It’s been fun watching Research In Motion over the past few years. Not so long ago, the Waterloo, Ontario-based BlackBerry maker was the darling of the Canadian technology and business industry. The company rode its email/paging device - a smartphone before there really was such a thing - to riches and widespread praise. But, whether it was national pride or the fact that the company’s stock paid off for so many, a lot of people in Canada had blinders on to the company’s slow decline.
RIM has been sliding since Apple debuted the iPhone back in 2007. The device revolutionized the phone business, first by bringing a good internet experience to mobiles, then by adding customized apps to the equation. RIM got caught flat-footed and has been trying to catch up since, a struggle that is now manifesting itself in tablets as well. In the meantime, Google jumped in and has since muscled to the top of the smartphone heap with devices that run Android software. Like Apple, Google understood what people want in their mobile devices and capitalized. RIM, meanwhile, seems puzzled.
With lacklustre financial results reported last week, RIM’s hold-out supporters among investors, analysts and media finally seem to be abandoning ship. Some have called for a management change at the company.
That might help, but the problem goes deeper. RIM has finally hit the ceiling that just about all Canadian technology companies get to, where they just can’t compete with U.S. rivals. Whether it’s an internal implosion like Corel or Nortel or whether it’s selling out to a bigger rival, like ATI and Cognos did, there comes a time when Canadian tech companies inevitably peter out.
The reasons are varied but in the case of RIM, it’s happening because the company has to tangle with the two current titans of the U.S. technology industry: Apple and Google. There’s a reason the Canadian company - in its current form - can’t compete with those powerhouses and it comes down to the number one rule of real estate: location, location, location. Both Google and Apple are Silicon Valley stalwarts, which give them a number of advantages over RIM:
Compensation: Salary estimates vary, but according to Glassdoor.com, the average RIM software engineer makes about $70,000. That’s almost 30% less than the average $97,000 a similar employee makes at Google and Apple. With tax rates between the province of Ontario and the state California being similar (about 33% vs. 38%), Silicon Valley employees take home a significantly bigger chunk of change. But what about Canada’s much-vaunted health care system? Well, working for companies like Apple or Google nets some pretty sweet privatized medical benefits. Much has also been made about the high cost of living in Silicon Valley, but many young software engineers aren’t exactly interested in buying stately homes in wine country. They’re looking to live close to the fun and action, in San Francisco, which is actually cheaper than many major U.S. cities. Sure, it’s not as cheap as Waterloo… but then again, uh, it’s not Waterloo.
Opportunity: So let’s say those bright Canadian software engineers move down to California and go to work for Google or Apple. Then, after a little while, they get a bright idea for their own company. Who can they get to fund it? Well, the options in Silicon Valley alone are stunning. There probably aren’t that many venture capital companies - let alone ones with a technology focus - across all of Canada. Having all that VC money kicking around is the biggest draw for entrepreneurial techies. The history of Silicon Valley is rife with even the worst ideas getting millions thrown at them, which proves the place literally drips with opportunity.
Intellectual Environment: The University of Waterloo is a fine school, but it pales next to Silicon Valley’s resident brain factory, Stanford University. Stanford ranks third in studies that compare graduate accomplishment, next to Tokyo and Harvard Universities (Waterloo doesn’t make the list), and second in producing billionaires (next to Harvard again). Aside from RIM co-founders Jim Balsillie and Mike Lazaridis, it’s difficult to name any other billionaires who came out of Waterloo. Being surrounded by the best and brightest minds in Silicon Valley tends to elevate those around them as well.
Weather: The draw of climate can’t be underestimated. By this measure, Waterloo has nothing on Silicon Valley, which averages more than 300 days of sunshine a year and a winter-time low temperature of 41 degrees (5 degrees Celsius). Waterloo, on the other hand, has an average low of minus 11 and 43 centimeters of snow in January. It’s funny that Canadian software engineers get paid to work in Silicon Valley - they should be paying the companies to escape that kind of weather!
Ultimately, RIM can try to attract the best and the brightest minds but given all of those factors, those people are going to go to where the grass is greener… literally. While a management change may help, there’s really only one thing that can save the company: a move to California. Of course, with all that Canada has vested in the company, that’s about as likely as Mike Myers ever making another funny movie (i.e. it won’t happen). As such, all company watchers have to look forward to with RIM is its inevitable purchase by Microsoft, the groundwork of which is already being laid.
Jean-François Mezei
May 5, 2011 at 7:47 am
RIM chose a very proprietary platform, down to proprietary protocols. It requires special subscription to access its servers.
This worked fine when the only people using smartphone were business people whose employers paid for the service.
But when smartphones exploded to other markets (such as teenagers), RIM wasn’t there, partly because of its proprietary services. It missed the boat.
I wouldn’t blame it on its location.
bwalzer
May 5, 2011 at 8:35 am
Yeah, RIM filled a niche. They provided a turnkey mobile email solution back when such a thing was hard to do.
The proprietary to commodity evolution happens in lots of different industries. Some open standard always wins in the end. Interfaces are the most important thing.
