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Old Net giants overshadowing wireless hopefuls

Ambitious start-ups are dreaming of becoming the next Yahoo or Netscape Communications of the wireless Web, but it may already be too late.

As the wireless Web crawls out of its infancy, ambitious start-ups are dreaming of becoming the next Yahoo of the latest Net iteration.

But it may already be too late.

Companies such as Yahoo, Amazon.com, Microsoft and America Online are moving quickly into the wireless Internet world, cutting valuable deals with the mobile phone companies that control the screen space on cell phones. When these giants hit technology roadblocks, they're buying up the wireless start-ups that have the know-how they need, using their high-flying stocks as currency. see related story: Companies fight over wireless users

That's a sobering trend for the young companies that hope to put their own stamp on the wireless Internet, the way Yahoo or Netscape helped create the first Web. Increasingly, it appears that the giants of this promising new market will be the same companies that have dominated the "old" Net.

"The jury is still out," said Jane Zweig, an analyst with research firm Herschel Shosteck Associates. "But the big guys are putting a lot of money and muscle into this."

The wireless Web still exists more in theory than in reality in the United States, where only a few thousand tech-savvy subscribers actually use their wireless phones for surfing stock quotes, news stories or weather reports. But ambitious companies are looking at subscriber growth in Europe and Asia, where people are signing up for wireless Internet services by the thousands every day, as a measure of the opportunity.

Wireless takes center stage Analysts predict that more than 1 billion mobile phones will be in use by 2003. By that time, according to estimates, there will be more wireless devices than there are personal computers connected to the Net. Those figures, and the potential for new figures to go along with them, has led many observers to compare today's wireless Web industry to the early days of the Internet.

"I would argue that wireless is a whole new age," says Jacob Christfort, chief technical officer of OracleMobile.com, the Oracle spinoff focused on wireless infrastructure and content. "When you move to the mobile phone and try to do the same thing (as on the Internet), everything changes underneath you."

But picking the start-ups--like a new Yahoo or Netscape--of this "new age" is proving to be difficult. Analysts, venture capitalists and other insiders say few companies with a specifically wireless focus are rising above the pack.

The one exception is Phone.com, which created the software infrastructure used by most of the big wireless carriers in the world to provide wireless data services, as well as the "microbrowser" used on many wireless phones to surf the Web.

The company went public last summer and quickly soared to a stratospheric valuation. While it has fallen substantially in the last few months, Phone.com is still worth over $8 billion.

Like Netscape in its early days, Phone.com faces steep competition from Microsoft, which also produces browsing and infrastructure software for mobile phones. see related story: Microsoft's call for wireless

Other wireless companies with more narrow focuses, such as banking and security company 724 Solutions or infrastructure player Vyyo, have also had some early success on the stock market. Technology start-ups aimed at helping old-guard Internet companies move their existing content or commerce businesses online also have a valuable niche, analysts say.

Phone.com is unique in the industry in having already struck so many critical relationships with wireless carriers around the world.

Industry insiders say it is these phone companies, such as Sprint or AT&T, that will help determine the winners and losers in the early days of the wireless Web.

"In the wireless world, the carrier is the primary interface to the end user," notes Perry Lee, Microsoft's product manager for mobile devices. "The products and their distribution usually comes from the carrier themselves."

The carriers' power comes largely from the difficulty of navigating the Web on a mobile phone.

In an ordinary computer Web browser, it's not hard to type an Internet address and immediately go to the site. On a cell phone, navigation is hampered by the difficulty of typing letters on a 10-key number pad. Thus, the links already provided by the mobile phone companies are critical.

This puts the carriers in the position of king makers, and everyone in the wireless world is scrambling to cut deals with the likes of Sprint, Verizon Wireless and AT&T. But so far, it's been the big Internet players like Yahoo, Microsoft, AOL, Amazon and CNN that are winning these prime spots.

"The larger carriers like to work with us because we have such a large user base on the PC side," said Sadhana Joliet, product manager for Yahoo's mobile services division. "It's going to be hard if not impossible for start-ups to get prime placement on phones, because they can't bring along many users."

Several old-guard Internet companies have found ways to revitalize their businesses in the wireless world. Chief among this group is Infospace, a second- or third-tier Web portal and back-end software provider that has struck key relationships with Verizon Wireless, US West, GTE and other wireless carriers to provide their default mobile Web portals.

In order to bring their content or service to the Web, many of the Net's giants have already bought up some of the most promising wireless start-ups. Yahoo snapped up Online Anywhere, a company that reformatted Net content for the wireless world. AOL bought Tegic Communications, a company that focuses on streamlining text entry on wireless phones. Other giants have followed suit.

Those kinds of strategic acquisitions, fueled by the Internet giants' high stock values and well-known brand names, show no sign of slowing.

Nevertheless, the wireless Web is still young and changing rapidly. The dominant Net players still could be unseated by new technologies or new software invented by companies nobody has heard of yet, insiders say.

"Incumbent players in one technology always have a very difficult time transitioning into a new era," Oracle's Christfort says. "The real question is whether this is a new era."