Handango CEO Is Dialed In

CEO Randy Eisenman started Handango when smartphones were too bulky and expensive to be practical. Now they’re everywhere, and so is Eisenman’s company.

GOOD RECEPTION: Randy Eisenman’s Handango is the leading provider of popular software add-ons for smartphones and PDAs.

Granted, the question is not an easy one, but Handango CEO Randy Eisenman has only himself to blame since he was the one who posed it. “What kind of executive am I, compared to other executives in the world?” he asked himself, then he struggled for an answer. As he considered it, he brought a knee up to his chest and hugged it. He made clicking noises with his tongue. He cast his eyes to the ceiling of his Hurst office, as though he’d tacked a crib sheet up there the night before.

The easiest answer would have been, “A much younger one.” The 30-year-old Fort Worth native has been a common name on lists of Top CEOs Under 40. But the easiest answer is well-worn and has grown tiresome to Eisenman. When the topic of his youth comes up, he doesn’t hesitate to roll his eyes and point out that wrinkles and experience don’t change Handango’s bottom line. In spite of his company’s accomplishments—namely, becoming the top seller of smartphone programs, games, and downloads—his age is impossible to ignore. After all, he’s a boyish 30, with a beaming smile, business-casual get-up, and a cropped black haircut that seems inspired by Topher Grace’s look in 2004’s In Good Company.

Still, age can be as much a number as it is a factor. Eisenman is equal parts boy and man, and the two sides intertwine with every sentence. He can go from playful to profound at the drop of a worn-in baseball cap. When pressed to answer his own rhetorical question, Eisenman clicks and fidgets like an algebra student. At last he calmly says, “The reason I’ve kept my job as CEO is that I’ve been able to put my ego aside and hire people that, in many cases, are smarter and more talented than me in other areas.”

His is certainly an uncommon mix of humility and enthusiasm, focus and ease. His methodical approach to business is in no way sidetracked by a fondness for words like “bummer.” Handango’s success in the smartphone market required setting anchor in 1999, a year when phones were no smarter than their tiny caller ID displays. Perhaps only someone as ambitious as a 23-year-old—and as wise as this particular one—was both man and boy enough for the job.

Handango is, almost by design, a company that has been overlooked in conversations about the growing cell phone sector. Handset manufacturers get all of the attention. After all, they are the ones who add the bells and whistles to make smartphones smarter and smarter, with their RAZRs and Blackjacks and Pearls. Companies like Palm, Motorola, and Nokia outdo one another with touchscreens and Wi-Fi Internet access, expandable memory and even full keyboards. Content developers also get their fair share of the spotlight, creating the applications, games, and ringtones that push these gadgets to their functional limits.

››  THE TAKEAWAY
1. Wrinkles don’t equal wisdom.

2. A good idea for a business is one that rids a bigger business of small headaches.

3. Today’s unaffordable technology is tomorrow’s cash cow.

But Eisenman says he’s “not bummed” about the lack of attention. “A lot of the buzz, as well as a lot of the investment capital, have gone toward the ones creating the content,” he says. “The other part of this whole equation is, Who has the eyeballs? Who has the consumers? Over the last seven years, we’ve opened up so much distribution and have so many customers all over the world, that when all of this content gets created, it just has to come to us and through us. In fact, it plays well to us to have hundreds of different gaming and productivity developers battling each other for the next great product.”

To understand what Handango is, visit www.handango.com. The company is more than a mere e-tailer, but its online presence is a good place to start. Step one is to pick exactly what kind of phone you have. (Or, if you log on using your smartphone/PDA, the site will auto-detect the make and model.) Search for software by name or sort through all compatible programs by type, user ratings, or best-selling status. Considering how many conflicting devices and services exist, the site makes it about as painless as possible to get the exact content you want.

