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Summary:

[qi:110] Update: Microsoft is in some of kind of spending mood. First they offered up $45 billion for Yahoo (not enough for some!). And then there was that Danger acquisition. But how much did they spend on the Palo Alto-based company started by Android leader Andy […]

[qi:110] Update: Microsoft is in some of kind of spending mood. First they offered up $45 billion for Yahoo (not enough for some!). And then there was that Danger acquisition. But how much did they spend on the Palo Alto-based company started by Android leader Andy Rubin? No one at Microsoft is talking, nor are the guys at Danger. So I spent most of my day yesterday dialing-for-information, and have come up with the price from a fairly solid source.

Microsoft spent a cool half a billion dollars ($500 million) on Danger, making it a nice payday for investors of the Sidekick maker. The half-a-billion number was first floated by good buddy Erick. While some of the early investors got modest returns, I am told that the later-stage investors made out like bandits. It has been reported previously that the company had raised $134 million in venture backing, but in reality it’s closer to $225 million $144 million. (Folks from Danger called and insisted that they have raised $144 million to date, and pointed to their S-1 filing, and for now I am going to defer to the published numbers.)

The deal’s big sticker price is intriguing — leading me to believe that Microsoft wants to pull an Xbox on its mobile phone business. Having realized that its traditional approach is going to relegate it to business market, Microsoft is taking a non-Microsoft tact, just like it did in the gaming console business. The reason for this deal is more than just acquiring “consumer expertise,” as the company kept repeating yesterday. Danger’s software-as-a-service technology can offer “Microsoft Services” such as Search, Windows Live Mail and Messenger on the Danger platform, using it to compete with Google Android.

I think if Microsoft wants to be really bold, they should go for a radical strategy: Instead of controlling the platform, they should make it open, thereby making it more attractive to developers. It would be the only way it can actually stay competitive with Linux-based platforms like LiMo.

Given that there are a couple of devices already on the market that use Danger software (unlike Android’s prototypes), Microsoft might actually be able to get some disgruntled Android developers switching to its platform.

  1. Om,

    $500 million dollars is a “dangerous” price! (Sorry, I couldn’t hold back.) :-)

    Seriously, I disagree with your suggestion of MS opening up the Danger platform due to the fact that Danger could cannibalize WinMo sales. Now normally, I’d say that those are market forces, but in this case MS has a HUGE advantage with WinMo, seamless integration with the desktop. If MS can improve the user experience to the point where one’s true desktop is on their handset, that’s a near impossible advantage for the other mobile OS’s to overcome. I think this would be a better strategy for Balmer & Co.

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  2. Curtis

    I agree with you to a large extent but I think one thing which can help danger platform: other apps and which can be brought through independent developers. I think it be interesting to see what they do.

    Clearly, the services (via Danger) supported by ad-dollars and the business market, those could be two different parts of Microsoft’s Mobile business.

    That said, $500 million. Big price.

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  3. This line doesn’t make sense:

    “While some of the early investors got modest returns, I am told that the later-stage investors made out like bandits.”

    I’m guessing you mean the inverse of what you are saying here.

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  4. Nope, it is what you read. some of their later stage investors had better terms than their early stage guys. If you want, I can point you to the SEC filings. That makes it pretty clear. ;-)

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  5. Great detective work. I love the Danger Platform, but think that this is more about Microsoft gaining control over Danger’s IP for leverage over Google, than about integrating or extending what danger has done.

    Do you have any idea how many Danger shares are outstanding?

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  6. Rog

    Here is a link to their SEC filings. linkI think you will get all the information you want about danger shares outstanding. if you have trouble finding it, let me know.

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  7. [...] Update: After gathering a little more information on Danger, despite its history of losses, a lot of that was due to the way the T-Mobile contract is set up and how it has to recognize revenue from that. The company was on its way to becoming cash-flow positive. If Microsoft can get carriers other than T-Mobile to carry Sidekicks, it could become a very valuable franchise. The size of the deal (educated guess here) was likely in the $500 million range. Update 2/12/08: GigaOm comes up with the same figure. [...]

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  8. I hate to be the one to say it, since I’ve suffered professionally at the hands of walled gardens more than once, but I think it’s just naive to continue to beat the “open handset” drum.

    All of the precedents in the wireless world point to the fact that mediocrity (via the walled garden) trumps glorious openness for one reason: assured profitability. While Apple makes a little bit of money on the iPhone even when it’s unlocked, they make a whole lot more on the 75% of iPhones that stay locked up in the walled garden — this whole concept was borrowed from the playbook of RIM, a company that has been vastly profitable playing within the walled garden.

    The only thing that can shake the status quo is a fundamentally new, altruistic player operating on new as-yet unallocated spectrum. But until that actually comes to fruition, don’t expect change from the big players or anyone who does business with them.

    (not bitter..) -Ian.

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  9. Om: opening just the code of WinMobile is not enough. You also need to open ActiveSync, Outlook and Exchange to actually open the platform. This will amount to a revolution at MS.

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  10. Om,
    I searched for pricing info yesterday and came up empty. Instead I tried to back into conservative estimate from public record docs The result I published was a range that topped out in the $330m range….I was trying to hit the lower side of the range, but if your source proves correct, I was much to conservative. Nice work in tracking it down.

    to Rog: the shares fully converted to common would have been 168.133million. There were 5 classes of preferred.
    Because Danger was planning a possible public offering, a lot of their corporate documents were filed with the SEC (as noted in one of the comments). Those docs are publicly available. Financials, exec comp, partnerships, cap table etc. It’s all there. You can go to the SEC or check the article on my site for a link to the specific filing if you are looking for it. Om may have posted the link in his coverage too.

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