Building a Super Cell Phone

The newest wave of tech entrepreneurs is focused on transforming our mobile phones into truly personal computers

by Aaron Ricadela

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It was 2001, Jud Bowman's first week at Stanford University. His roommate showed up with a slim, pink, music-playing cell phone received as a gift from a girlfriend in Japan, where wireless downloading had already taken off.

The phone couldn't make domestic calls, but Bowman carried the curio up and down Sand Hill Road to try to convince venture capitalists that the market for downloadable songs and ringtones was about to explode in the U.S., too.

Bowman, 25, only lasted a month at Stanford, but six years later his company, Motricity, has raised $218.5 million in venture backing, including $50 million from financier Carl Icahn that Motricity plans to use to buy smaller companies. It has hired Goldman Sachs (GS) and Morgan Stanley (MS) to prepare for a possible initial public offering—though a takeover isn't out of the question.

Motricity's software powers downloads of ringtones, games, and other mobile-phone applications for the more than 60 million subscribers of Cingular/AT&T (T), and customers including Viacom's (VIA) MTV Networks and NBC Universal's The Apprentice use it to sell ringtones and let viewers vote on the outcome of shows.

The World Wide Cell

On Mar. 26, Motricity plans to announce a deal with a seventh wireless carrier, Bell Mobility in Canada. "The most pervasive digital device in the world is the cell phone," says Bowman, Motricity's chief technology officer. "We realized these devices would be computing platforms."

Bowman is at the vanguard of young entrepreneurs looking outside already crowded corners of the consumer-focused Web, including social networking, Internet video, and online photo-sharing. These innovators are trying to extend those applications by putting them on cell phones.

He's joined in the pursuit by rising entrepreneurs like Sam Altman, co-founder and chief executive officer of Loopt, a maker of software that uses phones' GPS chips to help friends find each other when they're nearby. Their hope is that the market for mobile-phone software will take off as more consumers get their hands on phones that pack more computing power, larger screens, and location-aware technologies like GPS. "You have your phone with you all the time—it's so much more personal than a computer," says Altman, 21.

For investors, mobile-phone applications represent a fresh way to benefit from rising Internet traffic in a field where Google (GOOG) has a tight grip on ad sales linked to searches and companies have struggled to convert instant-messaging via PC into sales. More than 100,000 subscribers of Sprint Nextel's (S) Boost Mobile service subscribe to Loopt's $3-a-month software, which sends an alert when someone on a buddy list is nearby, potentially game for a meet-up.

"Where do you find the next Google?" says David Weiden, a general partner at Khosla Ventures, who owns a personal stake in Loopt. "It sure isn't in online advertising."

On the horizon could be a host of new mobile services, such as seamless hand-offs between cellular and Internet-based calls, enabled by new standards and the appearance of Wi-Fi chips in more phones.

Getting Carriers to Pick Up

Youthful engineers running startups are by no means alone in recognizing the computing power of cell phones. Microsoft (MSFT) on Mar. 14 bought TellMe Networks, a maker of software that recognizes voice commands, in part to expand the speech recognition capabilities of Windows-powered mobile phones (see BusinessWeek.com, 3/15/07, "Microsoft's Expansive Plans for TellMe").

Research In Motion's (RIMM) latest handheld, the BlackBerry 8800, uses a GPS chip to help users find directions (see BusinessWeek.com, 2/13/07, "BlackBerry Gets Back to Business"). Apple's (AAPL) iPhone, which includes software for e-mail, maps, and search, is due to reach stores in June.