miss BY AKKKK 9-613-001 REV. FEBRUARY 25, 2013 ALAN MACCORMACK BRIAN DUNN CHRIS F. KEMERER Research In Motion: The Mobile OS Platform War 1. Introduction New details are emerging about the rowdy behavior of two Research In Motion executives who were fired for disrupting an intercontinental flight ??” including that they managed to chew their way out of restraints after being handcuffed by crewmembers. [E]ach pleaded guilty to mischief for disrupting an Air Canada flight from Toronto to Beijing last week. The plane landed instead in Vancouver, where a court later ordered them to pay $72,000 in restitution. ” CBC Newsl At the end of 2011, this was not the sort of publicity that Research In Motion (RIM) needed. The company’s stock price, valued at over $70 a share in February, had plummeted toa low of $12. 45 in December. Its leading market share had been eroded by major competitors Apple and Google and their most recent product, the BlackBerry PlayBook tablet released in April, had flopped. Analysts were beginning to question whether the company had the capacity to survive, let alone thrive, in the very market that they had created.

RIM’s flagship product, the BlackBerry smart phone running the company’s BlackBerry Operating System (OS), had enjoyed phenomenal success since its release in 2003. Focused primarily on business and government users, the BlackBerry had gained a 45% US market share by 2008, making it the most popular smart phone in the country2. More recently, however, things had changed. Google’s Android OS, released in 2008, had supplanted BlackBerry OS at the top (Exhibit 2); another newcomer, Apple’s iPhone (released in 2007), was right behind it and enjoyed higher customer satisfaction ratings (Exhibit 1).

Both operating systems were better supported by application developers (Exhibit 3). Further, Nokia, the world’s leading manufacturer of handsets, had recently begun developing its smart phones around Microsoft’s Windows Phone platform. 1 Source: http://www. cbc. ca/news/canada/story/2011/12/09/rim-execs-flight. html. 2 A. Sacco, “A Closer Look at RIM’s BlackBerry Market Share Gain Over Apple iPhone,” CIO, June 2, 2008. HBS Professor Alan MacCormack, Doctoral Candidate Brian Dunn (University of Pittsburgh), and Professor Chris F.

Kemerer (University of Pittsburgh) prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright 0 2012, 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www. hbsp. harvard. edu/educators.

This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. 613-001 Not all was bleak, however. The company had experienced phenomenal growth in nit sales, which had carried on through 20103. While Apple and Google had beaten the company to the punch by releasing “next generation” OSes first, RIM was on the verge of releasing its own long-awaited next generation OS, QNX, which was expected to make available many of the same features found in iPhones and Android devices.

The company was in fine financial shape with a balance sheet showing $3 billion in available cash and no outstanding debts (Exhibits 4 and 5). Still, the stock price and negative outlook on the part of analysts pushed RIM to make a change at the top. In January 2012 the company fired its co-CEOs, Jim Balsillie and company founder Mike Lazaridis, and replaced them with former COO Thorsten Heins, whose Job it was now to face down the negative prognostications and restore luster to the company’s name. Heins and RIM had a number of crucial decisions to make.

In the short-term, the company needed to address whether it would be better to narrow or expand their product and marketing focus as well as determine where their resources could best be focused. More long-term, many wondered whether RIM would be better off aking itself an attractive target for acquisition rather than continuing independently. Though denied by the company, rumors had surfaced linking RIM to possible suitors. The early phase of Heins’ term as CEO looked to be an eventful one. 2. RIM History First-generation Canadian Mike Lazaridis had a passion for wireless communication.

A Star Trek fan since his youth, he was particularly fond of the futuristic electronics equipment used on the show, such as the communicator device used by Captain Kirk. In 1984, Lazaridis dropped out of college to found RIM, a company he hoped would ne day fulfill his dream of creating a real-life Star Trek communicator. The company cut its teeth on notable projects from General Motors and Kodak (the latter eventually earning the company both an Emmy and an Oscar for technical achievement4), before deciding it was time to begin working in wireless.

