Handheld plans: Danger ahead?

They may seem mild mannered, but Danger's Andy Rubin and Joe Britt are looking to turn the wireless market on its ear.

CNET News.com recently caught up with CEO Rubin and CTO Britt before their weekly staff meeting at the company's Palo Alto, Calif., headquarters to ask about what lies ahead for the company and its plans for the Hiptop, an all-in-one handheld device.

Q: With all the challenges in the handheld market, do you think it is a good time to be entering the market with a new product right now?
A: Rubin: I do, I do. I know that a number of PDA companies are having problems. But what we're really talking about here is a converged device--it's a phone with data capabilities. When we're talking about converging devices a lot of people are asking, "Is it a voice device or a data device? Is it a PDA or a phone?" The real question they should be asking is, "Is it a platform for third-party developers?" This is new. This is the first time that a phone has been turned into a platform for third-party developers. You'll see a huge change and a huge shift on what the killer applications are. Danger is not saying that we've invented the killer application. We've just identified the opportunity that phones can become platforms.

Established companies, such as Palm and Handspring, are struggling now. How is your situation different?
Rubin: I think the timing is right. These (next-generation) networks have already been paid for, so carriers are looking for a return on their investment. Our device just happens to be one that works really well for them and addresses the kinds of things that other devices aren't addressing--the mass market. A lot of people have been looking for an inexpensive mass-market device.

If you draw a pyramid, the high-end guys like Good Technology, Research In Motion and (manufacturers that produce) Pocket PC devices, are at the very top--where if you're really lucky, you have about 100,000 customers a year. And then you have everybody else, the mass-market people that want to use (devices) in college or the soccer moms who want to use it to keep in touch with their kids in school.

It seems like a logical approach to go after the mass market, but why are so many companies going after big businesses?
Rubin: I've seen a lot of companies start in the consumer (market) and fail and say, "OK, refocus; it's enterprise because that's where the deep pockets are." And those are the guys that really get burned in an economy like this where enterprises aren't spending any money. They have no place else to go. It's a lot easier to start with consumers and move up than it is to start at the high end and move down. Your costs are completely dependent on what your market is.

Why is it that no company with a wireless consumer device has been able to reach any sort of mass-market popularity?
Britt: I think a lot has to do with the applications. With the Hiptop, the instant-messaging experience, the Web browsing experience and the e-mail experience is very similar to what you get on your desktop machine. You're not making a lot of compromises with IM; there aren't any strange latencies or having your buddy list updated automatically the same way it is on your computer. Likewise with Web browsing--not requiring some new content such as WAP or WML. It's not having to give you some new graphic; it's actually giving you the Web page in a scaled-down form.

"There's already a lot of content out there, and people are used to accessing that content in a particular way." --Joe Britt, CTO, Danger

There's already a lot of content out there, and people are used to accessing that content in a particular way. So the fundamental idea behind Hiptop is to present what I call the highest-fidelity-as-possible product, the same content on a device that you carry around with you. The other analogy that I use: When cell phones first came out, part of the reason they became so popular was because they were inexpensive and they worked the same way that your desk phone does. You have access to all the same content that you have for your desk phone. And there really hasn't been a low-cost handheld device that offers that same kind of experience with what we're used to on a desktop machine.

What's Danger's biggest risk? What's the biggest challenge?
Rubin: There are a lot of challenges. There is probably no other company that has built a reference design, all the applications and the operating system for a device. The main challenge is deploying that into our customers' sites. The reason we chose to be an ASP (application service provider) is quick time to market for our customers. They don't have to take this stuff, license it as software, and build the infrastructure themselves. We'll do all the work for them and just license it to them.

Over time, you'll probably see a gradual shift once this is proven and the technology works and it's deployed to the masses. You'll probably start to see carriers suck that technology in, and then our business turns into a software licensing business, something like Openwave (Systems). So that's probably the biggest challenge, managing that transition.

How many products do you have to see a year from launch to be able to say you've succeeded?
I don't know--a couple hundred thousand. I expect to have a lot more than that, but I think I can define the business as being sustainable and successful if we have a couple hundred thousand units out there.

The carriers have spent so much money on these next-generation networks that they've dug a pretty deep hole. Is your sense of the landscape that they are all basically out there looking for a shovel to help them dig their way out?
Rubin: I think they are getting a lot of pressure from analysts and investors. They're all public companies, and their stocks are showing that, hey, we've put a pile of money into the infrastructure and when are we going to get a return on our investment? They're looking for the quickest way to get that return. And they're looking at companies like Danger.

When will the Hiptop come out, and how much will it cost?
Rubin: Since the carriers are our partners and it's their market and it's their product, we're not setting the price for them. The ballpark that has been out there before has been somewhere around $200 for the product itself, and for services, whatever your standard cell phone rate plan for minutes and then add to that a couple of dollars for data.

When?
Rubin: My guess is--depending on the carriers and the acceptance on the network and all that--the end of July.

How much of your success will be determined by being able to recruit developers?
Rubin: There is a balance here. We thought it was our duty to provide the top five or six killer applications that we knew people were already using on their desktop. We definitely want to control our own destiny.

"We're not so arrogant to say that we know what all of the killer applications are going to be in the future, so we want to start with a platform that is sustainable." --Andy Rubin, CEO, Danger

But we're not so arrogant to say that we know what all of the killer applications are going to be in the future, so we want to start with a platform that is sustainable and acceptable to the market. We've identified the market, 18- to 34-year-olds, and then we want others to layer stuff on top of that so that over time we start snowballing and we keep getting bigger and bigger and bigger.

In many cases these smaller developers can't support more than one platform and they are already developing for Palm or Pocket PC. What do you think will attract developers to Danger?
Rubin: People get super-religious about what the platform is and historically, platforms have been operating systems because they support a set of services for a developer. It's not like that anymore. Now you have virtual machines. Java has changed the landscape.

When you become a Java developer with a Java application it can run on Windows, Pocket PC, Palm OS, Macintosh. It can run on anything. So what we have to start asking is, who's providing the developer tools and where is a huge pool of developers that I can tap into? And Danger feels that Java is the way to go. Who's using Java? The cell phone guys--that's where Java's future lies.

Many start-ups burn through tremendous amounts of cash getting businesses off the ground, and a lot of companies are facing cash concerns. Are you experiencing a pinch?
Rubin: Well, we're always fund raising. But no, we're fortunate enough to have a couple of our carrier partners as investors as well. So again it's a closed loop. If they want to see the product successful, they have to keep feeding it. Our model is built in such a way that we're just developing technology and not wasting money in areas that aren't core to our business. So the carriers, if they want to launch this thing and they want to get devices out there for $200 or less, they have to pay for it.

Are you thinking about the enterprise market at all?
Rubin: We are. We're not going to identify and hire 600 enterprise salespeople like RIM has. We have six salespeople that sell to carriers. So what we'll do is enable the technology to build for the enterprise, but we're not going to sell to the enterprise. We'll allow third parties to do that. So you'll see companies that are in the business of selling things to enterprise, whether its financial management or e-mail access; they can take our platform, layer it, and have them sell to the enterprise.

Britt: There is a pretty broad spectrum of solutions that are available, and many, many companies are providing the technology. So this is one of the areas where it didn't make a lot of sense for Danger to become the expert--because there were so many solutions already available. Rather we provide the connection on the Danger service that would allow those people to promote their product. That way the people that want to use that product can pick and choose whichever one meets their needs and use it with our device.