By Damian Koh
30/12/2008
URL: http://asia.cnet.com/reviews/mobilephones/0,39050603,62049635,00.htm

WATERLOO, Canada--Even as the weather dropped to sub-zero temperatures and snow powders Research In Motion campus in Waterloo, Canada, Mike Lazaridis certainly didn't feel it. The company's founder and co-CEO whizzed into the meeting room carrying a little black box, a Storm in it, and talked passionately about BlackBerry.

The past few months of 2008 have been nothing short of exciting for RIM as the company added the Bold, Storm and Pearl Flip to its line up. Gartner's recent smartphone report also revealed that sales of BlackBerry smartphones grew 81.7 percent in the third quarter, trailing behind only Nokia in sales volume. The Finnish maker held to its No.1 position with a reported 42.4 percent market share. While the Canadian firm plays catch-up in the consumer market, it is also expanding its software presence with its application store due to open its digital doors in March 2009.

At a recent visit to RIM Campus next to the University of Waterloo, CNET Asia met several top executives to learn more about the company's vision, its upcoming services and product roadmap.

The Background

CNET Asia: You founded the company while you were a student at the University of Waterloo. How has BlackBerry evolved over the past few years, especially since the first devices were referred to as "hamburgers"? What does a BlackBerry device mean to you now?
Mike Lazaridis: When I think about our products, I don't limit my thinking to features and specifications. I think about the whole user experience and how our products and services can solve problems and create value for our customers.

Ten years ago, a BlackBerry device was focused largely on enterprise email and it was designed to be a secure, easy-to-use and highly valuable productivity tool. Today, your BlackBerry smartphone stays true to the original spirit of security, simplicity and value, but now it connects both enterprise customers and consumers to a much wider world of communications, information and entertainment.

What kind of technical difficulties do you think BlackBerry devices will face in the near future? Do you foresee limitations in the design or components in putting a BlackBerry together?
Lazaridis: Innovation is at the core of our culture at RIM and designing products that maximize the user experience is what we do best. We must always work within the laws of physics and ergonomics of small handheld wireless devices with respect to processor speed, display and keyboard size, weight, cost, battery life, radio bandwidth, network capacity and latency.

The BlackBerry solution epitomizes the highest evolution and balance possible with today's technology for both businesses and consumers. At RIM, we continue to invest in R&D to make sure we are able to maintain our lead in providing the best wireless handheld messaging and multimedia solutions globally.

Would you consider Netbooks as your competitors?
Lazaridis: No, I think I can put Netbooks in here [referring to the BlackBerry Storm]. These are Netbooks. They are just smaller.

Besides being the first company to come up with USB charging, can you share with us other trivia about RIM which most people wouldn't know?
Lazaridis: We had the first symmetric keyboard and the first real successful use of the track wheel. Other companies have tried using track wheels and they gave up. Nobody really got the ball right. The problem with the track wheel was that in the early days, the manufacturers made them very stiff. The plastic was so rigid that no matter what you did, if it hit the ground like this, it would break and the circuit board would crack.

We have very sophisticated labs with high-speed cameras, electronic scanning microscopes and infrared fast frame rate transform scanners that we invested in a long time ago. What we found with high-speed photography was that there was no deflection in the wheel when it hit the surface. The wheel stayed totally rigid and that snapped it right off. There was no saunter joint, metal pin, nothing. It's so hard to manufacture and that's why most companies gave up on it because there were a few phones that had it earlier on.

What we discovered and invented was a suspension in our track wheels. The suspension is rather like the moon buggies, and what's interesting about it is you can't feel it. It's so stiff you don't notice it's got suspension. But high-speed photography shows that when it hits, it bends in and doesn't break. That lowered the breakage a hundred times; not 100 percent, but a hundred times. That was a very big breakthrough for the industry, but we patented the technology.

About the business

CNET Asia: According to Gartner's latest smartphone report, RIM did exceptionally well in the last quarter with a market growth of 81.7 percent compared with the same quarter last year. How do you interpret the figures?
Jim Balsillie, Co-CEO: I think that's what's happening in the sector based on US statistics. Globally, it's a bunch of different trends. The cell phone market in the US declined by 5 percent compounded per annum in the past five years, but the smartphone market grew 58 percent. So what's happening is, there is a substitution in the cell phone market and different markets are at different levels of maturity for smartphones. It's like the color TV sets in the 1960s or FM radios in the 1970s. It substitutes the traditional.

The second thing that's happening with smartphones is that it's subsuming more of the other features around it, like an MP3 player. It's a personal navigation device and it does a lot of what your laptop would do. I think what's really driving it is sector substitution and this expands the capacity of computing, but the one thing that stays is the one that's got the radio because you need the radio for your cellular. You need something to talk and move packets on. I think that what is really driving the sector is substitution and the subsuming and interfacing of other things.

