Fe, Fi, Phone.Com By: Kevin Maney 7/11/00 11:01:33 AM Source: USA TODAY Fe, Fi, Phone.Com Wireless Web Firm Wants to be Giant Small Company Hopes to Beat Huge Rivals to Ready-To-Burst Market USA TODAY By Kevin Maney REDWOOD CITY, Calif. -- The conference room is plain. The cellular phones heaped on the table range from staid gray to cartoonish Hello Kitty models from Japan. Alain Rossmann, parked in a chair, is talking, his baby face animated and his pink calves showing far too much above his dark socks. He gives familiar tech lingo a new lilt with his French accent. This is Phone.com. It's a little hard to see it yet, but the company could be a Next Big Thing. It's been compared to the early days of Qualcomm -- even to Cisco Systems and Microsoft. Certainly the possibilities are there, and Rossmann has maneuvered the right technology into the right place at the right time. Phone.com is the linchpin for wireless Internet, a market that every analyst on Earth says is about to go ballistic. Basically, Phone.com makes the software infrastructure that makes the wireless Web work. That includes the tiny browser embedded in the chips of the majority of Web-enabled cellphones and the server-based software that translates signals from wireless phones into language the Web can understand. Phone.com also makes developer tools that let outfits such as Yahoo and Amazon.com reformat their services into versions that work on pint-size cellphone screens. The drama here is that Phone.com is in a very enviable position, and little companies in enviable positions can quickly win some colossal competitors. Just ask Netscape. Among those likely to zero in on Rossmann and his cohorts are Nokia, Japan's NTT and, in fact, Microsoft. Phone.com is in the hot seat, which seems to be making investors nervous. Its stock, which bounced near $200 a share in March, is down to $68.13. ''A Qualcomm or an Oracle Quote, Broker Reports, Messages is going to emerge out of this play,'' Rossmann says. ''There will be one or two giants. We're driving to be one of them. The opportunity is open-ended. It's for us to lose right now.'' Lately, Phone.com has expanded into other offerings, such as unified messaging -- a service that lets you do e-mail and voice mail together in one spot and mix and match them to do things like e-mail a voice message. Phone.com sells none of this directly to consumers. It sells to cellular providers such as Sprint and AT&T Wireless (an investor in Phone.com), which sell wireless Web services to consumers under their own brands. The company also sells the browser to cellphone makers, including Motorola, Nokia and Qualcomm (another investor). And it sells developer tools to Net companies and aspiring entrepreneurs. In this space, Phone.com is the indisputable leader. It sells to 30 phone manufacturers and 60 cellular providers worldwide, which lets Phone.com software touch about 80% of Web-enabled phones -- a market share of Microsoftian proportions. The number of developers using Phone.com was 6,500 in June 1999. One year later, it's 100,000. Competitors abound, but each is aimed only at an individual slice of Phone.com's business. ''Phone.com's value proposition is that it's a one-stop shop for these carriers,'' says Mark Zohar, analyst at Forrester Research. No one else, he says, offers the whole soup-to-nuts system for creating a wireless Web service and tacking on premium services, such as unified messaging, which can make some serious money for the carriers. For now, the wireless Web market is relatively small: Maybe 25 million Web-enabled wireless devices are out and about, and at best half of those are being assiduously used to access the Web. Phone.com is relatively small, too. Revenue in 2000 is estimated by Wall Street to be about $87.5 million. The company has 800 employees. It's still losing money. But if Phone.com can hold its position in the market, the company could become another tech monolith. The market will soar to 1.5 billion devices by 2005, according to Merrill Lynch analyst Henry Blodget. While 5% of all cellphone users today get Web access, the number could grow to 80% by 2005. ''The birth of the wireless Internet represents an instant replay of what we experienced in the PC-based Internet,'' according to a report by Blodget. Notes Ted Jackson, analyst at U.S. Bancorp Piper Jaffray: ''The opportunity facing Phone.com is tremendous.'' Oddly enough, the whole market is poised for takeoff in part because of a deal Phone.com cut early in its existence. But that same deal opened the door for the big competitors to stride in and try to squash the upstart. Open standards gambit Phone.com is Rossmann's baby. At age 44, he's been around Silicon Valley's block a few times -- first at Apple, then as vice president at chip designers C-Cube Microsystems. In 1991, he became CEO of EO, maker of an ahead-of-its-time device that combined a tablet-type computer with a cellphone. Big and clunky, the device failed to catch on. EO was sold to AT&T, then faded away. Rossmann exited in 1993. The next year, Rossmann thought about his next move. His experience at EO convinced him there was a way to bring together the Internet, which was just catching on, and wireless devices. EO also taught him not to reinvent the wheel. Instead of building a new kind of device or even going with something like Apple's Newton, Rossmann would leap on the existing cellphone business. Ben Linder, former Oracle executive and now Phone.com vice president, puts it this way: ''Alain's vision was to take, with the least disruption, a PC-based medium and bring it to the cellphone.'' In December 1994, Rossmann started his company, calling it Libris. A