Business: Service restored, but BlackBerry may never repair its reputation: Under pressure from Apple, and with a demanding clientele furious over a lengthy blackout, the pioneering mobile firm has suffered a startling fall from grace.
(Observer (UK) Via Acquire Media NewsEdge) Back in the spring of 2007, the iPhone had yet to go on sale in the UK, and a BlackBerry was still a status symbol for those at the top of the corporate ladder. Asked then whether Steve Jobs's vision of turning phones into computers could dent the BlackBerry's popularity, its creator, Mike Lazaridis, was unimpressed. "How much presence does Apple have in [the] business [market]?" he said. "It's vanishingly small."
For a while the market proved him right. By the following year, Research In Motion (RIM), the company Lazaridis founded while a student, was worth $80bn (pounds 50bn). He and co-chief executive Jim Balsillie held 10% of the stock, a paper fortune worth $4bn apiece.
Today, RIM's reputation is in tatters. Hammered by falling profits, the company is now valued at just under $13bn. The BlackBerry's popularity with British teenagers led it to be dubbed the "riot phone" after this summer's rampages. Its pioneering mobile email service has just emerged from its worst-ever system failure - almost four days of outage spread across the world and into the company's North American heartland. Public figures from Sir Alan Sugar to Alastair Campbell have vented their fury.
BlackBerry's biggest fans, particularly at the big US banks, are casting about for alternatives. While BlackBerrys are still considered the most secure smartphone, the brand is swiftly moving from "must have" to "must I have?"
"This outage couldn't have come at a worse time," says Francisco Jeronimo, research manager at analyst IDC. "It harms BlackBerry's brand. Corporations, users and mobile operators are now asking themselves: how reliable is RIM?"
Activist shareholders, egged on by financial analysts, are hammering on the boardroom door, calling for Lazaridis and Balsillie to leave. Chief among them is Vic Alboini, who runs Jaguar Financial, a merchant bank which claims to have support from 12 of RIM's top 20 stockholders for a change at the top.
"Even Amazon is coming out with a mobile platform," he says. "There's a lot of competition out there, and there are only going to be three to five players in the next few years. Where is RIM going to be in that environment?"
Alboini believes RIM can be saved with a "transformational" chief executive and more technology expertise on its board. He has a point: of the seven independent directors, only two have technology or telecoms experience. One is a former Telefonica executive, the other a former IBM executive - respected brands, but hardly cutting-edge Silicon Valley technology companies.
Balsillie and Lazaridis are the only managers with a position on the board, and they jointly hold the chairmanship. The situation has drawn protests from other shareholders, such as Northwest & Ethical Investments, which agreed to drop its campaign for separation of the chair and chief executive roles subject to a corporate governance review by RIM's independent directors, which will issue its findings in January 2012.
Between 2006 and 2009, the company had no chair at all. It was a period during which critics say Balsillie took his eye off the ball. An avid ice hockey fan, he made a number of unsuccessful attempts to buy professional US teams and relocate them to Canada. The adventure brought him in to conflict with the National Hockey League, which declared his $240m bid for the bankrupt Phoenix Coyotes of Arizona inadmissible because, it claimed, he lacked the "good character and integrity" needed to own a franchise.
Meanwhile, RIM's competitive advantage was slipping away. In 2007, Nokia and RIM held the market between them. Now the field is more evenly spread, with innovation led by Apple and Google's Android operating system, in partnership with Motorola and east Asian manufacturers like HTC and Samsung. Nokia has imploded, abandoning its own Symbian operating system in favour of Microsoft's Windows Phone, in a move that has left it unable to compete for most of this year while it works through the transition.
Worldwide, RIM's market share peaked at 20% in 2009, according to IDC. At the time, no one except Nokia sold more smartphones. Apple had 15% of the market, but it has continued to grow. By the summer, RIM's share was down to 12%, Apple was at 19% and growing, and Samsung had sprung to 16%. "Market leaders who have strong and comfortable positions don't see that, from one day to the other, things can change," says Jeronimo. "I haven't seen another company in the tech sector lose market share and stock value as quickly as Nokia and RIM have done in the last year."
Only in the UK has BlackBerry continued to capture hearts and thumbs. RIM hit 30% share in the first quarter of this year among British customers, and despite a drop to 23% over the summer it is still the most popular handset maker.
Apple has had its upheavals in recent months, including the death of Jobs. But pre-orders of its latest handset, the iPhone 4S, have broken records. As they arrived in the shops on Friday, technophiles queued in their thousands to be the first to show off the latest edition.
The RIM website describes Lazaridis, who famously built a record player from Lego aged four, as a "visionary, innovator and engineer of extraordinary talent". But while technology's other famous Lego fans, Sergey Brin and Larry Page at Google, have fallen over themselves to develop new products ranging from driverless cars to television software, Lazaridis has not.
His view until last year was that touchscreen handsets would never catch on with corporate users, who still mainly needed their phones for calls and to type business messages.
And he may have a point: on Friday a hedge fund manager who spent her morning queueing for a new iPhone said it would only be for personal use. "Even with the disruptions, I prefer a BlackBerry for work because it's easier to type emails".
A senior banker at Morgan Stanley, who was on the road during every day of last week's outage, said: "My first reaction was to be cross with my IT directors. I'm not going to change my view because of BlackBerry's outage, but I need my bank to have a contingency plan." He is pleased his employer is trialling iPads, but only wants them as a fallback.
RIM has nonetheless decided to compete directly with Apple. Last spring, it bit the bullet and decided to scrap its operating system in favour of something more web friendly, and bought a small company called QNX Software Systems. The QNX handsets will not be ready for some months, and RIM shareholders may want to await their arrival before deciding on a management change.
But the omens are not good. In April, RIM launched a tablet computer, the BlackBerry Playbook, based on QNX. It failed to take off, selling 500,000 units in its first quarter and 200,000 in the following three months. Apple has sold more than 30m iPads since April 2010.
Apple showed that tech companies can come back from the brink. But finding a visionary leader is easier said than done. Finding a cash-rich buyer may be easier. Oracle is thought to be keen to get into hardware, and has $32bn in cash on its balance sheet. Google had $36bn when it announced a $12.5bn bid for Motorola.
Apologising for the system failure on video last week, Lazaridis told his customers: "I'd like to give you an estimated time of full recovery around the world but I cannot do this."
Those hoping for a return to normal service at what was once a pioneering company may have to wait some time.
Observer comment, page 38
Mike Lazaridis: apologised to his customers.
BlackBerry has celebrity customers such as, from left, TV presenter Fearne Cotton, Pippa Middleton and actress Sienna Miller, but users have been infuriated by network problems.
INFphoto.com, Rex Features
(c) 2011 Guardian Newspapers Limited.
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