The Battle of Waterloo

The life, death, and rebirth of BlackBerry’s hometown

Images: Gabriella Peñuela

It’s a little after 5:30 p.m. on a Wednesday night, and I’m sitting in a freezing rental car outside the BlackBerry headquarters in Waterloo, Ontario, looking for signs of life.

Five years and several billion dollars ago, these buildings would have been full, and the windows would have been dotted with busy silhouettes. But today, it’s a ghost town. The lights are on inside the main entryway, but there’s no foot traffic at the turnstiles, no workers visible in the first-floor hallways, no smokers huddling by the side exit. Night is falling, and the iced-over parking lot is so empty that you could hold a hockey tournament on it. For a moment, I wondered if I’d accidentally visited during a Canadian holiday, or a bomb scare.

The emptiness is especially odd because it’s been a busy week for BlackBerry. Just a few hours before my visit, Reuters reported that Samsung was in talks to acquire the company for $7 billion. (BlackBerry swatted down the report, but not before it had sent the company’s stock price on a roller coaster ride.) Reviews of the BlackBerry Classic, a retro-inspired device with a QWERTY keyboard, are starting to trickle in. And employees are working on an ambitious turnaround plan, which company executives hope will reverse years of decline by re-focusing BlackBerry on its core business customers.

With what’s happened to BlackBerry recently, it’s easy to forget what a juggernaut the company once was. At its peak, it had nearly 20,000 employees, a market value of more than $80 billion, and a sanctified status in the gadget world. The “CrackBerry” was a true phenomenon – consumers went nuts over them, and governments and Fortune 500 companies made them the backbone of their operations. In 2008, when asked about being forced to give up his BlackBerry in the White House, Barack Obama said “they’re going to have to pry it out of my hands.”

BlackBerry is still alive – it has 7,000 employees worldwide, trades at a market value of $5.25 billion, and turned a small profit last quarter – but most people here speak about it in the past tense. The company’s market value has fallen more than 90 percent from its peak, and it has less than a one percent share of the global smartphone market, having been reduced to rubble by Apple, Samsung, and other manufacturers years ago. President Obama still has his BlackBerry, but most other people ditched theirs a while back.

I came to Waterloo to figure out what the decline of BlackBerry has done to the community surrounding it. I wondered: is BlackBerry to Waterloo as GM was to Detroit?

After all, there aren’t many company towns in the technology industry—most of today’s smartphone producers are enormous multi-nationals with globe-spanning supply chains. But the BlackBerry was always a local affair. BlackBerry manufactured here, gave internships to local college students, and employed what seemed like half the city. Like Kodak’s hometown of Rochester, New York, the fortunes of Waterloo were closely tied to the fate of a single major company. And when the company fell on hard times … well, I assumed the city did, too.

After putting on my hat and gloves, I get out of my car and walk around the complex, looking for something that will assure me I’m in the right place. (I’m not officially supposed to be here — BlackBerry declined repeated requests for interviews, and didn’t offer a tour.) On the street-facing side of the building is a first-floor break room, with the BlackBerry logo painted on the back wall. The room is empty, but the lights are on, and next to the wall logo, I spot a blackboard with hundreds of words of morale-boosting encouragement scribbled in white chalk — the only mark of real, present-day effort I’ve seen here.

“Never give up! one scribble reads.

“Don’t stop believing!” reads another.

“Ready to conquer!”

“Challenges are opportunities!”

“BlackBerry magic is back!”

“Prove them wrong!”

“Believe we can!”

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II.

Waterloo was never the most obvious tech hub. A tight-knit city of 120,000 (350,000 if you lump in nearby Kitchener, which most people do), it was founded by 19th-century Mennonites, and was known primarily for decades as a middle-class manufacturing town that was often overshadowed by Toronto, its cosmopolitan neighbor 50 miles to the east.

That changed in 1984, when Mike Lazaridis and Douglas Fregan, two engineering students at the University of Waterloo, started a company to develop a wireless data transmission device. That company, Research in Motion (RIM), would spend the next few decades changing the way the world communicated. Its first big customers, which included Wall Street banks and government agencies, loved what the BlackBerry promised to give them—secure connectivity and around-the-clock e-mail access, which resulted in increased productivity and fewer crossed signals. More and more customers signed on, and by 2005 or so, the BlackBerry was synonymous with serious business. RIM sold a million devices a year, then a million in a month, then ten million in a quarter.

