AvantGo looks for early lead in wireless-software race

The image is apt in more ways than one. In one sense, the running man is a customer--a harried businessman who now can use his handheld computer to connect to his company's database, thanks to AvantGo's software.

But the hurried worker could just as easily represent AvantGo, a relatively new company racing to make a name for itself in the small but quickly growing market for handheld-computing software.

"It's a new and evolving market that in some ways hasn't been clearly defined," said Merrill Lynch analyst Mark Fernandes. As such, he said, it leaves plenty of room for opportunity.

AvantGo is one of a few known--and several unknown--software companies riding the coattails of the Palm revolution. These software makers--developing back-end platforms, front-end applications, and Web browsers for handheld computers--are proliferating. And it's no wonder.

Handheld-computer shipments are on the rise; cellular networks are improving; and businesses are increasingly paying big bucks to connect their employees' handheld devices to corporate databases.

In 2000 alone, the number of PDAs sold nearly doubled, to 6.9 million units, from about 3.6 million units in 1999, according to research firm IDC. Sales are expected to reach a whopping 33.5 million units by 2004.

The software market for handheld computers is ripe. As happened in the PC-software market, insiders expect a handful of companies to emerge as leaders in both consumer and business products.

Big players in the market include Oracle, Sybase, IBM and Microsoft, while smaller players include AvantGo, Bsquare and Vindigo.

Browser wars, part II
Several companies also are battling to produce the industry standard for Web browsing on handheld computers, including Microsoft with its Pocket Internet Explorer, Phone.com with its UP, NTT DoCoMo with its I-Mode, Bluelark Systems with its Blazer and AvantGo with its consumer application.

"The same browser wars that took place with Mosaic and Netscape years ago, those are the browsing wars that are taking place in the wireless world today," said Don Shirley, CEO of Brightpod, an application-service provider for wireless-software products. "It's really not clear yet which of these browsing standards is going to come out on top, but clearly there needs to be one."

So far, AvantGo is holding a strong position in the race. Since its IPO five months ago, the company has bundled its consumer software--dubbed AvantGo Mobile Internet (AMI)--with several Palm handheld computers, the Sony CLIE and indirectly with the PocketPC. These partnerships have left the company with one of the better-known brands in the industry, and with a 2 million-subscriber base.

But the honor is a dubious one. Consumer software for handhelds is far from a cash cow. AvantGo derived just 25 percent of its revenue from consumer products in 2000, while 75 percent came from its enterprise division. The consumer software itself is free; the company collects money from news organizations that want to make their content available to AvantGo users.

"We're blessed, and we're cursed," said AvantGo CEO Richard Owen. "The bottom line is you're always going to be better known for any product or service which is publicly visible."

While name recognition certainly can't hurt, AvantGo executives say they will focus primarily on their corporate customers. The consumer software was developed just a year ago and only as a demonstration for corporate customers, Owen said.

"Corporate customers didn't understand how it worked, and management came up with the idea of a public demonstration," said AvantGo CEO Richard Owen.

Analysts agree the company needs to keep its eye on revenue growth.

"The real money for them is the enterprise business," said Merrill Lynch's Fernandes.

Attracting business customers
Following the money, AvantGo has taken steps to bolster its corporate business, including forming a partnership with Research In Motion, maker of the popular BlackBerry e-mail pager.

Under the agreement, AvantGo will develop and sell software applications that can be used on the BlackBerry.

AvantGo also partnered with application-service provider Brightpod. The move promises to expand AvantGo's customer base beyond Fortune 1,000 companies by making its platform software available to midsize companies without the money and resources to purchase and maintain entire systems by themselves.

"Now companies that don't want to make the upfront capital commitment for purchasing that software and maintaining it in-house can pay a smaller subscription fee," said Scott Baradell, Brightpod's VP of marketing. "The only choice before was you had to pay for the hardware and software and be able to maintain it in-house."

AvantGo's expansion into the midsize market could prove important to its future growth, as large players like Oracle, IBM, Sybase and Microsoft continue aggressive moves into the market.

Analysts say these traditional software companies, though not generally connected with the wireless industry, hold an advantage in that they can market their products to existing customer bases.

"Companies like IBM and Oracle will provide that on top of their standard platform; they'll offer wireless capabilities to their middleware rather than have another company insert itself there," said Daniel Rasmus, an analyst with Giga Information Group. "I think the smaller companies are going to be either acquired or pushed out of the market."

But AvantGo's Owen said that smaller companies have the advantage of agility and focus.

"It's a lot harder for large companies to focus on building out specific technology," Owen said. "And any solution they come up with is going to be linked to their existing infrastructure and applications that they sell, whereas we're agnostic."