Simon Cohen
May 5, 2011 at 10:45 am
Peter, location as a rationale for RIM’s current problems makes the heavy assumption that the company lacks the talent required to compete. It further assumes that the only place to find that talent is in Silicon Valley.
Neither of these ring true for me, and I suspect you’ll have difficulty trying to prove either point with some empirical evidence (though if you have it, please share!).
Finally, on that point you make about Stanford vs. Waterloo - I’m surprised that you used a site called “bestuniversities.com” as your reference. I couldn’t find a single source on their site that struck me as being reputable. But let’s say their facts are correct, do you really think that the number of millionaires a school produces is good yardstick? You don’t have to come from money to go to Waterloo. Can the same be said of Stanford and Harvard? BTW, you seem to have conveniently forgot that Google maintains a Waterloo office. I wonder why?
RIM faces a huge challenge, to be sure, but they didn’t get here because of their location or a lack of talented people. Visionaries can lose their way. They can also bounce back. It’s too early to write the last chapter on RIM.
petenowak2000
May 5, 2011 at 11:36 am
Simon: sorry, I should have included a better source for the university rankings and been a little clearer about what I meant there. According to the Academic Ranking of World Universities (which as far as I can tell is the most reputable source there is on this stuff), Stanford is No. 2 in engineering and technology: http://www.arwu.org/FieldENG2010.jsp. More to that point, if you look at those rankings there are actually four California universities in the top 10. (Interestingly, UofT ranks above Waterloo.) So it’s not so much about number of billionaires produced but about the overall quality and quantity of good graduates. It’s pretty clear that California has the biggest and best concentration of brain power in the West, if not the world.
Waterloo is full of great people, and companies such as Google are smart to set up offices there to tap into that. What I’m saying is that it’s hard to compete with the above, especially when the other factors I mentioned in the initial post are taken into account. I suspect this same conversation is going on within Nokia and Finland too.
Simon Cohen
May 5, 2011 at 11:49 am
I understand your argument, but I maintain that RIM is not a victim of brain-drain. Microsoft has vast resources and tremendous talent. They are not the powerhouse they used to be. They aren’t located in the Valley. Is this the reason? Doubt it.
When Apple was on life-support back in ’97 they had tremendous talent *and* they were in the Valley. Why did they nearly collapse?
The answer each and every time is leadership. Tech companies especially must have visionary leaders who identify the way forward. The talented people who work for these companies take that vision and interpret it into hundreds of possible strategies and tactics. Visionary leaders identify their favourite candidates from those ideas and put their money behind them.
I really don’t believe RIM is hurting because they can’t attract the right talent and I again encourage you to prove me wrong
petenowak2000
May 5, 2011 at 12:29 pm
The brain drain argument has been going on for a while and I’ll grant that it’s tough to come up with numbers proving or disproving it (If you don’t believe me, I’d similarly challenge you to prove me wrong.) Here’s some anecdotal stuff though: http://news.cnet.com/8301-1035_3-20023904-94.html.
As for Microsoft, many believe there’s a brain drain going on there too. And where are those people going? They seem to be heading south to sunny California: http://www.businessinsider.com/the-microsoft-brain-drain-10-top-execs-who-left-and-where-they-ended-up-2011-1
Simon Cohen
May 5, 2011 at 12:43 pm
Heh - well, no offense to those sales people who defected - I’m sure they’re very good at what they do - but these aren’t the folks who determine product strategy or execution and I think you’ll agree that’s where RIM’s weakness is right now - not in sales. As for proving you wrong, that’s going to be difficult (how does one prove something *isn’t* happening?) but I think that since your thesis in the article above depends on the brain-drain argument, the burden of proof rests with you
BTW, that was the same link for Microsoft as for RIM.
One other thing to consider on the whole location argument: Could it be that if RIM is in fact losing their best people to the folks in the Valley, it has more to do with the opportunity - specifically the chance to work with Apple or Google - than with the climate? Which again brings us back to leadership…
petenowak2000
May 5, 2011 at 12:59 pm
Oops, sorry, those links should be fixed now. Perhaps some day I’ll try to put together a scientific study of the issue (or preferably, somebody else with the time and resources will) but I see no harm in adding my opinion to the debate. What I tried to point out up above, and which I’ll perhaps expand on in future posts, is that it doesn’t matter whether it’s smartphones, software, telecom equipment, etc., Canadian companies have never been top-level competitors for very long. We’re a country of small- and medium-sized businesses and there are reasons for that. Things like OSes, phone features, leadership don’t matter in the long run.
Rui
May 6, 2011 at 9:03 am
hahaha… that’s funny. Brain drain indeed. I agree with Simon. Hardly worth the copy with those people. A number of key people have left RIM over the last 3 or 4 years because of … wait for it… ex AT&T people coming into the upper levels of the company and bringing in their own style of management which is well known to be caustic. Look at the current CIO - Robin Bienfait - she introduced Six Sigma into the org and it’s causing problems with a number of internal processes. Or the push to bring in HP’s Nonstop SQL, at millions of dollars in cost and man hours, which HP is now pulling the plug on. Add to that, the pressuring of key managers NOT to hire in Waterloo but in Seattle or Atlanta. This gives you an indication of things going on internally.