May 27, 2001 7:00 AM PDT

Danger hangs on RIM

While a number of large companies are spending big bucks to outdo Research In Motion, one start-up sees a way to do it on a shoestring.

By fall, Danger Research hopes the handhelds it has designed will be in the hands of consumers, who will use them to browse Web pages and handle e-mail and instant messages using a tiny keyboard similar to the one found on RIM's BlackBerry pager.

At the same time, Palo Alto, Calif.-based Danger, which was started by former Apple Computer workers who have also spent time at companies such as WebTV and TiVo, has only $11 million in funding--$9 million of which comes from Softbank Venture Partners.

Like WebTV and TiVo, Danger doesn't plan to sell the hardware itself. It will instead offer partners a prototype, forcing them to bear the costs of production.

"This is a formula," Danger CEO Andy Rubin said this week. "We're just following the recipe."

But Danger is taking things a step further: It won't be selling its service directly. Rather, it will try to partner with wireless carriers that want to offer such a device. The carriers will choose a manufacturer for the device and will market the service to customers, with Danger getting a monthly fee for managing the service.

"We're very, very, very behind the scenes," said Rubin, whose company is less than a year and a half old.

Danger expects the price tag on its device to be half that of the roughly $400 BlackBerry.

That's because Danger--unlike corporate-oriented RIM--is aiming primarily at the much larger, but more price-sensitive, consumer market.

To keep the cost of the device down and thus make it more attractive to consumers, Danger will store and process all information on a server, with the handheld used mainly to download and store contacts, calendar items and e-mail. The current prototype has 8MB of memory and uses a low-end processor similar to those found in cell phones, Rubin said.

While Danger's strategy should help keep down the costs of building the business, it also carries high risks, IDC analyst Kevin Burden said.

"The problem with trying to do anything with the carriers is they are receiving 50 deals a day," he said. "The carriers would be spreading themselves very thin if they tried to do every deal."

Motorola and Palm, among others, are also taking aim at RIM. Motorola has several e-mail pagers on the market already. Palm has promised by the end of the year a new wireless handheld that will offer always-on access to corporate e-mail.

RIM itself has tested the consumer waters, offering a version of its BlackBerry to AOL and Yahoo subscribers.

RIM could not be reached for comment.

Danger's approach is not too dissimilar from the current tack of Netpliance, which decided in November to get out of the business of selling Web-surfing appliances itself and instead is helping Internet service providers to sell and manage such gadgets.

ReplayTV was pursuing a similar strategy in the digital video recording market before its acquisition by Sonicblue earlier this year.

"The only difference here is we're not changing midstream," Rubin said. "We gained that experience in our previous lives."

In this life, Danger plans to offer a small handheld that can browse the Web using full HTML and handle e-mail and instant messages.

"I would say we're a RIM-plus-plus," Rubin said.

While Danger executives credit RIM for several innovations, such as the keyboard, they said they are not worried about a recent patent granted to RIM for the way it redirects corporate e-mail, a feature Danger plans to offer.

"We are planning to look at the patent; we just haven't yet," Chief Technology Officer Joe Britt said.

Rubin said that by using a wireless carrier's brand name, Danger can avoid the heavy marketing expense that TiVo and WebTV faced. Plus, the company should be able to benefit from the job RIM has done of showing the virtues of always-on e-mail.

Assuming Danger can get a carrier to bite, which is a big challenge, Burden said such a strategy could work.

"Is it a business model that can work?" Burden said. "Six months from now, I think we'll know a lot more."

 

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