RIM scrambles to end global BlackBerry outage

by Alastair Sharp and Georgina Prodh, reuters.com
August 3rd 2011

TORONTO/LONDON | Wed Oct 12, 2011 7:33pm EDT

TORONTO/LONDON (Reuters) - The company that makes the BlackBerry smartphone is working frantically to end a three-day global service disruption that has frustrated millions of its customers and pumped up pressure on its management to make sweeping changes.

Research In Motion, in a hastily announced conference call on Wednesday, vowed to eventually deliver all delayed email and instant messages to customers in five continents affected by the outage.

It later told some of its corporate clients that it may not clear the huge backlog of messages until Thursday morning on the U.S. East Coast.

The outage - and RIM's sluggish communications with its customers - have fanned rising dissatisfaction with its co-chief executives, Mike Lazaridis and Jim Balsillie.

Critics have called for a shake-up, saying the top managers have let the company fall too far behind Apple and other rivals in a rapidly changing market.

"The board clearly needs to take decisive action now - they need to draw a line in the sand," said Richard Levick, who runs a consultancy that specializes in crisis management.

"RIM needs to change its DNA entirely - they need to start thinking like a startup again, instead of a former market leader," he said.

Though RIM's stock dropped modestly on Wednesday, its shares have already tumbled more than 50 percent this year on a series of profit warnings and product missteps - a sharp reversal of fortune for a company that once dominated the smartphone market.

This week's disruption - the worst since an outage swept North America two years ago - may have damaged RIM's once-sterling reputation for secure and reliable message delivery - perhaps its No. 1 selling feature.

RIM is unique among handset makers, as it compresses and encrypts data before pushing it to BlackBerry devices via carrier networks. Apple and others rely on the carrier networks to handle all routing and delivery of content.

Even before this week's disruptions, many companies had started to balk at paying a premium to be locked into RIM's service. Some are now allowing employees to use alternative smartphones, particularly Apple's iPhone, for corporate mail, and the outage could accelerate the trend.

"One possibility could be that it encourages client companies to look more at other options such as allowing users to connect their own devices to the corporate server and save themselves the cost of buying everyone a BlackBerry," said Richard Windsor, global technology specialist at Nomura.

DLA Piper, a law firm with 4,200 attorneys worldwide, is a prime example. It is accelerating discussions about switching to iPhones and Android devices, Don Jaycox, its chief information officer, said on Wednesday.

"This has brought it to the front-burner," Jaycox said. "It will cause more people to opt for other choices."

UNIQUE SYSTEM

The corporate defections are making a big software transition even more crucial to RIM. The company is getting ready to shift its line of BlackBerry smartphones to the new central operating system first used in the poorly received PlayBook tablet.

Without a successful shift, RIM may never regain market share lost to the iPhone and devices powered by Google's Android, analysts say.

"It's a blow upon a bruise. It comes at a bad time," Nomura's Windsor said, referring to Wednesday's service disruption.

While corporate customers were weighing their options, BlackBerry users were venting their frustration at the company and what they said was its failure to keep its customers informed.

"Totally appalled at the lack of communication from RIM," wrote Lynn Murdoch on RIM's BlackBerry Facebook page. "Love my Berry, but furious at the fact that no one can actually give a time frame of how long its going to take to fix. Utterly disappointed!"

"I'm right at the edge where I might be saying goodbye to my BlackBerry," said Tony Vitali, a BlackBerry user in New York. "The device freezes twice a day. ... It's a very frustrating device."

BAD TIMING

From a marketing standpoint, the timing of the service glitch could hardly have been worse for RIM.

Apple on Wednesday launched an major upgrade to its iOS operating system that includes iMessage, an instant messaging service for users of Apple's iPhones, iPads and some iPods. It is a direct competitor to RIM's BlackBerry Messenger, or BBM.

The RIM service, which allows BlackBerry users to send free text messages to other BlackBerry users, has made the devices a popular choice with young consumers. That has partially compensated for its losses in the corporate market in North America and Western Europe.

On Wednesday RIM's shares closed down 3.46 percent at C$24.27 on the Toronto Stock Exchange and down 2.17 percent at $23.88 on the Nasdaq.

(Additional reporting by Euan Rocha and Pav Jordan in Toronto, Conway Gittens in New York, Devidutta Tripathy in New Delhi and Matt Smith in Dubai; Editing by Frank McGurty)

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