`Mobile Internet' aimed at young

Sidekick II: Danger Inc. is targeting its latest all-in-one wireless device at gadget-loving 20-somethings.

October 21, 2004|By Sam Diaz | Sam Diaz,KNIGHT RIDDER/TRIBUNE

Any good marketing executive knows that a trek down Hollywood Boulevard is often the best way to reach the MTV Generation.

That's why it's no coincidence that early versions of the Sidekick II - a handheld communications device targeted at on-the-go 20-somethings - are being carried around by Jennifer Aniston, Justin Timberlake, Paris Hilton and other A-list celebrities.

While the Hollywood buzz is exciting for Danger, the Palo Alto, Calif., startup that developed the technology behind the wireless device, the champagne isn't flowing at its offices just yet.

The four-year-old privately held company is heading into unknown territory by pursuing a business model that leaves its fate in someone else's hands - notably wireless carriers - and targeting a slice of the consumer market that has yet to show its love for a device that doubles as a cell phone and Internet machine.

Danger created its device, calling it the "hiptop," to appeal to a younger crowd. Its primary partner in the United States, T-Mobile, popularized the gadget under the name Sidekick when it introduced it two years ago. A sleeker, upgraded version, Sidekick II, debuts in stores this fall.

There has been plenty of growth among all-in-one mobile devices, starting with the Blackberry and expanding to the Treo600 and others. But those devices are meant for on-the-go corporate professionals who will pay $400 or more to check the office e-mail or stock quotes.

"The people in our demographic want something utilitarian but also want to have some fun with it," said Danger Chief Executive Hank Nothhaft.

The cell phone element of the Sidekick is still attractive to young buyers, but it's the Internet functions - specifically, the ability to send and receive instant messages - that will bring a new, hipper and stylish dimension to what Nothhaft likes to call the "mobile Internet."

The idea of carving out a following among young people is an intriguing strategy, says John Jackson, a Yankee Group analyst who tracks mobile and wireless devices.

But such a tight focus has its limitations.

"It has potential for growth, in a niche sort of way," Jackson said. "You see manufacturers maneuvering now to address specific segments in the market."

It's not the growth of the overall market for all-in-one devices that has him wondering about the future. It's Danger's strategy that's keeping him from making any predictions.

Ironically, Danger, which created the operating system and the applications that run the Sidekick, doesn't see itself as a device company. Nothhaft said his company wants to concentrate on the technology and leave the design, manufacturing, sales and marketing to someone else. In the case of Sidekick II, it's partnered with Sharp Electronics for manufacturing and T-Mobile for marketing, distribution and service.

Danger designed the original device and outsourced the manufacturing to Flextronics just so it would have something to demonstrate to deeper-pocketed companies, with hopes that they would embrace the concept and take over manufacturing and sales.

"The idea was to do it, make it a success, attract the [manufacturers] and get out of the business quickly," he said. "We're a software company. We have no manufacturing skills."

Today, the company, which says it hopes to become profitable by the end of next year, has 140 employees and is concentrating on upgrades to its technology instead of how to launch a hardware product.

The company's revenue plan for the Sidekick is three-pronged. It gets money from a one-time activation fee of each Sidekick product, recurring licensing fees on its software and a cut of e-commerce transactions - such as sales of ringer downloads - that are performed through the gadgets.

Currently, it's partnered with T-Mobile and two small regional wireless carriers, as well as four other carriers overseas.

The real growth for Danger, it appears, will be in Europe, where the GSM cell-phone technology that Sidekick uses is widespread. In the United States, only a few wireless phone companies use the GSM standard.

"They're smart guys with great ideas, and the software proves it," Todd Achilles, director of Handset Product Management for T-Mobile USA, said of Danger.

Danger's technology could set the pace for the future of the mobile Internet, not only through faster downloading times for Web pages and content on the devices but also by lowering costs for the carriers and ultimately the consumers, said Achilles.

"That allows us to go after a segment that wants a tech device but doesn't have $400 or $500 for it," he said. "It opens a whole new category for us."

It also opens the door for others.

If Danger can create a loyal following among 20-something gadget lovers, it could become ripe for acquisition by a deep-pocketed company that wants a piece of youth spending power, said Rob Enderle, principal analyst with the Enderle Group in San Jose.

Or Danger could get trampled by a company with a bigger budget and a product that's even more trendy, he said.

"Danger's next trick is going to be very, very important for the long-term viability of the company," said Jackson, the Yankee Group analyst. "The question I have for them is, `What comes next?' "

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