For Handmark, it all changed with a single phone call. The company's vice president of sales, Tom McKeon, was sitting at his desk last October when the phone rang. It was a senior buyer for the Best Buy chain, and the news was bad. Founded in 2000, Handmark had built a thriving business selling software for PDAs -- personal digital assistants, such as the PalmPilot. The Best Buy executive was calling to warn McKeon: Over the next few months, he said, Best Buy -- Handmark's biggest retail partner -- was planning to slash the number of both PDAs and associated software titles it sold. "I got a sinking feeling in my stomach," McKeon says.
The news was not completely unexpected. Research firms had been tolling the "maturity" of the PDA market for some time. Such devices, they predicted, would soon be as obsolete as the Betamax, replaced by so-called smart cell phones capable of both data and voice services. McKeon and his colleagues at the Kansas City-based company had read these reports. But the Best Buy call still hit them hard. Revenue at Handmark had swelled to $20 million, thanks to the popularity of titles that allowed consumers to play Scrabble or consult the Oxford American Dictionary on their PDAs. With just 20 employees in three offices, the company controlled 50% of the market for PDA applications at retail and enjoyed high-profile shelf space in huge chains like Staples and CompUSA.
Obviously, that market share would be meaningless if PDAs wound up on the technology scrapheap. And signs were beginning to point in that direction. In 2003, the worldwide PDA market had dipped 4.6%, according to the Gartner Group, compared with an 18% jump for mobile voice-and-data handsets. Clearly, if Handmark was to survive, the company would have to break into the market for mobile phone applications. And it would have to do it fast.
So CEO Augie Grasis convened a series of emergency "wireless summits" to confront the problem. The company's executives gathered once a month in the United Airlines executive lounge at the Denver Airport, a point roughly equidistant from Handmark's offices in Dallas, Kansas City, and Silicon Valley. With documents, tablet PCs, and phones strewn about the overstuffed leather couches, they tried to map a way into the cell phone market.
The barriers to entry were steep. Most glaringly, Handmark had no business relationships with mobile network operators -- the guardians of the menus, or "decks," from which most mobile phone applications, like ring tones and games, are downloaded and purchased.
The company did have longstanding ties with some of the country's largest retailers, but few consumers had begun to purchase phone applications at brick-and-mortar stores. The challenge was getting consumers to alter their purchasing behavior. McKeon had spoken with several retailers and knew that they were eager to begin carrying an all-in-one software and hardware bundle geared to neophyte smart phone users. It was, McKeon said, a "dream product." But Handmark's engineers balked at the notion. Not only would McKeon's dream demand around-the-clock customer support -- an extremely costly proposition -- but the competition would be tough, from bigger, deeper-pocketed companies like Microsoft and Sony. The executives moved on to other options.
The other thing retailers wanted, McKeon said, were games consumers could play on their phones. That's what the wireless carriers wanted too. Teenagers, after all, were the group most likely to purchase mobile phone applications. Here, Handmark was on familiar turf: A full 50% of its PDA revenue came from games. Cell-phone-based games, the executives figured, could be made from recognizable brands, much like Handmark's bestsellers, which included Trivial Pursuit, Monopoly, and Tetris.
Unfortunately, Handmark immediately hit another obstacle. All of the big names in the U.S. wireless market -- Verizon, Cingular, AT&T, Sprint, and T-Mobile -- were being courted aggressively by game developers large and small. As a result, says Grasis, "the cost of licensing for games was very high." Licensers like Disney and Atari were selling the rights for their best characters and games to the highest bidders. It was a war Grasis knew he could not afford to fight. And Handmark once again found itself at square one.
Grasis and Doug Edwards, Handmark's co-founder and vice president of marketing, came up with another idea almost immediately. Sure, Handmark had fared well with its games. But equally popular was its software based on reference and educational materials, such as maps and dictionaries. Perhaps education and reference could become the company's competitive edge.
Handmark execs contacted Rand McNally, already one of the company's partners, to negotiate licensing rights to make a cell phone version of its PDA Streetfinder software. Unfortunately, the map publisher was undergoing management changes and not ready to commit to a new agreement. But Chris Barnett, one of Rand McNally's licensing reps, was intrigued by Handmark's strategy. During a January meeting with Handmark execs at the Consumer Electronics Show in Las Vegas, Handmark offered him a job. "A lady hit a huge jackpot on the slots when he accepted," Grasis says. "It was a fortuitous sign."
Two months later, Barnett got to work forging relationships with wireless carriers. Grasis, meanwhile, approached Kaplan, the New York City publisher of standardized test preparation guides. Over a series of meetings, Grasis made his case for a partnership: Kaplan was a brand the big retailers would want on their shelves, and Handmark was one of the only makers of mobile software the retailers trusted.
It took Handmark eight months and nearly half a million dollars to create Kaplan Test Prep Mobile Edition. Beginning in October, students (or their parents) will be able to purchase the program -- which consists of practice questions, study lists, and the like -- through Handmark's website, Amazon, or Kaplan's website and 155 test centers nationwide. The programs are designed to run on any device, from traditional cell phones to feature phones (such as those with cameras or special audio and display capabilities) and even palm devices, which have yet to vanish completely. Kaplan plans to make the product available "wherever we think it will help students to have access to it," says Lev Kaye, the company's executive director of business development. That includes, he hopes, big-box retailers.
Handmark, meanwhile, has inked deals with Sprint, Verizon, and Alltel to offer the product on their phone decks. And the Kaplan product is just the beginning -- less a solution to the PDA problem than a kind of wedge meant to enable Handmark to penetrate this promising new market. The company already is rolling out other mobile phone products -- including one based on content licensed from TV Guide. Why television listings? "TV is another thing teens care about," Edwards says. "Maybe not as much as they care about getting into college -- or maybe more."
The Experts Weigh In
Is test prep the right move for Handmark?
I'm 17 and think about the SATs a lot. That's my future right there. This test prep program for phones is a good idea because it's less expensive than taking classes but could help kids improve their scores. My advice to Handmark is put two and two together and advertise with the phone companies. Get included in their ads and phones. Kids would go to buy this in stores only if Handmark advertised specifically to them in a creative, fresh way through mainstream media.
Microsoft Youth IT Challenge, Dallas
While retailers like brands like Kaplan, I doubt any mobile phone application will sell well at stores now. Consumers use their cell phones or go online to purchase them. It will be at least two years before mass-market retailers start catching up. Therefore, Handmark needs to really focus on cell phone carrier relationships. Get included on a deck. Kaplan is a big enough brand; it should interest the carriers. And get included in Kaplan's advertising and materials: That's low-hanging fruit.
CEO, Zingy.com, New York City
Simply being in wireless space is not going to get Handmark in with a teen demographic, even though Gen Y is the group most willing to download and use mobile phone extras. Obviously, Handmark can't go wrong selling through carriers. But the company should also get its retailers to spend money and let kids know that it's okay to come in and buy things. It would be an incomplete strategy if it had these great retail distribution channels and then the channels turned out not to be attractive to teens.
CEO, Alloy, New York City