The resulting wallet-sized product had a flip-open screen and a full keyboard. RIM later nicknamed it the Bullfrog. Mr. Lazaridis became excited about its prospects during a 1996 conference in San Francisco, when panelists debated whether the industry could produce the very device he was using. "I don't believe it -- they don't know about this product," Mr. Lazaridis typed with his thumbs in a message back to Waterloo.
The Bullfrog never caught on. It required expensive network maintenance, cost more than $450 and its flip-lid was always breaking. Most people hadn't become accustomed to regular e-mail, let alone wireless messaging.
By 1997, BellSouth was ready to give up. Mr. Lazaridis remembers the "depressing" call he and Mr. Balsillie received from Jim Hobbs, a BellSouth executive, who said the phone company was considering shutting down or selling part of the Mobitex network unless they came up with a new plan.
Mr. Lazaridis arrived home dejected. His wife handed over their newborn son, saying, "It's your turn." After finally getting the baby to sleep around midnight, Mr. Lazaridis turned on his computer in the basement and listened to some rock music. In a three-hour blur, he wrote the blueprints for a reconfiguration of BellSouth's network that supported a sleek, one-piece, battery-efficient device smaller than a deck of cards, with a thumb-wheel for scrolling and clicking.
It would become the first BlackBerry. He e-mailed the plans to Mr. Balsillie at 3 a.m. and said he'd likely be in the office late. "No problem," Mr. Balsillie e-mailed back later that morning, "I've already turned it into a presentation" on PowerPoint.
Days later, the two flew to Atlanta and gave their pitch to a group of BellSouth executives. Watching Mr. Lazaridis as he waved a wooden model of the proposed device, "I was thinking he was full of it," recalls George Pappas, a former BellSouth executive, who was at the meeting. But he adds: "What was so impressive was they were determined to make it happen."
BellSouth decided to give it one more try. A few weeks later, it launched a major network reconfiguration and gave RIM its biggest order yet, for $75 million of BlackBerries. The name came from a branding company hired by RIM. One employee there thought the tiny keys looked like seeds and half-jokingly suggested "strawberry." The RIM executives had previously called it the PocketLink.
The BlackBerry won rave reviews. RIM launched new models with color screens and Web capabilities. On her television show in 2003, Oprah Winfrey gushed over the device -- "my new favorite thing that I take everywhere" -- and gave free Blackberries to her audience. The device became known as the "crackberry" for its addictiveness.
"You couldn't pry the thing out of their hands," says Dennis Guzy, an information-technology official with the Pennsylvania attorney general's office, talking about his staff. He expects as much as two-thirds of the department's 900 employees will have BlackBerries in the next couple years, up from 71 currently.
A BlackBerry with phone and e-mail capabilities retails for about $200 but is sometimes given away by companies offering special promotions. A typical monthly service fee is between $30 and $40.
Just as BlackBerry was taking off, RIM made a crucial strategic shift.
Originally, RIM set out to provide sales and service on its own. It was a risky move given RIM's meager resources. Mr. Lazaridis recalls spending a Christmas holiday in the basement buying network airtime while his wife entertained guests.
RIM realized it would be easier to let phone companies handle the customers. In exchange, RIM receives about 10% to 20% of the monthly fee charged by carriers. RIM agreed to handle e-mail traffic and provide technical support.
BellSouth, for one, learned quickly about the BlackBerry's appeal. Visiting Lehman Brothers Inc. in 1999, former BellSouth marketing executive Janet Boudris remembers being shocked to find employees in hallways, lunchrooms and even within arm's reach of their computers thumbing their BlackBerries.
Today, 100 wireless carriers sell BlackBerry hand-helds and service and 80 more will start this year. RIM's 120,000-square-foot plant in Waterloo, which works round-the-clock, isn't big enough. RIM recently agreed to take over the leather factory next door. For its fiscal year ended Feb. 26, 2005, RIM had net income of $213 million on revenue of $1.35 billion.
But given the excitement surrounding wireless e-mail, competition has become fierce. K2 Enterprises, a small Hammond, La., firm that runs accounting seminars, switched from BlackBerries to Treos, made by PalmOne Inc., Milpitas, Calif., about 18 months ago. K2 Executive Vice President Randolph Johnston says the Treo has better phone quality and editing capabilities. He likes its MP3 player and camera. PalmOne says it has sold more than a million Treo devices.
Meanwhile, a host of companies are pushing wireless e-mail networks as BlackBerry alternatives. For example, Good Technology Inc., Santa Clara, Calif., says it has signed up more than 5,000 organizations for its rival system, which runs with gadgets that compete with the BlackBerry.
In this arena, some say Microsoft is the biggest long-term threat. In March, it reached a deal allowing handsets running software made by the United Kingdom's Symbian Ltd. to work on Microsoft's e-mail servers. The pact followed a similar deal with Nokia.
The software giant says it won't charge service providers, such as cellphone companies, a monthly fee to handle e-mail traffic, as BlackBerry does. Scott Horn, senior director of Microsoft's mobile-devices division, argues that will encourage service providers to push Microsoft's system.
RIM's Mr. Balsillie contends that service providers won't actually save money working with Microsoft. He notes they still have to set up customer support and back-up facilities that RIM currently provides for its fee.
For companies already running Microsoft systems, there are cost savings. Dion Baird, senior network architect for the Oregon Department of Education, says his boss was interested in giving BlackBerries to some staffers. He found the department could save about $10,000 by using the Microsoft system that already runs its regular e-mail, obviating the need to buy a BlackBerry server and license its software. "It really wasn't much of a decision after that," says Mr. Baird, who chose hand-helds made by Siemens AG.
An executive at a top wireless company says the Microsoft service "represents a fantastic opportunity" to get more companies interested in wireless e-mail because many already have the requisite technology in place.
Microsoft declines to say how many people use its servers for wireless e-mail. Estimates range from below 20,000 -- according to Pablo Perez-Fernandez, an analyst with Houston securities firm Stanford Group Co. -- to below 100,000, an estimate from Gartner Group analyst Ken Dulaney.
RIM's counterattack is focused on addressing criticism that BlackBerry technology doesn't work well with other systems and devices. One stumbling block was a patent battle that discouraged consumer-electronics manufacturers from selling their own brand of hand-helds in the U.S. that work with the BlackBerry network. RIM recently agreed to pay $450 million to NTP Inc., of Arlington, Va., to end that dispute.
RIM is now pressing gadget makers to include BlackBerry software on their devices. Two years into the program, only about half a dozen models are available, and some rivals appear reluctant to hop on board.
RIM last summer announced plans for Motorola to launch a phone and e-mail device that could hook up to the BlackBerry system. But Motorola launched the device without the BlackBerry link. Mark Guibert, RIM's vice president for corporate marketing, says he expects Motorola to include the BlackBerry feature in the future. A Motorola spokesman agrees, but wouldn't give a timetable.
The number of BlackBerry subscribers using such non-Blackberry devices -- a key measure of RIM's attempt to open up its system -- is a "five-figure number," RIM said this month, a tiny fraction of its customer base.
RIM, for its part, says its main challenge now is running fast enough to meet the existing demand. "You try launching [with] a hundred carriers in a year," says Mr. Balsillie after pecking away on his BlackBerry. "They all want to go yesterday."
Write to Mark Heinzl at
mark.heinzl@wsj.com1
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