year later, he had his first phone browser and had won the interest of Mitsubishi. In 1996, the name was changed to Unwired Planet -- thus the product names UP.Browser, UP.Link and so on. The company motored along, pretty much alone in its field. ''It became obvious to us that our No. 1 risk was not being adopted that the giants (of telecommunications) would not adopt it or get it early on,'' Rossmann says. ''And a young company can't wait 20 years.'' Rossmann, with the help of AT&T, initiated talks with Motorola, Ericsson and Nokia, the three biggest manufacturers of cellphones. They secretly met in 1997 at Ericsson's headquarters in Sweden. The idea was to create an open standard for wireless Internet communication, much as there are open standards for wired Internet communication. This, Rossmann argued, would allow the wireless Net to flourish, just like the wired Net. In June 1997, the group agreed on a standard called Wireless Application Protocol, or WAP. Challengers pile on In many ways, it was great for Rossmann's little company. WAP was based largely on his technology, and because he was the only one doing it, he had a lead the second the deal was signed. In the same stroke, the deal served as a blessing of Unwired Planet by Motorola, Ericsson and Nokia. And by creating an open standard, which anyone could copy or build on, it allayed the big companies' fears of buying from an unknown source. If Unwired Planet went under or proved to be flaky, other companies working on the same standard could pick up the slack. The danger is that an open standard means anyone could challenge Unwired Planet. There would be no protection of a proprietary technology, à la Qualcomm's wireless phone technology. Nokia could decide to build its own phone browser -- as it's now doing -- because its browser could be made to work with any system based on WAP. To hold on to its lead, Rossmann's company would have to run like mad. In April 1999, Unwired Planet changed its name to Phone.com. Around that time, venture capitalist Roger Evans, who invested in Phone.com, called Reed Hundt, former chairman of the Federal Communications Commission. ''He told me I'd never meet a smarter group of people and that they are the next Next Big Thing,'' Hundt says. He met Rossmann at the Denver airport and was convinced. When Rossmann asked Hundt to join the board, Hundt jumped at it, saying, ''Where do I sign up?'' Phone.com went public in June 1999. The stock price climbed nicely but not outrageously. On the flip side, though, the challenges to Phone.com started piling up. Start-ups and big players have been aiming at pieces of Phone.com's business. Nokia is making its browser. Ericsson signed a deal with Microsoft for a phone browser. More ominously, amid the hoopla over Microsoft's new strategic direction, dubbed Microsoft.Net, Chairman Bill Gates talked often about a wireless Web driven by Microsoft-created software. Forrester's Zohar has speculated that Microsoft might even want to buy Phone.com. Plus, there's the challenge from Japan. The one certifiable hit in wireless Web is NTT DoCoMo's i-mode. It launched 16 months ago and has 7.8 million subscribers, many of them avid users. The system isn't based on WAP or Phone.com technology. For now, i-mode is a phenomenon only in Japan, but DoCoMo is moving into Hong Kong and Holland and is said to be negotiating deals in Canada, South Korea and the USA. WAP might be the Coke of wireless Web, but i-mode is emerging as the Pepsi. Phone.com has a plan In the meantime, USA-based Phone.com sits in the middle of a wireless Web market that refuses to catch fire. Americans, used to the richness of the PC-based Web, aren't yet embracing cellphone-based Web. A survey by Portrait of America found that one-third of those who have tried wireless Web devices use them rarely or never. Phone.com-based systems have fewer than 1 million subscribers in the USA. How is Phone.com dealing with its challenges? Here's the plan: * Be faster and better. As Linder says, Phone.com's lead in a fast-emerging market allows it to learn more about the systems, the users and the bugs, and incorporate that into its products ahead of anyone else. ''We're on our fourth generation,'' he says. ''It makes us more reliable and predictable.'' * Stay neutral. As Rossmann sees it, anything created by Nokia or NTT isn't going to sit well with their competitors. Phone.com can sell to any carrier or phone maker. * Don't worry about Microsoft. The cellphone, Linder says, ''is far away from the PC. They're not going to have very focused efforts on it. But to us, it's everything.'' * Do the Cisco strategy. Keep adding interconnected pieces of the wireless Web to the product line and become the go-to system provider. ''Cisco is a premium product because of its richness,'' Linder says. So far, the plan seems to be working well enough. Wall Street analysts overwhelmingly recommend the stock. Customers keep signing up. The most recent have been the likes of Global Telecom in Brazil and Iusacell in Mexico. In May, AT&T said it's using Phone.com software for the PocketNet service it's aggressively marketing. Yet now you know why it's hard to tell if Phone.com indeed adds up to a Next Big Thing. Sure, it has the lead in a business that, despite some current unevenness, is a good bet to whoosh to the heavens. But it's like a child prodigy. What it has accomplished so far is amazing. Now, as it grows up, the question is whether it can keep its focus and become a superstar, or if it will follow the likes of Netscape into the land of could-have-beens. Copyright 2000 USA TODAY, a division of Gannett Co. Inc.
Last Updated: $Date: 2000/07/11 22:42:24 $