RIM initially worked with Rogers CanTel, Canada’s largest cellular phone provider, to develop software to support one-way sending of text messages to mobile pagers. They then partnered with Swedish handset-maker Ericsson to develop mobile email devices: true two-way wireless communication. While RIM worked on developing the software for the devices, a third partner intervened, causing Ericsson to sever ties with RIM. Thus Jilted, Lazaridis and RIM decided they no longer wanted to have their dreams of wireless communication subjected to the willingness of hardware partners to cooperate.

They decided to build their own devices: first, a PCMCIA wireless radio model for use with laptops, then, in 1996, the RIM 900 [email protected] Pager , the “world’s first pocket-sized two-way pager”5, with a QWERTY keyboard and wireless capability that allowed textual data transmissions. By the time the [email protected] Pager came out, RIM was confident in their decision to build in-house. According to one of the company’s earliest and most influential engineers, Gary Mousseau, RIM built everything themselves (except the wireless network itself) and we fine-tuned every piece to make it work fantastically.

With Mobitex, our first wireless network, RIM 3 source: DC. 4 A. Sweeny, BlackBerry Planet, Mississauga, Ontario: John Wiley & Sons Canada, Ltd. , 2009. 5 Sweeny op cit. 2 suggested key changes and improvements to allow it to work better. Then we educated the wireless network carriers and fine-tuned everything to work even etter6. RIM worked with wireless carrier BellSouth (later part of Cingular Wireless and, later still, part of AT&T) to bring the product to market. But, while the product had been a hit with internal employees, the market’s initial reception was tepid.

RIM used the experience, however, to identify key problems to address in their next device. One major improvement was the development of a method to mirror a user’s email address, allowing for clean coordination between the user’s device and a PC- based email box. RIM also enabled their follow-up device, the [email protected] Pager 950, o receive regular (non-text) pager communications. The product was aimed at corporate accounts and succeeded in attracting business from some large firms such as IBM and Panasonic, which signed up at a price point of $249 per device and $25 a month7.

RIM felt their devices were becoming increasingly capable, but were disappointed that they were used mostly for two-way paging. Seeking to connect with a more tech- savvy audience and to broaden the appeal of their device away from mere paging, RIM hired a California marketing agency to come up with a new, more marketable name for their product. The name they recommended was BlackBerry. The new name was intended to be “natural”, “Joyful” and to potentially “decrease blood pressure”8; RIM hoped that this less pager-centric name would encourage customers to view the product as something that went beyond mere two-way texting.

Working in the companys favor was the concurrent development and adoption of the Internet, both in corporations and in homes. Due to this rapid adoption the business and consumer world changed fundamentally between the time the [email protected] Pager 950 was launched and the time that the same product, now renamed BlackBerry, ame onto the market in 1999. Unlike its almost identical predecessor, the BlackBerry arrived in a world of people that not only knew what email was, but also wanted to take it with them wherever they were.

RIM targeted the product at high-end business users9 and the strategy worked. Customers and business partners, many of them famous and influential, signed up. Said Lazaridis, And here we are, with [BlackBerry] really being one of the top one or two pre-eminent brands in handhelds, and certainly the No. 1 brand in wireless data, so far. The senior executives at Intel use it, so do the senior executives at Microsoft. And very ell-known people like Mike Dell, Gerald Levin and A1 Gore love it10. The BlackBerry offered owners a new level of connectivity theretofore unknown to cell phone and PDA users.

