How Much Did Microsoft Pay For Danger?

84 Comments

[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.

84 Comments

euro2006

about EU and Justice Department creating problems when it comes to the pending Yahoo-bid and the Danger-deal. Specifically, Microsoft is implementing four new interoperability principles and corresponding

eng-club

Danger always intended for the OS to be open as a development platform. However, T-Mobile doesn’t like open platforms, so end of story from that angle. It wouldn’t take more than a flick of a switch from Danger and all kinds of cool apps would be released for the Sidekick family.

There is certainly decent IP that MSFT is buying, which helps when Qualcomm, NTP, RIM and others are in the space. Android’s IP is likely inconsequential with respect to these other players.

It’s funny, but people in the Valley still haven’t learned that Open in mobile doesn’t mean a darned thing until carriers are forced to accept it. The ONLY way that open will really happen is when new networks with 1/10th the cost per bit come on line and threaten the existing model. It’s possible that WiMax might be exactly that network, but remember that the two biggest WiMax players in the US are Sprint and Clearwire. McCaw owns Clearwire, and he’s no dummy and will clearly sell out in a minute to the highest bidder, which will invariably be AT&T, Sprint or Verizon.

T1 Lines

I think its a great acquisition. Danger receives monthly service fees from T-Mobile and revenue has grown from $49.3 million in the 12 months ended September 30, 2006, to $56.4 million for the same period in 2007, when data service subscribers reached 923,000.

Eric

I have a completely different viewpoint on the Danger acquisition and would love to here people’s comments on this one. Yes the LiMo and Android thwarting is one thing, but why not think of the Sidekick as the potential of being Xbox Portable? No one could have predicted that in such a short amount of time, the Xbox platform would do so well. I think the Danger devices target a much younger generation that those who tend to purchase a WM handset.

The other side of things is that Danger is not just a handset, it also requires a server backend. This is a similar strategy that Motorola took when acquiring most recently Good and a while back, 4th Pass.

Microsoft also wants to use this acquisition, in my estimation, to also go after telco installs with their stack of products and at the same time, learning from the Danger server software that could potentially help. This area has been dominated by Sun and HP, surely Microsoft wants to play in this arena.

blabbinit

I have been a loyal Sidekick customer every since they first came out. I have had Sidekick 1, Sidekick 2 and now Sidekick 3. I am excited to see what Microsoft will do with the Danger products! It can only get better!

Alex

Om,good work. Thats why they pay you the big bucks:)

Hope your feeling well….

V Trivedi

Why Danger? Why not Palm? That way they can get larger market share atleast. Palm makes PalmOS and Windows mobile – which makes more sense and Sidekick(?)

JoeDuck

Om thanks for the detail here – very interesting. With 225MM capital invested already the 500MM price tag seems pretty reasonable, especially if that VC money came in several years ago which would mean the annualized return on that VC money would be fairly modest.

maurice

Meg Whitman should’ve bought Danger. That way, combined with Skype, she could let buyers and sellers not just contact each other through VoIP, but through mobile VoIP in the future!

Mike

What did MS pay for? Danger WAS a platform way ahead of it’s time, but it never advanced… If they were getting Andy Rubin’s innovation, it would be a better story. There’s no way they will be able to compete with Android. The only thing I can think is that they overpaid so they could aquire some specific patent…

Klaus

I too think this move by MS is all about slowing down the momentum in the Android platform by threatening IP lawsuits.

Danger as a device maker is pretty worthless.

Ballmer is very aggressive.

ol yeller

Danger always intended for the OS to be open as a development platform. However, T-Mobile doesn’t like open platforms, so end of story from that angle. It wouldn’t take more than a flick of a switch from Danger and all kinds of cool apps would be released for the Sidekick family.

There is certainly decent IP that MSFT is buying, which helps when Qualcomm, NTP, RIM and others are in the space. Android’s IP is likely inconsequential with respect to these other players.

It’s funny, but people in the Valley still haven’t learned that Open in mobile doesn’t mean a darned thing until carriers are forced to accept it. The ONLY way that open will really happen is when new networks with 1/10th the cost per bit come on line and threaten the existing model. It’s possible that WiMax might be exactly that network, but remember that the two biggest WiMax players in the US are Sprint and Clearwire. McCaw owns Clearwire, and he’s no dummy and will clearly sell out in a minute to the highest bidder, which will invariably be AT&T, Sprint or Verizon.

Andrew Norris

Thanks for the info — that’s useful to know.

Rather than open up the platform entirely, the easiest thing for Microsoft to do would be to port the .Net Compact Framework to the Danger platform, expose some hooks into the underlying services, and encourage developers to write .Net apps for the platform.

That way, they’re spreading their preferred development methodology, and at the same time, making it possible for developers to support both Danger and WinMobile without having to do a wholesale rewrite.

Bill

too much.

Just another property for MS to run into the ground.

When are they going to fire Ballmer?

francine hardaway

The Danger has always been a better device than its marketing would allow. Young people really like it. But I wonder whether MSFT is the right buyer for a device young people have adopted. Youth is REALLY wasted on the old. More than on the young.

BTW, glad to see you writing again, but take it easy.

morbo

Of course this is deja-vu for Rubin and Britt (ex-WebTV employees). Back to Microsoft again (for Britt anyway). I think the WebTV founder Perlman has a piece of Danger although, as the article mentions, early doesn’t mean a good payola in this case. WebTV had a superb exit strategy, 2yrs work for the payout vs 10yrs here. Still welcome news for the stakeholders I am sure.

Now Dangers platform was/is a microkernel with Java running on it. I am sure they are hopeful that there won’t be any meddling but then who knows. Could be a Win platform in their future. (a complete wrench into their current plans I am sure).

GS

Om,

One thing you failed to consider in your analysis is what the Danger OS is really composed of. It’s Java up and down the stack. You can look more into this, but I highly doubt MS will add another mobile platform to their offerings, let alone a Java-based one. They may have purchased Danger to utilize the cachet of Sidekick with a very different audience than their typical WinMo consumer with the intent of repackaging WinMo in a way that appeals to the Sidekick demographic. People have made Windows Mobile look appealing (See NeoNode)

I’ve read other suggestions that the perhaps it was the pursuit of IP conflated with Google’s Android pursuit that enticed MS to pony up $500M. MS has a big war chest for going to court if there are indeed IPR issues between Android’s architecture and Danger’s, which some claim to be similar (and both are authored by Andy Rubin).

Regardless, I can’t see MS utilizing Danger’s phone platform in the long term… as such I feel pretty bad for the people at Danger heavily invested/attached to the technology. It seems to me that it will likely be phased out.

Rog

Thanks Om for the Edgar link. After reading the footnotes and capitalization sections, it seems that there were about 216 million shares (common and preferred, and esop) outstanding at the time of the IPO filing. It is a bit confusing, so I would be interested to see if you came up with a similar number… Rog

Seth

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.

Yuri Ammosov

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.

Ian Bell

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.

Om Malik

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.

Rog

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?

Om Malik

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. ;-)

Mike B

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.

Om Malik

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.

Curtis

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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