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Stewart Alsop on Danger

Stewart Alsop has written a column for Fortune on why Danger's Hiptop (written about earlier here) will fail. He loves the device itself, but is skeptical of the business model:

The company is licensing the hardware design, called Hiptop, to whomever wants to buy it. (It says T-Mobile, the wireless subsidiary of Deutsche Telekom, is the first of many companies ready to license its hardware.) The first device -- the one T-Mobile calls Sidekick -- will be sold for less than $200. The U.S. cellular industry's structure is such that carriers often subsidize new devices for as much as $150 in return for customer contracts that guarantee minimum service fees for up to two years. That means, in theory, that T-Mobile could sell the Sidekick for as little as $50, a great plan for targeting teenagers.

The problem is that Danger can't tell T-Mobile how to price or market its cool new device. So if T-Mobile decides not to subsidize the Sidekick, it could go for $200 -- a huge mistake, because teens don't have that kind of money. And even if T-Mobile does price the device for the target market, there's no real assurance that the company will explain it or sell it correctly. Telephone companies have never been known as great marketing engines.

For this arrangement to pay off, Sidekick will have to sell like gangbusters. After all, T-Mobile used its own brand and has poured some serious cash into Danger. As for Danger, it's not charging T-Mobile to license the hardware design, and it's not receiving any money for voice calls made with the device. Instead it'll take a portion of the monthly fee users pay for web access, instant messaging, and e-mail.

Elsewhere in the article, Stewart says that "huge telecom carriers can't put one foot in front of another, even when they try really hard." Will the Hiptop fail because of the carriers? I share Stewart's concerns, but it may be that Danger has done enough things right that at least one carrier will get the marketing model right.

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