The re-launched device could interact with corporate email servers via owners’ wireless providers. Thus encouraged, RIM went on to develop new functionalities for new versions of its device. They added cell phone capability, Internet browsing, highly secure instant messaging via BlackBerry Messenger, and were soon enabling their device to host third-party productivity and entertainment software. These third-party developers further extended the usefulness of the evice, 6 Sweeny op cit. 7 8 “How did the BlackBerry get its name? “, Ottawa Citizen, 2006, http:// www. canada. om/topics/technology/story. html? id=85473082-02e8-4296-80a8- d8bdd4901496, accessed August 2011. 9 J. Martinson, “Mr BlackBerry – $2bn geek who started with Lego,” Guardian, March 2, 2007. 10 adding applications for news feeds, social media, gaming, and a host of other functions that ran on top of the device’s BlackBerry OS. Sales boomed. Early-adopting technology enthusiasts could be seen cradling the device underneath conference tables and while waiting at bus stops. As the device ecame more popular, medical practitioners began comparing its persistent use to alcohol and nicotine addictionl 1 .

Detractors referred to the device as a “crackberry’. For better or worse, it had changed the way its users could interact with technology and each other. Lazaridis, on the other hand, looked at users’ affinity for his product in a strictly positive light: “Until you use a BlackBerry you Just don’t get it. You are connected for both the crisis and the opportunity. You can respond to your boss, but at the same time you have the freedom to walk to the corner store and get a cup of coffeel 2. ” RIM ad made the Internet mobile.

People could read their email while waiting at stop lights, evaluate their stock portfolios while in a staff meeting, even listen to music or read books while stranded in the airport. It was the early leader in an industry poised for explosive growth. 3. Personal Digital Assistants: BlackBerrys Roots While the BlackBerry owed its immediate origin to the pager market, as the device began to take on computing power and grow into a platform for online applications, it began to resemble the pager less and devices such as the personal computer (PC), and personal digital assistant (PDA), more.

Of the two, many considered the PDA to be the BlackBerrys most direct immediate ancestor. For RIM, understanding the development of the PDA offered insight into what the company might expect for the future of the smart phone market and how it should move forward. Apple’s Newton In his 1987 autobiography, Odyssey, former Apple CEO John Sculley introduced his idea for a new concept in computing, “Knowledge Navigator”. This new concept would be more like working with a human assistant.

Users could simply tell the device what they wanted using every-day language and the device would handle the request or, ven better, have already anticipated the user’s need based on contextual clues. To probe the concept further Apple created a series of video clips, which tantalized viewers with human-looking on-screen agents and foldable flat-panel screens controlled with simple gestures. None of that was technologically possible in 1987. By 1992, though, Sculley felt that Apple was ready to take a major step toward his vision.

In his keynote address at the winter Consumer Electronics Show (CES) in Las Vegas Sculley excited attendees with his talk of “digital convergence”. He explained how three theretofore disparate arkets ??” PCs, interpersonal communication, and content publication ??” would soon become one. By the early 2000s, he predicted, this converged market would be worth $3 trillion and Apple would be at its forefront. Attendees buzzed with excitement; had the future finally come? 11 J. Stern, “BlackBerry Addicts Can’t Shake the Habit,” Laptop, December 4, 2007. 2 Martinson op cit. Scullers speech pointed to the upcoming release of Apple’s new computing product, the Newton, a device for which he coined the term “personal digital assistant”13. The Newton had been developed as a stand-alone mobile product that users would take ith them everywhere; it weighed less than a pound, could fit in the user’s hands, and ran 14 hours on four AAA batteries. The Newton came with an infrared port by which to communicate with other Newton devices.

Although it didn’t have a human- looking assistant and couldn’t be operated through hand gestures, it did allow users to input every-day language commands and information through their natural handwriting by using a stylus to write directly to the screen. The Newton would then parse the handwriting to detect commands and, where appropriate, launch applications and/or bring up new screens of information. When it was released in August 1993, the Newton MessagePad 100 carried a price tag of $699, similar to the cost of a 27-inch television at the time14.

The screen had a contrast ratio of only 6. 4- to-I, which, especially in low-light situations, could be difficult to see. The handwriting recognition input feature, arguably the most innovative concept available in the device, presented significant issues. In order to keep Newton’s price below $1,000, Apple had opted for a relatively economical CPU for the device. However, handwriting recognition was processor-intensive. As a result, after hand- riting a command on the screen, there was a noticeable lag as the device processed the input before redisplaying it as typed text on screen.

