works.
"Once we realized what we were going to do with this thing, we realized at that point that portability was more important," says Mr. Lazaridis, who is having frames built at his home "so I can have PlayBooks all over the place built right into the walls."
There are, however, other shortcomings in the PlayBook that will hinder it in the eyes of consumers, at least initially.
One of them is the lack of software applications, commonly known as apps. Apple's iPad can make use of the hundreds of thousands of apps built for the smaller iPhone. But PlayBook owners won't be able to use even the much smaller number of BlackBerry apps until RIM has a fix ready this summer.
A more serious issue is that the first version of the PlayBook can only run certain key tools, such as the calendar, when tethered to a BlackBerry. It comes without a standalone e-mail program, for example, and can't connect to cell networks except through a RIM smart phone.
RIM is working on remedies for these problems, too, but the PlayBook's incompleteness has led to accusations that the project was rushed. Influential technology reviewers such as The Wall Street Journal's Walt Mossberg have seized on this: "I got the strong impression RIM is scrambling to get the product to market, and that it will be adding other features already offered on competing devices for months, through software patches."
Inside the telecom industry and at RIM's key corporate clients, some people have been analyzing the PlayBook's merits and flaws for months. RIM began meeting with some of the companies that are its core partners on the PlayBook as early as last summer.
The sales job falls to Jim Balsillie, Mr. Lazaridis's hyper-competitive partner, whose fame extends beyond the business world in part because of his quixotic quest to bring an NHL team to Hamilton.
Though the two men bring very different skills to the job -Mr. Balsillie oversees a separate RIM sales and marketing campus in the north end of Waterloo - they agree on where RIM's competitive advantage still lies. Over the past decade, the BlackBerry has built an unassailable reputation for the strength of its security features - one of the reasons they are so popular with law enforcement agencies and government departments.
In building the PlayBook, nothing could come at the expense of security.
RIM's obsession with security comes at a cost. It's one reason developers make fewer apps for its devices, for instance. But it also carries one major advantage. Unlike almost every other tablet developer, RIM has a ready-made audience for the PlayBook: corporate IT departments.
For big customers, Mr. Balsillie would often make the PlayBook pitch himself. "I have to say, it was a pretty slick device," says Morteza Mahjour, chief information and operations officer at Royal Bank of Canada. (RBC isn't buying any yet, though it is testing some.)
The early adopters include Sun Life Financial, which designed one of the very first PlayBook apps, and plans to purchase between 500 and 1,000 RIM tablets.
"It's really a powerful unit," says Thomas Reid, senior vice president of group retirement services at Sun Life. "I'll be using it for my e-mail and for doing presentations with clients and things like that. That's just going to be the standard that we use from a technology perspective ... rather than lugging a laptop into the boardroom or wherever we go to do a presentation."
The ability to "tether" the PlayBook to a BlackBerry - to use the two together, and run the tablet through the phone's cell connection - is also a selling point, because it means companies don't have to pay wireless carriers for extra data plans. The only cost is that of the tablet itself.
Those economics, combined with its security reputation, mean it will be able to sell the PlayBook even to firms that have already adopted the iPad.
When the new Ritz-Carlton in Toronto went to buy hardware, the hotel chose iPads for its restaurant menus - but PlayBooks for its check-in system, which handles financial data such as customer credit cards.
"The data efficiencies on RIM and the security are so much higher, anyone in financial services or where client confidentiality really matters is going to have a natural inclination to shift toward [it]," says Mark Maybank, chief operating officer at Canaccord Financial Inc.
In one respect, RIM's early strategy with the PlayBook doesn't resemble Apple's so much as Hewlett-Packard's. Last year, HP bought struggling smart phone maker Palm, and this summer the company will launch a line of tablets based on Palm's software. The idea is to make HP a company that can sell any of the computing devices a business needs, from printers to computers to mobile devices. With the PlayBook and BlackBerry, RIM can now offer their business clients a one-stop solution for wireless communications.
"With the PlayBook and its targeted audience of corporations, I think they've gone for their comfort zone, and that's what they know," says Carolina Milanesi, vice-president of research at Gartner, the firm that authored last week's report projecting RIM as a laggard in the tablet race. "And I think it was, to some extent, a reasonable thing to do." She describes the PlayBook as being a "completely corporate" device for now.
Still, the business market is only so large. With companies like HP and Lenovo also pursuing it, it's clear the PlayBook will also have to win over consumers if it is going to be a success for RIM, which is why the company lobbied hard to get certain makers of consumer software on board.
The company's executives wooed two major game developers, Electronic Arts and Unity. As a result, the PlayBook will come pre-loaded with two EA games, and the Unity game engine, on which a host of games run, has been incorporated into the PlayBook hardware, making game-play much more crisp.
But perhaps the most important deal RIM secured for the PlayBook was with the company it turned to first - Adobe.
Very early on in the PlayBook design process, months before the company made its plans public, RIM decided to work with Adobe. The move made sense for both firms because they share a common enemy - the giant of Cupertino, Calif. Adobe was dealt a huge blow by Apple when it refused to allow Adobe's Flash-based multimedia on any of its handheld devices. (Flash is a common piece of software that runs interactive features on websites such as video. Its absence on the iPad and iPhone is why many videos on the Internet won't work on those devices.)