But the site is just the storefront. Handango’s true heft in the industry is mostly hidden from the average consumer. Eisenman starts to describe his company’s distribution deals and presence throughout the online community, but his explanation gets convoluted. He pauses, walks to the other side of his office and grabs his Blackberry, powered by Cingular. Time for show and tell.

“You might say, you know what?” he says. “I’m just gonna go to Blackberry.com. There’s a tab there that says software. Click on it, and it’s a co-branded store. Looks like Blackberry but says powered by Handango. It’s all of our content. Or you may go to CingularWireless.com. Click on Blackberry and then it’s a store, again. Cingular look and feel, powered by us. Or you say, I want MobiTV. Popular application. You go to MobiTV.com, and we run the store there.”

If it seems as though Handango is ubiquitous, that’s because it is. More than 16,000 content developers, nearly a dozen of the biggest phone and PDA makers, three of America’s biggest service providers (Cingular, T-Mobile, and Verizon), and two of the biggest Internet portals (Yahoo and AOL) rely on Handango to run their smartphone application sales. “Whether it’s a content developer, a portal, or a carrier, we need to run the stores for them,” Eisenman says, and by and large, his company does.

Handango has been primed for growth for years, but 2007 could be the biggest year of all. The Handango staff knows this year is likely when the company’s distribution deals will truly pay off, especially as smartphone prices drop and interest in add-ons increases. Plus, Apple’s June launch of the iPhone will have other manufacturers and providers scrambling to keep up with customer expectations and demands. “The iPhone sets a new bar for consumer experience that will have device manufacturers scrambling,” Eisenman says. “We’re already in deep discussions with some of these companies to understand how we can help them respond.”

But after waiting and surviving for seven years in a limited niche market, is Handango really ready for the smartphone’s impending boom?

“This is funny,” Eisenman says. “Up until about two years ago, our desks were these $39 card tables that you could buy from Wal-Mart. For the first five years, we all worked on card tables. It actually worked really well.”

Looking at Handango’s Hurst headquarters, one wonders if the card tables were folded and hidden just minutes before a visitor’s arrival. The offices are devoid of extravagance. The kitschy waiting area chairs are about the only pieces of decoration around the place. The nicest things hanging on the walls are the company’s many regional “Best Place to Work” awards. Form follows function here, which makes sense after withstanding the 2001 dot-com crash and more than half a decade catering to a tiny population of PDA owners.

Withstanding, but not without casualties. “I think it was roughly 25 people,” Eisenman says. Some good people were shown the door in 2001 when capital investment opportunities dried up. “It was probably about a third of our staff. It was professionally the worst day of my life. … Because of that experience, we’re still really cautious about our costs, even though financially we’re a very strong company. We don’t want to ever get into that position where our costs are so bloated and our revenue’s not correspondingly high and we have to lay off. That’s just,” he manages to say before trailing off. His beaming smile is nowhere to be found.

It returns when he talks of happier times, such as the story of his company’s origins. After graduating with a degree in business administration from the University of Texas, Eisenman moved to New York to join the principal investments group at Goldman, Sachs & Co., specifically in its technology and media sector (though he admits he “wasn’t tech-savvy at the time”). He returned to Fort Worth in 1997 to work for Q Investments, where his target project was to find the right mobile technology firm to invest in.

“We knew we didn’t want to play on the hardware side of the business,” Eisenman says. “We’d rather be on the software and services side. At the time, the only mobile content that was being purchased—it wasn’t being purchased. It was free, in the United States at least, only for the Palm Pilot. The Palm Pilot sold a million units faster than the TV, radio, and fax machine each sold a million units. So we’re like, okay: There’s something to this whole ‘mobile market’—at the time, PDAs.”

Eisenman’s search for a suitable company came up short. He was unable to find a management team or philosophy that Q was comfortable with. So in 1999, seeing a market disconnect between content makers, PDA makers, and consumers, Eisenman received financial support from Q to found Handango and connect the three. He’s now willing to admit that the operation got off to a rough-and-tumbling start: “I hired a bunch of recent college graduates. People would joke that it was like the fraternity or the sorority. The fraternity guys finally went to work. They got their first job.”