Making the situation worse, Newton’s handwriting recognition required weeks to calibrate itself to a user’s writing and, even then, was often inaccurate. The Newton’s handwriting recognition issues were widely mocked. The comic strip Doonesbury depicted characters surprised by how their Newton devices misinterpreted inputs (even though Doonesbury cartoonist Gary Trudeau had never used the devicel 5). The television show The Simpsons howed a bully taking a note on his Newton to “beat up Martin” only for the device to misinterpret the input as “eat up Martha”.

Referring to suspicions that Apple had rushed the product to market, even some Apple devotees came to deride the MessagePad 100 as a “grand public beta test”16. Sales were poor and the initial perceptions of the device’s shortcomings doomed it to market failure. Though follow-on versions of the product improved its handwriting recognition feature considerably, the public stayed away. PC World later awarded the Newton “dishonorable mention” in its list of the worst all-time tech products17. Apple’s board fired Sculley before the end of 1993 and, in 1998, newly returned CEO Steve Jobs canceled the Newton line altogether.

Palm and the Pilot In January 1992, the same month Sculley made his Las Vegas pronouncements, a former Intel engineer, Jeff Hawkins, founded Palm Computing. With backing from Tandy Corporation and a group of venture capitalists, Hawkins sought to create a device that would “respond to human impulses” using insights he had discovered while researching human intelligence and neural networks as a PhD student in California18. Palm’s initial focus was software and their first major 13 O. Linzmayer, Apple Confidential 2. 0: The Definitive History of the World’s Most Colorful Company, San Francisco, No Starch Press: 2004. 4 http://www. tvhistory. tv/tv-prices. htm 15 http://applemuseum. bott. org/sections/computers/omp. html 16 T. Brand, “Choosing a Newton,” http://eggfreckles. net/tech/choosing-a-newton/, Accessed July 8, 2011. 17 D. -rynan, “The 25 worst Tech products of All Time,” pc world, May 26, 2006. 18 P. Dillon, “The Next Small Thing,” Fast Company, May 1998. product was the personal information management (PIM) code for an early PDA, the Zoomer, manufactured by both Tandy and Casio. Like the Newton, the Zoomer models were released in 1993.

The Zoomer was like the Newton in other ways: it also had problems with handwriting recognition and it also failed to impact the market. In retrospect, Hawkins wasn’t surprised, later calling the Zoomer “the slowest computer ever made by man” and commenting that it had been too big (it was seven inches long and an inch thick and weighed a pound) and too expensive (it retailed for $700)19. Post-launch analysis also revealed that the Zoomer had targeted the wrong audience. Hawkins’ vision had focused on consumers, who he thought would use the device instead of a PC.

Actual purchasers, however, had largely been corporate users who wanted a small device that interacted with and complemented their PCs. 20 Said Palm CEO Donna Dubinsky, The approach we were all taking before was to say “We’re going to take the PC and shrink it into this little box. ” There was this implication that it had to do everything the big box did. What we realized after having some failures was there was a different approach, which was to assume the handheld is a component of the bigger system. 21 Lessons in hand, Palm went to work creating their next generation.

In order to have ore control over their product’s success or failure, Palm decided to build their own device rather than partnering with Tandy or Casio again. The product they were developing needed to work seamlessly with PCs and act as part of the greater PC “ecosystem”. As it would not be a stand-alone computer capable of most things a PC could do, however, the product needed to be cheaper, lighter weight, and more responsive. This meant solving the handwriting by creating a new, simplified alphabet that users would have to learn, but that would not require as much processing power.

In 1996 and now owned by modem-maker U. S. Robotics, Palm was ready to release their new lighter-weight, more-responsive device. Dubbed the PalmPilot, it was small enough to fit in a shirt pocket and weighed less than six ounces. It included the new handwriting recognition system and was available for $299. The product was a success. Palm shipped over 1 million units in the 18 months after the product’s launch, making it the fastest selling computer product ever to that point22. Adoptees were passionate, with some claiming that their purchase of a Palm PDA was a lifechanging, even “religious” event23.