I think what made RIM successful is that we have very high performance in implementation as we interface everything. We are an interface and we don't compete with the ecosystem. We also have a carrier-channel strategy. Those are the key elements for RIM, but the truth of it is you can capitalize on an opportunity, but I don't believe you can create an opportunity. So that's why we did well.

How does RIM plan to stay competitive in the smartphone market. Are you going to focus more on the consumer business?
Balsillie: We have to focus on both [referring to the enterprise sector]. Obviously, our traditions are in the business, but you have to remember that in the channel, about 75 percent of B2B SIMs are bought in B2C channels. So B2C just puts the device out there and supports it. You're not going to get the channel adoption if you don't support whatever somebody is going to walk into a store to buy. So you have to support both. We have teams that support both sides equally. Our legacy is much bigger with B2B, but B2C is growing much faster.

The other thing that's interesting is that there is a large proportion of B2B users who also use B2C apps. They like games, social networking, personal navigation, e-commerce, multimedia and music. Every B2B person is also a B2C if their policies let them load up. People think of this as a lifestyle terminal.

Australia and New Zealand will be getting the Storm this month. What's your take on the product rollout in Asia Pacific and also Storm's availability in Singapore?
Balsillie: The Bold is already available and the Storm should be, too, very soon. There's a tremendous demand and we are backlogged right now for the Storm. But we plan to launch in Singapore as soon as possible. I don't know the exact dates, but it shouldn't be too late into the New Year.

It's clear that we can do a lot with smartphones these days. Are we seeing bottlenecks, for example, in terms of battery performance? Are we looking at, perhaps, the use of fuel cells?
Balsillie: The problem with fuel cells is that they haven't gotten them working that well. They are expensive and have thermodynamic issues right now because they get too hot. So it's possible, but right now they have been hitting a lot of diminishing returns. It's possible they'll get a breakout in technology, but they are also hitting real issues with network capacity. It's like a car that can go 300kmh on the roads that are shared. There is a lot of traffic. The theory is one, but the practical reality is that it's a shared road. It's the same with wireless with finite capacity. I think battery optimization is important, but it only matters once you start to hit the capacity congestion point.

What's the game changer for mobile phones in 2009?
Balsillie: I think the game changer is the network speed as the network hype gets inordinate attention. You are going to see more wireless Web services, both in B2B and B2C. You put a faster network and it's like going from a four-lane road to a six-lane road with finer asphalt. You may be able to go a little faster and put more cars, but fundamentally it's still a road. It's pretty capable right now, but there is better stuff out there. I think the most important thing is the transforming of services that people are using.

Has it come to a point where technology advancement is moving off tangent compared with how fast society is progressing?
Balsillie: I think it's fair to say that technology is ahead of society a lot of the times. Sometimes society is ahead of technology and pulls technology into it. This is the case where people are enabling far more than they use, but I also see where the applications are going as they become so easy to use and so compelling, including street-level GPS and rich social networking. So to answer your question, yes, the technology enablers are ahead of the world, but there's going to be a point where that enabler suddenly does something very, very profound for people.

How would the increasingly competitive smartphone market and longer replacement cycles in mature markets affect RIM's business model?
Dennis Kavelman, COO: I'm not sure I agree with the longer replacement cycles part. You want to have something different and you want to have something new. I would argue that with the rapid introduction of new products, we are seeing their replacement cycles as a big segment of our market. People held on to the first BlackBerry for two to three years because they all knew they weren't switching anything. It's kind of like an iDEN Nextel in the US. There're only a few handsets people hang on to for years, but when there's a new, hot device, it drives them nuts.

We get a long life out of our products. The Pearl and Curve have been selling very well for a long time. We've been very fortunate that we don't get people churning out of a BlackBerry. They may switch operators and devices going between a SureType keyboard Pearl up to a full keyboard. They may want to go from 2G to 3G, but it's rare that we lose people from BlackBerry to something else. So we almost have a base that we continue upgrading plus bringing in new folks.

The application storefront

CNET Asia: Can you tell us more about the developers program for the App Store? What's the turnaround time for a developer to create a program and have it available on the App Store?
Tylar Lessard, Director, ISV Alliances & Dev, Relations: At the developer program level, for somebody looking to create an application and then sell it, their first step would be to go to our developer site, register into the program and get free access to all the different software development tools. With that, they can then build their application and test it on the simulators for the various devices. They can also request to sign up for our partner program in order to get additional support, but that's optional. We haven't announced the full formal process yet and that's something we will once we get closer to launch time. Essentially, a developer will request to have their application in the storefront and they will need to sign a basic agreement.

