All three founders of Danger, Andy Rubio, Joe Britt, and Matt Hershenson, came to the Valley in the late 80's or early 90's where they worked for a series of companies and invariably met and formed relationships with each other.Out of this network, the three men became friends and started Danger in January of 2000.
The three founders had become bored in their day jobs and were ready to take on something more challenging.Rubio had rented out a little office space in Palo Alto where they converged to collaborate on design work and product development.The idea went through a lot of changes before it became the current product.
At the beginning, the product was an 'internet sponge' that could absorb information from a computer and be carried around on a keychain.As time went on, the idea went through lots of changes to become what the Hiptop is today.Hershenson describes the formation of the product as a critical mass process: enough stuff (people, money, time) gets scrunched together until the product comes out like a giant release of energy.
Danger has developed a low-cost combination device that functions as a phone, and is internet and email compatible, that is marketed to the young and hip.The business model is built around the services sold to wireless carriers so they are able to sell the devices cheaply and then make money on the back end.
The product concept was always to build a low-cost device, but what this meant changed greatly as the founders continued to develop more features.The nature of this device morphed from an internet sponge into the much more complex synergized communicator.
The Danger product encompasses three major pieces of technology: the hardware, the operating system and graphical user interface, and the backend service. The founders drew upon their experiences at Apple and WebTV to know what to develop in-house and what to outsource.Looking back, they are not sure how it all came together and how they got it done, but it was a huge accomplishment when the product shipped.
Danger's first customer was Voice Stream, which later was acquired by T-Mobile International.Voice Stream was a small company looking for something innovative to differentiate themselves from the competition.They found that innovation in Hiptop. Danger initially treated them as a partner rather than a customer.The two companies provided valuable services to each other and the deal solidified Danger's business plan. Since Hiptop was still in development at the time of the deal, Voice Stream was able to contribute to the product design, including giving it voice capabilities, which was not in the original design.
Danger's revenue comes from three sources: initial sign up fees, monthly service fees, and through a web share on content and applications that get downloaded to the device.
Danger decided not to enter the wireless cash market.Hershenson explains the importance of focusing on what is essential to the product, and avoiding nonessential sources of competition.
Danger was able to break into the US market by convincing wireless carriers to adopt a fixed rate pricing scheme for the device, which is almost essential in the minds of Americans for using services like AIM and web surfing.The Asian and European markets are further ahead and calls are cheaper, making it more difficult for the Hiptop to be profitable.
Launching the product with T-Mobile helped get the product out on the market and got others interested in the technology, making it easier for Danger to acquire other partners.Still, it was important for Danger not to be seen as a outsource development shop of T-Mobile and so they took steps to maintain control.
T-Mobile realized early on that it was in their best interest that Danger become as successful as possible.Therefore, they did not demand exclusivity and instead were very reasonable in the contract negotiations.
The success and genius of the Hiptop brand is arguably in its marketing.Danger actually gave carriers the choice of whether to use the Hiptop name and artwork or whether to use their own.Out of 9 carriers, T-Mobile is the only one to have used their own name and, therefore, the Hiptop brand has become valuable.
The Hiptop founders designed the product in the way that was the most appealing to them.They had strong convictions about what the product should look like and the things it should do, which were not necessarily the same ideas the carriers had.However, the innovative design won them over.
The founders acknowledge that they were very lucky in that their first venture investor was from a man who was also a technologist.He understood the vision for the product and was able to assist the founders in solving technical problems, as well as entrepreneurial problems, which proved valuable in the growth of the venture.