As it grew, RIM bought up more and more real estate in Waterloo—roughly 15 buildings in all—and the local headcount swelled to more than 10,000. Its prosperity spread to everyone else in town. Restaurants dedicated private rooms to RIM business dinners, and filled their coffers catering the many in-house functions it held. Hotels opened up to accommodate out-of-town visitors, and housing prices in the region rose. With their mega-millions, “Mike and Jim,” as Lazaridis and his longtime co-CEO Jim Balsillie are called here, funded a cancer care center at the local hospital, built a world-class theoretical physics institute in town, and helped pay for everything from summer camps for college students to RIM Park, a collection of hockey rinks and baseball diamonds just east of the company’s campus. A hot tub vendor down the street held a sale every June, right around the time that RIM bonuses hit executive bank accounts.

Thanks to the BlackBerry, Waterloo had become a destination. Every few weeks, a private jet would whiz another celebrity into town to tour the RIM headquarters and meet with Mike and Jim—the Queen of England, Lance Armstrong, Will.i.am, Stephen Hawking. And some BlackBerry executives became celebrities themselves. Mike Kirkup, the company’s former head of developer relations, says, “We worked like dogs, but it was sexy.” Kirkup recalls that he had to get private security during a trip to Indonesia to protect himself from a mob of adoring BlackBerry fans.

“BlackBerry was the coolest company to work for, because everyone carried one in their pockets,” says Michael Litt, a former BlackBerry engineer who left to start Vidyard, a video analytics start-up. “The company felt like nothing could stop it.”

Much of RIM’s early success, locals tell you, can be traced to the University of Waterloo, a school that has become the Stanford of Canada due to its massive engineering department and record of placing “co-ops,” or paid interns, at huge tech companies. From RIM’s early days, the school provided the company with a steady stream of engineering talent. (RIM hired so many co-ops, the story goes, that it became jokingly referred to as the “University of RIM.”) In return for their labor, the students got four-month stipends, and—perhaps more alluring at the time—their own BlackBerrys with free, unlimited data plans.

“There were two groups of people in the world who had unlimited data plans in 2007: Wall Street bankers and University of Waterloo students,” says Ted Livingston, a former BlackBerry co-op who is now CEO of Kik, a mobile messaging start-up.

In return for the company’s generosity, Waterloo was fiercely loyal to RIM. Nobody in town carried Nokia or Motorola phones—to do so would be “like driving a Honda in Detroit,” says David Yach, RIM’s former chief technology officer—and the releases of new BlackBerry devices were greeted with regional fanfare. Even in recent years, a tech blogger who criticized BlackBerry could expect to hear from more than a few Ontario die-hards, who would remind him that every company has bumps in the road and that, yes, BlackBerry would be back.

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For all its global success, RIM remained a markedly Canadian company. Even as it minted dozens of millionaires, its parking lots never filled up with expensive sports cars, and most executives lived in modest, non-gated houses. Talking about the RIM stock price inside company walls was verboten. (The punishment for being caught, according to several former employees, was buying Tim Hortons donuts for the entire company.) Even Mike and Jim kept their indulgences Canadian-sized—Jim tried several times to buy an NHL hockey team, but it never materialized.

Compared to Silicon Valley, Canada’s technology industry has always been low-key and workmanlike. There aren’t any Ubers here, companies that transform entire industries in highly obvious ways. Instead, the start-up landscape is dotted with companies that have dull but necessary functions. Sandvine, one local venture, builds networking equipment for broadband enterprises. Blitzen, a Kitchener start-up, “enables SMBs to collect, quality and unify their customer data,” according to its AngelList page.

“People always say that we solve hard, boring problems here,” says Iain Klugman, the CEO of Communitech, the local tech hub and start-up incubator.

But BlackBerry was different. Even though it started as a way to connect business workers to their companies, it eventually became a hit with consumers. Madonna confessed she slept with hers on her pillow. Jay-Z name-checked it in a song. (“Hov’s a Blackberry Bold, shawty is a Sidekick.”) BlackBerry fan sites popped up to hold the latest news and gossip out of Waterloo. After the company’s subscriber count passed 10 million, Mike and Jim rented out a hockey arena in Toronto and threw a party for employees, with Van Halen flown in to provide the music.

“RIM was really doing very well,” says Pearl Sullivan, the dean of engineering at the University of Waterloo. “It also instigated something else in this region—the idea that if you have an idea, you can build it, and if there’s a market, you can actually commercialize it.”

RIM’s success had taught Waterloo that Canadian companies could compete in the new tech economy, outmatching even their well-funded competitors down south. Mike and Jim were corporate brawlers who, unlike some of their fellow countrymen, didn’t shrink from a fight. They trash-talked their rivals. They weren’t particularly polite. They would do whatever it took to win.