We announced that if users are paying for the application, the developer will receive 80 percent of the revenue back and 20 percent will be kept to help maintain and pay for the system. So it's an 80-20 revenue share split with the developer. That will be part of the agreement as well as the basic distribution terms. Once they've signed the agreement, they'll be able to submit their application through an online portal and view where they are in the process of submission to the testing phase and the results. After testing, there'll be a phase of staging and deployment and then they will actually hit the application store.

We plan to support not only Java applications but also Web browser-based applications. So if somebody has a great mobile Web site, they'll be able to promote that in the application store and have a simple icon that users can download which gives immediate access from the home screen to the mobile Web application.

How is RIM positioning its App Store with competition from Apple and Google?
Lessard: First of all, we have a strong developer community for many years. We're looking to build on that and, of course, take advantage of all the applications that exist today and give them a central spot to be distributed. We think we'll have a very broad breadth of applications that represent everything from games for the consumer to business productivity-type applications that cater to business professionals. Our focus is to make it a really effective channel for the developers. There are a few important things that we want to make sure we do. One is that the storefront is being designed from ground up for mobile software distribution. We are ensuring that developers will be able to submit applications and upgrades when they need to and let users set up custom profiles so they can be alerted when new types of applications are posted.

We want to make sure we support free applications, paid applications and also monthly subscription billing or try-and-buy models. Those are things some other vendors have not been able to do because their stores weren't designed for software necessarily. At the end of it, we want to support the broadest types of applications, different types of billing models and operate a very effective wireless channel for downloading of applications whether it's via a cellular network or Wi-Fi.

Wireless operators can also offer their own customization to that storefront experience. So this won't be the only place you can get applications for BlackBerry. If a wireless operator chooses to have a separate store where they highlight applications they want to sell because, for example, they have billing integration with those vendors, or it's an exclusive application that's available only on that operator, we want to make sure they can offer those separate applications and customize the storefront experience. We see the application store as a very important distribution mechanism, but it won't be the only place. We'll continue to let developers distribute directly as well.

The BlackBerry devices

CNET Asia: We've seen some really exciting devices such as the Bold, Pearl Flip and the Storm from RIM in the last few months. Moving forward, what do you think will be the key feature to look out for in the BlackBerry smartphones?
David J. Smith, senior director, CDMA Handhelds: It's a tough question to answer. The market is just expanding so much. I think if you look at the smartphone market as a percentage of the entire market, we've seen tremendous growth in the smartphone market. A lot of it comes down to communication. It's about voice communication, instant messaging, social networking and the ways people communicate.

I guess the way I would answer your question is that we are always looking at the way people communicate. Web sites like Facebook, Flickr and YouTube have started to become a greater way of communication. For example, when I look at my children and watch how they communicate, I realize they will instant message and ask their friends to call them. The dynamics are changing, as compared to five or 10 years ago, no one would have sent someone an email to ask the recipient to return a call.

What do you make of the whole hype around touchscreen smartphones?
Smith: I think it's really exciting. What a touchscreen allows you to do is have a full-screen device. You are not taking up space with the keypad, yet at the same time, people love these [physical] keypads. I believe people like different things. Not everyone drives the same kind of car, wear the same kind of clothes and carry the same kind of mobile device. People will choose the devices they like, and if you look at what we are doing with the Pearl Flip, for example, we are creating different kinds of devices for people who have different needs and desires.

On security issues

CNET Asia: Are we seeing increasing breaches of security due to a higher rate of adoption for smartphones?
Scott Totzke, VP, BlackBerry Security Group: Yes, I think we are. You just have to fire up Google, do a couple of searches, and it doesn't take too long to get all kinds of headlines. There are a lot of studies and there was one I recall being done by a company down in DC where it bought a bunch of smartphones off eBay. These were supposed to be phones that have been wiped, done with a factory reset and were going to be resold for US$25 or US$50 to offset the cost of a new phone. What they found was that all the information previously on the device was readily accessible to the new owner. There was information about corporate mergers and acquisitions, earnings announcements, product announcements, and extra-marital affairs. There were all kinds of business and personal information that could be used to exploit a company, the market or the individual.

These types of studies have been repeated many times in the last three to four years and it always shows that when buying these used devices, you're always able to get a high percentage of personal information and I think the trend is accelerating. The first was a couple of years ago when they had a pretty good success rate. The last one I saw was in the UK just a couple of weeks ago, and they had a very alarmingly high success rate in getting information off these devices.

From a consumer perspective, when I'm done with my phone and I want to sell or give it back to an organization that's going to recycle that, I want to make sure I got rid of my personal information and that there's no way to recover that. One of the features of BlackBerry is that we have an option to erase all of the information and we go through a process of not only erasing the information, but also overwriting them so that the data's not recoverable.