Trojan Horse Licensing to Neutralize Rivals

“RIM capitulated to pressure for more choice by opening its e-mail system to other handset makers. They would design keyboard phones, and RIM would supply software and links to connect the phones to its data network. In exchange RIM charged licensing fees. RIM called this new program BlackBerry Connect. Many employees couldn’t understand why RIM was rushing to aid competitors. It wasn’t. Like some Balsillie strategies, appearances were deceiving. Balsillie and a small team of executives had other ambitions for Connect. This was more than a licensing program; it was a Trojan horse. RIM’s long-term game was to buy time. Competitors who signed up with RIM would be preoccupied making BlackBerry Connect phones rather than creating their own rival e-mail service. RIM gained an inside peek at rivals’ long-term development plans and opened the door to new customers. Every enterprise customer signed up under the program represented another stream of service access fees for RIM. It wasn’t empowering competitors at all; it was locking in its lead. “Sometimes you have to disguise yourself as another animal in the forest,” says Tyler Nelson, a RIM vice president who ran the program. Lazaridis was initially concerned that Connect would distract RIM’s engineers and designers at a time when RIM was racing to keep up with demand and introduce new BlackBerrys. He never worried, however, that corporate customers would abandon RIM for the Connect phones offered by other handset makers. Their Connect phones could not hope to match the security and encryption protections that made BlackBerry such a valuable business communications tool. “We knew ultimately that the enterprise customer … was never going to go for it, because it was not a verifiably secure solution,” he says. “It was our advantage. It wasn’t hidden; it was in plain sight.” Unaware of RIM’s hidden agenda, phone makers in Europe and Asia flocked to the program to strengthen their presence in North America with BlackBerry-enabled phones. Samsung was so keen to make a Connect phone that one of its employees idled for weeks at a Waterloo hotel waiting for RIM to grant him a meeting with Balsillie. Finally the visitor appeared at the company’s offices in a distraught state. Samsung, he explained, would not let him return home to his family and job in South Korea unless he secured a Connect deal. RIM opened Connect discussions with Samsung, and the manager was free to fly home. RIM’s most dedicated Connect partner was Nokia. The Finnish phone maker had been trying to break into the U.S. wireless business market for years, and Connect looked like an easy shortcut. Nokia’s executives did not worry about dancing with a competitor because Balsillie played down RIM’s ambitions during initial discussions in 2002. “He emphasized he didn’t believe RIM would be able to compete in the hardware business [and] might even give up their hardware business,” says Panu Kuusisto, who managed Nokia’s Connect agreement with RIM.…”

“There was a bigger game under way. Though they flattered Yankowski with attention, RIM’s partners had no interest in selling their company. They took Yankowski’s calls, showed up for meetings, and swapped boasts to keep him off guard. “Most people’s instincts tell them to seek clarity in business dealings, but ambiguity is more powerful in my view,” Balsillie explains. “You’d be surprised how long you can string competitors along without ever showing your cards.” An unsuspecting Yankowski pursued a takeover of RIM for months. Throughout Yankowski’s courtship of RIM, Balsillie downplayed his own company’s abilities and ambitions—flashing what he calls the “Aw, shucks card.” BlackBerry, he told Yankowski, was a small niche device lacking the global appeal of Palm. He talked of licensing Palm’s operating system and continually asked what RIM should do next. “That seemed to be his primary preoccupation,” Yankowski says. That’s exactly what RIM wanted him to think. “My objective,” comments Balsillie, “was to get him to underestimate RIM.” When Balsillie joined Yankowski in San Francisco for dinner later in 2000, the RIM chief pulled out a prototype of an upgraded BlackBerry, called the 957, which shared many of the features of the latest Palm device, including a large, square screen. He handed the model to Yankowski, who was suddenly full of questions: “What network will RIM use for this BlackBerry?” “We haven’t told anybody yet,” Balsillie replied. Eyeing the screen, Yankowski flashed Balsillie a big grin. “That’s okay. I already know.” “What do you mean?” “It says right here.” Yankowski pointed to the letters CDPD in the top right corner of the screen. CDPD, short for cellular digital packet data, was a wireless data network technology heavily promoted by its creator, AT&T. So that’s what RIM’s up to: dumping Mobitex for CDPD, Yankowski figured. Palm was already testing its next device on the CDPD data network. Balsillie was still giddy when he caught up with David Yach, a Canadian engineer who had been recently hired away from California software maker Sybase as RIM’s chief technology officer. Joining Yach in RIM’s jet, Balsillie blurted out: “He fell for it!” In fact, what he showed Yankowski earlier in the evening was a decoy with the screen changed to read CDPD by one of Yach’s engineers, with the specific intent of fooling the Palm boss. RIM had no interest in CDPD. Lazaridis viewed it as technically inferior technology, correctly predicting it would soon be dead. If Palm wanted to jump to CDPD, that was fine with Balsillie. For now, RIM was sticking with Mobitex, a slower but more reliable messaging highway. Yankowski has no recollection of the San Francisco dinner, but he remembers what happened soon afterward. Takeover talks broke off abruptly when Balsillie said he would have no part of a deal that did not hand him full executive control of the merged company. The petulant demand by a firm with one-twelfth the revenues of Palm seemed…”