Several Waterloo natives told me that when they traveled to the U.S., they had once tried to hide their accents, sit up straighter, and act more American. But the BlackBerry instilled a new regional confidence. Suddenly, Canada had done something everyone else was jealous of. From its humble perch in Waterloo, RIM had made the world sit on the edge of its chair.

“As Canadians, we tend to go for the bronze,” says Klugman. “RIM showed us the way.”

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III.

“I knew we were in trouble when the guy who cuts my hair pulled out an iPhone,” says Yach, who was the chief technology officer for software at RIM from 1998 until 2012.

I’m at the offices of Yach’s new start-up, Auvik Networks, a network management company housed in an old BlackBerry building. Some remnants of the old tenant are still plainly visible (a RIM sign in the conference room, some bland grayish cubicles), but the space has been redesigned to fit a growing start-up, complete with banners overhead saying “SHIT HAPPENS,” “NO ASSHOLES,” and other tech-world mantras. From his seat in a conference room, Yach stands and goes to the window, where he proceeds to point out buildings that used to be owned by BlackBerry. (“Let’s see. There’s one, two, three, four, five…”)

BlackBerry’s downfall began in 2007, when the iPhone showed the world that smartphones didn’t just have to be practical—they could be beautiful, too. Mike and Jim maintained that functionality was still the watchword (“Try typing a web key on a touch screen on an iPhone—that’s a real challenge,” Mike told one interviewer) but the market eventually proved them wrong. After a modest start, the iPhone sold 10 million units in 2008, and began making inroads into the corporate market, BlackBerry’s stronghold. Bankers and lawyers might not have found typing as easy on an iPhone as on their old BlackBerrys, but they loved the new touchscreen interface, and the wide world of graphics-driven apps it enabled.

“RIM didn’t realize that people wanted to play Angry Birds while taking a crap,” Michael Litt of Vidyard says.

The next few years were brutal. Losses mounted at RIM as consumers flocked to phones made by Apple and Samsung, and big corporate customers adopted bring-your-own-device policies. Mike and Jim stuck to their guns and steadfastly refused to make a keyboard-less touchscreen device, instead plowing millions into an ill-conceived line of tablets called the PlayBook. By the time they reversed course, it was too late. In January 2012, RIM brought in a new CEO, an emotionally austere German named Thorsten Heins. Mike and Jim stepped down as co-chairmen, putting their company in non-Canadian hands for the first time in its history.

Then the layoffs began. For a stretch of several months in 2012, RIM laid off employees every Monday. (In time, three-quarters of the local workforce would end up leaving.) Each week would bring a new axe—a hundred people here, two hundred there—and every round hit the city in a visceral way. Everyone in Waterloo knew someone who worked at RIM. If your brother didn’t, your neighbor did. “It was like Chinese water torture,” says Klugman.

For much of the next year, RIM — which officially rebranded itself as “BlackBerry” in January 2013 — was in all-hands-on-deck mode in preparation for BlackBerry 10, the new operating system that the company hoped would catapult it to the front of the smartphone race. Many employees recounted working 80, 90, or 100-hour weeks in the run-up to BlackBerry 10, only to be laid off when the project was finished.

“It was sort of like a forced march, and then they shot everyone,” Yach says.

Despite how obvious BlackBerry’s problems were to the rest of the world, they caught many in Waterloo by surprise. In town, the word had always been that the company’s problems were just temporary dips, soon to be fixed. But as the realization set in that BlackBerry might never reclaim its former glory, a citywide funk set in.

“In 2007, people would hold their chins up when they said they worked at BlackBerry,” Kirkup says. “In 2011, the chins were down.”

As BlackBerry slashed its workforce, local business owners worried that they would feel the brunt of it. Jody Palubiski, the managing partner of Wildcraft Grill & Bar—a restaurant so popular with executives that it was known as the “RIM cafeteria”—felt the change right away. “We did a lot of going-away dinners,” he says. With their expense accounts shrinking, RIM executives stopped coming in as frequently, and ordered fewer expensive bottles of wine when they came. The catering business, he says, also took a hit, as the number of private events held at RIM headquarters fell.

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One of the scariest possibilities for locals was that all the smart, talented engineers who had moved to Waterloo to ride the RIM rocket ship would leave. In the weeks following the RIM layoffs, Apple hosted secret recruiting events in town, and Google and Samsung began wooing senior-level executives away from the region. Faced with the loss of its most valuable employees, Waterloo embarked on a city-wide retention drive. Local entrepreneurs formed a group called Tech Jobs Connex, with the explicit goal of finding new local jobs for laid-off RIM employees. The group hosted job fairs, taught résumé and interview workshops, and identified roughly 120 “tier-one” RIM workers, whom they desperately wanted to keep in the region.

