Microsoft Acquires Danger: Is it an Answer to iPhone or Android?

While everyone has been preoccupied with the Microsoft-Yahoo (MSFT) (YHOO) saga, the Microsoft acquisition machine keeps on chugging along. Microsoft announced Monday that it has acquired Danger, makers of the popular Sidekick cell phone. I guess that Danger IPO isn’t happening after all. Terms were not disclosed, but its was in the process of trying to raise $100 million in an IPO. Now, the mobile platform company will be rolled into the Windows mobile team and be part of the overall Entertainment and Devices division that includes the XBox, and the Zune.

Here is the prospectus Danger filed with the SEC last December. In fiscal year 2007 (ended September 30), Danger had revenues of $56.4 million (up 14 percent), and a net loss of $12.4 million (double from the year before). It’s cumulative net loss since it started operations is $188 million. About one million subscribers (923,000) use a Danger mobile device—nearly all from T-Mobile. Investors include Mobius Technology Ventures, Redpoint Ventures, T-Mobile Venture Fund, Softbank Capital, Motorola, Meritech Capital Partners, and Venture Strategy Partners. The company has raised about $142 million in five rounds over the past eight years.

So Microsoft just bought a hip, but money-losing business. Is this Microsoft’s answer to the iPhone? Or is it an answer to Google’s Android? Hopefully, it is the latter.

Danger phones run Windows Mobile Danger’s OS, and they are among the most consumer-friendly Internet-capable phones, with a full slide-out keyboard. Microsoft could use the Danger handsets beloved OS and form factor as a platform to create a complete Windows Mobile experience with a much better IM experience than WinMo offers. That way, it could control both the hardware and the software, just like Apple does with the iPhone. But the mobile handset business is brutal. Look at Motorola. Microsoft would be better off taking all the software innovations Danger has created, and baking them into Windows Mobile, which will soon be facing competition from mobile phones running on Google’s (GOOG) open-source Android mobile operating system. If this acquisition was made to keep Windows Mobile one step ahead of Android, it was a smart move. (Of course, the irony here is that one of Danger’s founders, Andy Rubin, is now working at Google and is the man behind Android). If Microsoft is going to use Danger as its entry into the mobile device business, the chances that it will keep losing money in its hardware division are dangerously high.

Comments

[Jonathan Scott:]

On a minor note, why the name "Danger" That does not come across as positive, but obviously no one has complained.

2008 Feb 11 03:08 PM

[TA:]

It would be nice if someone, anyone would make a decent piece of hardware for the Windows Mobile OS. Everyone one of them is a complete POS including the Treo compared to any of the latest Blackberrys or iPhone

2008 Feb 11 03:33 PM

[Jahangir Naina:]

Anyone who have used Windows Mobile phones can attest to the fact that total user experience is really quite bad. There is a lack of integration finesse, and the end product feels like two separate teams working in isolation were brought together only at the last moment before shipping to fit the software and hardware components together. Thus the WinMo model of commodity software loosely engineered to fit feature rich, but poorly integrated hardware, ultimately does not produce the kind of user experience that the Blackberry or iPhone offers. Microsoft is going to do a Zune to the WinMo consortium, what they did to the PlaysForSure consortium. Bring out a totally integrated Phone (hardware, software and cloud services totally integrated) and sold only by Microsoft.

2008 Feb 12 05:33 AM

[Tom B:]

Oh yeah-- MSFT has a great track record with hardware; look at the Zune and the overheating vacuum-cleaners known as "XBoxs". "Danger" is right.

2008 Feb 12 01:51 PM