Not only did the Pilot capture the ttention of media and consumers, but, like the PC before it, it launched a new market for third-party applications. The Pilot ran on Palm’s newly developed operating system, PalmOS, which the company considered to be an “open architecture”24. The company provided developers with tools needed to code Palm applications initially on full-sized PCs and then transfer them into the Palm ecosystem. As more applications were developed and people saw that the new Palm alphabet was not too difficult to learn, the product flourished. Its golden period, however, was short lived. In 1998, U. S.

Robotics (and Palm along with it) was bought by technology company 3Com. Hawkins felt the new owners were hindering development of 19 Dillon, op cit. 20 21 E. Ramstad, “In handheld program, Microsoft’s challenges are clear”, Sarasota Herald- Tribune, July 3, 1996. D. Colman 24 , “Palmistry,” New York Times, August 12, 1999. U. S. Robotics press release, January 29, 1996. 6 Palm and so left later that year to form another PDA manufacturer, Handspring. With 3Com doing little to improve the PalmPilot and Handspring needing time to start up operations, neither company manufactured an Internet-capable device until 2002.

The two companies merged soon thereafter, but by that time they had not only lost the initiative on Internet-capable smart phones, but their core PDA market had become fully enveloped by the smart phone market and devices like RIM’s BlackBerry. Palm made the transition into the smart phone world, but by 2011 and after having been acquired by Hewlett-Packard the Palm operating system could claim only 4% of the market and was no longer seen as a viable mobile OS. 4. The Mobile OS Competition By 2011 the mobile OS competition had become more heated than the PDA competition ever did.

With viable options from industry heavyweights Apple, Google, and Microsoft, RIM needed to understand their competition’s market positions. Would it make sense for RIM to mimic what had been successful for Apple and Google, or would it be better for the company to forge its own path? Apple iOS Upon making the decision to kill the Newton in 1998, Steve Jobs, newly returned as Apple’s CEO, explained that “to realize our ambitious plans, we must focus all our efforts in one direction”. 25 The company put Newton’s technology on the market, but could not find a worthwhile suitor.

Industry observers saw the product’s demise as a ign that the company was in dire straits and that it represented a “loss of momentum” for Apple. 26 Then, in August 1998, Apple released its new consumer-focused desktop computer, the iMac. Industry pundits called the launch a “do-or-die” for Apple27. The iMac, unlike the generally beigebox Microsoft-based PCs of the day, focused on design and was available in five translucent colors. The company marketed the iMac with an aggressive advertising campaign, including a television spot featuring the Rolling Stones’ “She’s a Rainbow’ accompanying a kaleidoscope of gyrating iMacs28.

While the iMac did not propel Apple to the top of the desktop computer world, it exceeded sales expectations and boosted the company’s stock price29. Perhaps more importantly, it marked the start of the “modern Apple”. The company’s well- coordinated emphases on industrial design, functionality, and marketing sax. n. y made owning a Macintosh hip and trendy if perhaps still problematic due to incompatibility with Windows. With the iMac established, Jobs and Apple were confident enough to again look into other markets. The rise in popularity of MP3 music files had created a market need for portable MP3 players.

While these were quickly coming into the market, most were built by smaller companies, were bulky and heavy, and, due to the limitations of using 32 or 64 megabyte (MB) memory chips, 25 T. Murphy, “Apple dropping Newton products,” http://www. marketwatch. com/story/ apple-dropping-newton-products, Accessed July 9, 2011. 26 Murphy, op cit. 27 V. Gonzales, “Apple Pins Hopes On iMac Appeal,” http://www. cbsnews. com/stories/ 1998/08/16/tech/matn16073. shtml, Accessed July 10, 2011. 28 http://www. youtube. com/watch? v=lcBpXY11 r3Q 29 “New iMac selling like hotcakes,” http://news. bbc. co. uk/2/hi/business/1 53396. stm,