But a funny thing happened on the way to a mass exodus: Silicon Valley moved in. Sensing the opportunity to scoop up talented RIM engineers who were unwilling or unable to relocate to California, Google set up an office in Kitchener. Square moved to the region, too, as did Electronic Arts and Intel. Huawei, the huge Chinese electronics manufacturer, has plans to open an office in Kitchener-Waterloo this year. (There are rumors that Facebook, too, is coming to town, but nobody seems to want to jinx it by telling me outright.)

Peter Mankowski, a former manager in BlackBerry’s R&D division, was one of the sought-after employees. Exactly twelve minutes after he’d been laid off by BlackBerry, Mankowski got an e-mail containing a California-based job offer from a rival tech firm. But instead of packing his bags for Silicon Valley, Mankowski decided to stay. He joined Communitech, and went to work on a start-up idea: a computerized dog harness, called the CLEO Collar, that would track his dog’s movements, heart rate, and other vital signs.

“I didn’t want to go to California,” he says. “I would have felt like a coward.”

Some of Mankowski’s former colleagues left Waterloo for Silicon Valley companies. But others stayed. Many displaced BlackBerry employees landed at the banks and insurance companies in town. Others found tech jobs in Toronto and nearby cities, and a few left the industry altogether. (Generally, as in most tech industry re-orgs, the engineers and executives got re-hired first, followed by business development and finance types, followed by the soft-skills brigade and, finally, the blue-collar service workers.)

Given the heights from which BlackBerry fell, it’s remarkable how quickly the local economy bounced back. Housing prices fell a bit as ex-BlackBerry workers moved or downsized, but there was no 2008-style crash. Unemployment in the Waterloo region is lower today, at 6.5 percent, than it was before the layoffs began. And the engineering students from the University of Waterloo who would once have done their co-ops at RIM are going instead to Google or Facebook, where they’re welcomed with open arms.

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Today, most of the growth in the Waterloo region’s start-up scene involves Communitech, a tech hub and innovation center located in an old tannery building in downtown Kitchener. Roughly 120 companies have offices here, many of which are staffed by ex-BlackBerry employees. Inside, it looks like a typical Silicon Valley start-up office—exposed brick, treadmill desks, Nerf guns, bearded men wearing plaid—and it’s attached to the VeloCity Garage, a University of Waterloo offshoot that gives current students and recent graduates space and resources to work on their start-ups.

Strangely enough, many of these start-ups have benefited from RIM’s fall. For years, RIM had acted as a talent vacuum, sucking up any engineers of even marginal ability. The start-ups that did exist often found their best people lured away by huge RIM salaries. But now, people like Peter Mankowski are able to branch out on their own, hiring and retaining talented staffers, and taking the kind of entrepreneurial risks that could one day help a new RIM form in town.

“BlackBerry cast a huge shadow,” Michael Litt of Vidyard says. “When that started to shrink, it opened things up for everyone.”

“It’s like a dandelion,” David Yach adds. “It’s this big bright yellow thing, and then it withers and turns to spores, and then all of a sudden, you get a whole bunch of new ones growing.”

In part, Waterloo had an easier recovery than most post-industrial cities because its economy was always fairly diversified—RIM was the most famous employer in town, but by no means the only one—and partly because tech companies just aren’t like steel mills or auto plants. Computer scientists are much more desirable in today’s labor market than machinists ever were, and tech companies in Silicon Valley are so starved for engineering talent that they’re willing to trek up to Waterloo to find it. (“If GM lays off a bunch of people in Detroit, Tesla isn’t going to build a factory to catch them all,” Kirkup says.)

RIM’s refugees also benefited from a very Canadian strain of cooperation. Unlike in Silicon Valley, where mercenary start-ups poach highly-paid employees and sabotage each others’ funding rounds, Waterloo’s start-ups seemed to want nothing more than to help their friends and neighbors get back on their feet.

“It’s a Mennonite barn-raising thing,” says Dan Silivestru, a former BlackBerry employee who left the company in 2013 and started his own venture, a software management service called BitHound. “When the problems at RIM started, everyone just put down their projects and went, ‘Okay, time to help out.’”

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Waterloo Mayor Dave Jaworsky

 

IV.