Mr. Lazaridis saw that there was an army of software developers - "it's over three million people" - who create programs using tools made by Adobe.
The Adobe relationship, he reasoned, could become a major weapon for RIM. Not only can the PlayBook run a lot of Internet video and television that the iPad can't, but in time, those millions of developers could also help the company close the "app gap" with Apple by building more apps for RIM products.
For the same reason, the PlayBook also will include an unusual feature that allows users to run apps that are designed for competing tablets that employ Google's Android operating system. The move means an infusion of tens of thousands of apps for the PlayBook (this feature also won't be available until this summer).
The app strategy is important not just for the PlayBook, but for making RIM more competitive in smart phones, too.
Increasingly, consumers choose their wireless devices not for their design, but for what they can do - for the software. (Apple even touts its 400,000 applications, which include everything from serious business tools to the silliest games, in its advertising.)
RIM has only about 25,000 BlackBerry apps, partly because many developers find the process of creating software for RIM's products as cumbersome. The PlayBook is the closest thing RIM will get to a fresh start with them - a brand new piece of hardware with a new operating system that will eventually be used to run all RIM smart phones.
Mike Lazaridis is pleased. The high-definition video on The New York Times website - the one he has been trying to get working for a good part of this 90-minute conversation - is up and running. It looks flawless, streaming through the PlayBook to the huge television screen in a RIM conference room.
The process of getting the PlayBook across the finish line has not been quite so flawless. The product was supposed to be out by the end of March, but is more than two weeks late. (RIM officials privately say that March was an early estimate, and they are pleased to have come this close to meeting that target.)
With its turn in the spotlight coming up, RIM is working right up to the last minute. When The Globe and Mail visited RIM's offices in early April for a demonstration, engineers were still refreshing the PlayBook's software every day to work out bugs.
Such are the pitfalls of deploying thousands of employees to make a new product on an extremely tight deadline. For RIM - a company that, a very long time ago, was known to impatient investors as Research In Slow Motion - moving this fast is risky.
A slower approach would have been risky, too. In the next few months, dozens of new tablets are due out, including a slew of products powered by Google's Android operating system. Apple has been selling its iPad 2 for more than a month. RIM couldn't afford to delay.
Mr. Lazaridis is careful to point out that for all of the focus on the PlayBook, RIM has an ambitious plan for new smart phones. He's not exactly underselling them, either. "There is a lineup of products this year where there is genuine lust over - like, you look at it and you go, 'I've got to have that,' It's just that compelling."
Even if he's wrong, RIM, which is debt-free and flush with more than $2-billion in cash, can certainly survive a failed product or two. The worry is that if the PlayBook doesn't catch on, it will further dent the market's confidence in RIM's ability to keep pace with the competition. It also wouldn't augur well for its future smart phones, since the PlayBook's operating system is the same one RIM intends to put in all of its new devices, starting next year.
There is a lot on the line for Canada, too, of course - not because it needs the PlayBook but because the country's technology sector has come to rest heavily on RIM's success.
The company is at the centre of virtuous circle. Its success has nurtured a thriving community of developers, engineers and entrepreneurs in Waterloo, which has drawn even more talent to the city, which in turn has encouraged foreign giants such as Google Inc. to establish a major presence there. Should the company that put Waterloo on the map begin to weaken, a host of others may also feel the pain.
"RIM is the anchor tenant of Canadian technology," says Bernard Courtois, president of the Information Technology Association of Canada. "Those types of companies, particularly when they are, like RIM, pumping out new products every six months, have a tremendous ecosystem of people who supply components, who support them in areas such as research and development, manufacturing, assembly.
"Just their presence facilitates the growth of companies who have great technology but no wherewithal to attack the global market."
RIM, certainly, has been attacking the international market, and has spent the past several years pushing hard into markets like India and China. More than half the company's revenue now comes from outside North America - a rare example of a Canadian-based company that has succeeded in going global.
That is one reason why politicians are keen to ride the coattails of its success: Witness Ontario Finance Minister Dwight Duncan's ploy to read his budget statement off the PlayBook. "I think that we should be very proud of Ontario businesses that innovate," he said.
If only RIM got as much praise on Wall Street. Mr. Lazaridis struggles to understand why RIM doesn't get more credit for what it has done. Sometimes, his frustration just boils over. This week, he angrily ended an interview with the BBC after a reporter asked a question about RIM's ongoing issues with foreign governments that want access to encrypted BlackBerry data. (The BBC clip went viral on the Internet, and Mr. Balsillie had to do damage control during his own subsequent TV appearances.)
"I think we're underappreciated in what we've been able to do and what we've accomplished as we've become a global player," Mr. Lazaridis says. "[RIM is in] the fastest-growing market in the world and we're right up there, and when you sit down ... how many players come to mind in this [wireless] space? Do you really think of more than five? Not really.
"I think it's an excellent position to be in. I really do."
With files from reporters Iain Marlow, Tara Perkins, Tim Kiladze, Grant Robertson and Boyd Erman
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