Consumer Smartphones by Microsoft

Mobile Technology is showing the strength of utility and demand ,
Microsoft said on Monday it would acquire Danger, a maker of consumer smartphones, an indication that the software giant is quickly moving to expand its mobile strategy.

The acquisition came after an on-again, off-again series of talks with Danger, based in Palo Alto, Calif., beginning in the middle of last year. According to a person familiar with the negotiations, Microsoft ultimately doubled what it was willing to pay to keep Danger out of the hands of other suitors, including Google.

Terms of the purchase were not disclosed.

The transaction is evidence of the accelerating shift away from the personal computer and toward a proliferating array of hand-held devices that can access information and entertainment on the Internet.

The rapid emergence of this capability is likely to have the same impact on the popularity of smartphones as the rise of the graphical user interface had on the personal computer industry. Microsoft, based in Redmond, Wash., and which dominates the PC market, wants to be a leader in this new market for the hand-held computers.

After stumbling for years in the mobile phone business with its Windows Mobile software, Microsoft has recently won over Palm, Motorola and other cellphone makers. However, Microsoft’s software has been more popular in smartphones made for business users, rather than consumers, several analysts and industry executives said.

Analysts said that the acquisition, could be a hint of a broader plan by Microsoft to build a consumer strategy around brands like Yahoo, which Microsoft recently bid $44.6 billion to acquire.

“Microsoft is lining up every asset it can get to challenge Research In Motion and Google’s Android,” said Richard Doherty, president of Envisioneering Inc., an industry consultancy. R.I.M. makes the BlackBerry cellphone, and Android is the operating software for cellphones developed by Google.

Danger, founded in 2000 by three engineering veterans of Apple, WebTV and General Magic, designed a soap bar-sized cellphone, the Sidekick, that was one of the first mobile devices to give consumers easy access to wireless data beyond electronic mail.

Early on, the Sidekick, which was distinguished by a fold-out screen that opens like a switchblade knife, attracted a celebrity following that helped the company make inroads into consumer and youth markets. But it missed early opportunities to expand its service provider alliances beyond T-Mobile, the third-ranking cellular carrier in the United States, limiting Danger’s ability to grow quickly.

Currently the Danger handsets are manufactured by Sharp Electronics and by Motorola.

In a Securities and Exchange Commission filing last December to raise $100 million, Danger said that its revenue rose to $56.4 million in its fiscal year ended Sept. 30, from $49.3 million in the previous year. It reported that it had 923,000 customers, most of them through its T-Mobile Sidekick line of devices.

In an interview on Monday, Henry R. Nothhaft, Danger’s chief, said the company had strong holiday sales that pushed the company close to profitability and took its subscriber base to close to 1.2 million.

Microsoft indicated to him that it plans to continue to invest in Danger and expand it beyond its current 300 employees and 60 contractors, he said.

“I think they view us as a foundation for their consumer Internet experience,” he said.

Although he declined to comment on the “select” list of companies that had been interested in acquiring Danger, Mr. Nothhaft said that he owned 11 thoroughbred horses and that during the negotiations Danger executives had assigned one of his horses’ names as a code name for each possible deal. He said that he had more horses than potential deals, but that he had run through a number of the names.

Like much of the Valley’s mobile computing technology, Danger has its roots in Apple during the late 1980s. All three of the founders worked at Apple as engineers. Two of the founders, Joe Britt and Matt Hershenson, have remained with Danger, leading its technical direction.

The third founder, Andy Rubin, left Danger to form Android, which was acquired by Google in 2005. The cellphone software it was developing became the basis for Google cellphone software announced last year.