One person in Waterloo who still carries a BlackBerry is Mayor Dave Jaworsky. When I enter his office on the second floor of Waterloo City Hall, Mayor Jaworsky pulls his Passport, a clunky-looking rectangular block, out of his suit pocket and sets it on the table.

“It’s a good device,” he says. “It’s a secure device. People forget about security.”

Jaworsky is a former RIM executive who ran the company’s corporate social responsibility division. He was laid off in 2012, after twelve and a half years at the company, and, instead of finding another tech job, decided to run for mayor under the slogan “Rebuild Prosperity.” But from the looks of things, there isn’t much rebuilding left to do. Most of the people who were laid off from RIM have found new jobs, Jaworsky says, and the Kitchener-Waterloo region’s economy has bounced back.

“There was a steel company in Hamilton whose motto was ‘Our product is steel, our strength is people,’” he says. “The reality is, those former RIM employees are the people. They’re the strength that has been pushed out into the community. You literally can’t walk around here without finding some RIM or BlackBerry experience in a company, helping it grow.” Jaworsky concedes that there were some tough times when RIM’s downturn hit, but insists, “The struggles are over. It’s a very resilient city.”

In a way, Waterloo might be a perfect parable for the new American economy. After all, today’s tech companies have shorter lifespans than yesterday’s industrial giants. At some point in the future, many of these companies will fail, leaving hundreds or thousands of high-skilled engineers out of work.

But those engineers won’t necessarily have to move to a new city in order to find new jobs, because the jobs will come to them. Companies like Google and Facebook have already proven that they’re willing to go to extreme lengths to recruit new talent, up to and including building satellite offices around groups of elite recruits. (“The Waterloo region is a thriving tech community with tremendous engineering talent,” Google told me, by way of explaining why it set up shop here.) The future of high-end labor might look like small clusters of programmers spread across the globe, with billion-dollar corporations chasing them around.

It was once conventional wisdom that start-ups had to move to Silicon Valley in order to be successful. “[Y Combinator founder] Paul Graham told me that building a company in Canada would be like climbing Everest with a ten-pound weight on my back,” said Vidyard’s Litt, who attended the Silicon Valley incubator in 2011. But if the recent past is any indication, the start-up universe is expanding. In November, Kik raised $38 million from a group of American investors. In January, Vidyard raised $18 million in a round led by Bessemer Venture Partners. There are roughly 1,000 start-ups in the Kitchener-Waterloo region, according to Communitech, giving it one of the highest start-ups-per-capita ratios in the world.

As for BlackBerry, it’s not finished yet. The current CEO, John Chen, is a Silicon Valley turnaround specialist who has stopped some of the hemorrhaging, and the company still has $3 billion in cash, plus some valuable patents, that will make it a compelling acquisition if it ever chooses to sell. Today, the company has a reported 2,700 employees in the region, roughly a quarter of its peak headcount. Last year, it began hiring in small numbers again, and it disputes the suggestion that it’s pulling away from the town where it was built.

“Waterloo is BlackBerry’s hometown and where the majority of our employees are based,” Chen said in an e-mailed statement. “We are deeply committed to Waterloo, which grew alongside BlackBerry into a thriving technology center. While BlackBerry’s footprint in the community has consolidated during our turnaround, it would be inaccurate to describe Waterloo as a ‘company town.’ In part because of BlackBerry’s international profile, Waterloo is a dynamic city of many successful companies and remains to this day a great place for smart people with a big idea to make a go of it.”

Even if BlackBerry survives, though, it will likely be as a mid-sized enterprise technology provider, not the kind of mass cultural icon it once was. The days of hip-hop verses and royal visits to Waterloo are probably over, as are the times when the entire region hummed with BlackBerry pride. Today, several of the old RIM buildings north of town sit empty and locked, with nothing but rows of abandoned cubicles visible through the windows. Most of the people I meet in Waterloo stopped carrying BlackBerrys years ago. (Even Mike Kirkup, RIM’s former public face to the tech community, switched to an iPhone in October.)

But if there are any hard feelings about BlackBerry’s decline among Waterloo locals, I’m not seeing them. On my last night in town, Chris Plunkett, the director of external relations for Communitech, invites me out to a whisky-drinking party hosted by some young start-up entrepreneurs in town. These are the very twenty-somethings who would be entitled to gloat about having disrupted the old BlackBerry regime, and carrying the banner of innovation for their region. And yet, when I ask people at the party whether they think BlackBerry will bounce back, they hem and haw, and sometimes shift in their soles. But they don’t quite say no. Against compelling evidence, optimism prevails.

“Companies root for each other here,” Plunkett tells me. “It’s Waterloo against the world.”