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AOL invests in hip handheld maker

America Online is taking a stake in gadget maker Cybiko, giving the online giant a larger presence in the burgeoning handheld market aimed at teens.

America Online is taking a stake in gadget maker Cybiko, giving the online giant a larger presence in the burgeoning handheld market aimed at teens.

AOL did not disclose the amount of the investment, which was announced today. Cybiko, which launched last year, sells a namesake device that offers games, a calendar, a calculator, an alarm clock and some wireless communication.

The Cybiko handheld--along with colorful cell phones, portable digital music players, lower-priced handheld computers like Handspring's Visor, and even computerized dogs--are all part of a wave of high-tech gadgets being aggressively marketed toward teenagers. Technology companies have realized the buying power of the teen market, which has also kept singers like Britney Spears and movies about the rigors of cheerleading at the top of the charts this year.

American teens spent $153 billion last year, according to Teen Research Unlimited of Northbrook, Ill. Much of that was spent on music, movies and other entertainment.

AOL, along with other big players in the PC industry, has long recognized that it must extend its service to Internet devices and appliances to keep a growing subscriber base. These products are expected to grow in popularity over the next few years.

Market researcher International Data Corp. predicts that TV set-top boxes, handheld computers and game consoles will increase from the 11 million units shipped last year to 89 million units in 2004. Revenue on such products will grow from $2.4 billion last year to $17.8 billion in 2004, IDC predicts.

The investment in Illinois-based Cybiko is part of the online giant's AOL Anywhere strategy for putting AOL services on a variety of devices. AOL has also invested $800 million in Gateway, which makes PCs; $200 million in TiVo, which makes digital video recorders; and $1.5 billion in Hughes Electronics, a satellite TV giant and Internet provider.

AOL has also aggressively invested in pre-IPO companies, taking a 6.4 percent stake of cheap PC maker Emachines and buying 5.3 million shares of device maker Palm, before those companies went public. Gateway and Emachines have both agreed to manufacture Internet appliances that run AOL's online service, while TiVo and Hughes' DirecTV are partners in AOLTV.

The Cybiko device, which sells for $129, allows people to chat and play games with one other if they are in close proximity. The device is also expandable and will eventually be fitted with a wireless modem to access the Internet, according to the company.

In the next three months, Cybiko will be outfitted with AOL content, eventually incorporating the service's instant messenger and email programs, Cybiko president Don Wisniewski said.

"It speaks to what we're trying to accomplish in the teen space for wireless connectivity products," he said.

Wisniewski said the deal started coming together in March when Joseph Vardi approached Cybiko, following the device's launch at a toy industry trade show in New York. Vardi founded instant messenger ICQ, which is owned by AOL.

"There's obviously a lot of different types of electronics AOL could use," Wisniewski said. "But they made a financial commitment as well as a strategic partnership with us because of what we're doing."