Eisenman credits two huge deals that the five-person company pulled off in its first few months of business: exclusive mobile content contracts with Yahoo and Palm. By offering its application sales systems to these two huge companies—neither of which sold PDA software at the time—Handango was able to save the companies some headaches and sneak its way to the top of an untapped niche in the process.

“Our pitch to them was, If you want to have the best mobile content—because all of your users will be looking for mobile content—we have all of that. Your traffic, our content. You don’t want to do it yourself, Yahoo, because you’re not in the business of managing relationships with thousands of mobile content developers and merchandising a store. Right place, right time. Then we basically capitalized on the momentum.”

Soon, the tiny staff was flush with exclusive deals. Lycos, Excite, and Compaq signed similar distribution deals months later, and the few twenty-somethings at Handango were in over their heads. With a fresh influx of investment capital, Eisenman brought a senior management team on board, including former Microsoft General Business Manager Laura Rippy as CEO and former Bass family CFO Rusty Butler. “He was a generation ahead of me,” Eisenman says of Butler, “but we had a common vision and a common goal.”

An early decision by Handango to broaden its focus beyond the Palm Pilot market kept the company viable as more PDAs—and later, smartphones—competed in the portable space. Within years, Handango was running nearly every online store that sold productivity software for Windows Mobile, Symbian, Palm, and every other major portable device system. If you wanted to chart a patient’s medical history in your pocket, or if you wanted a better instant messaging or voice recognition program for your Treo, chances are you bought it with the help of Handango—if not through the company’s direct site, then through a co-branded store.

But high device prices kept Handango’s niche limited to business professionals, so the company stuck to cautious philosophies and limited risk-taking. Eisenman believes in frequent use of “measure, test, and learn.” He’ll frequently dip a toe in several business directions before picking the right one to splurge on. Up until now, Handango’s splurges have been rare.

“Even though there’s a lot of capital that’s available for companies like ours, I don’t think we can always bet on the capital markets being there to continue to fund the business,” Eisenman says. “We need to make the business profitable and not rely on outside capital. With a finite pool of capital, I would rather invest it in our people, our partners, providing great service, and products than things like a fancy office.”

Still, Eisenman knows that 2007 is the year for Handango to get aggressive—and the year to put last year’s spike of $60 million in investment capital to use. So far, that money has been devoted to more senior management hires and an increased presence in Europe. Handango tip-toed into the continent with a staff of only “a few” at first and is already drawing almost 40 percent of its profit from its European division, but this year’s deals with huge overseas cellular providers like Telefónica (and preliminary action in Asian markets) will see the company attempt to recreate its American dominance.

And this year in the States, all signs point to even more growth and success for Handango, as smartphones become cheaper, sleeker, and more sophisticated. As prices reach the $99 sweet spot, the demographic for hip devices like the Motorola Q and the T-Mobile Dash shifts to every customer Handango has craved since the start: teens, women, and non-professionals. For Eisenman, that means the priority shifts to marketing and the consumer experience—attracting those new smartphone users early on and ensuring that they’re as comfortable buying software on Handango as they are browsing through iTunes or Amazon.

Handango knows that success could bring trouble: “What if our current partners want to do the business we do for them today?” Eisenman asks himself. “That’s a big risk. The best thing we can do to protect ourselves from that is to be a great partner for them and give them no reason from a service level standpoint to do it themselves.” There again, he hopes improving the Handango experience—nitpicking before the other companies even try to butt in—will protect his company from such a risk. And even if that fails, Handango’s amassed more than a few software exclusives, such as the high-selling MobiTV (an on-demand video program), in case any companies seek to split. “If they wanted to compete, they could, but they’d be missing some of the best content.”

“We’re trying to build a team that can do it all, so we’re being very mindful of making sure we hire people that have complementary skills to the others that are on staff,” Eisenman says. He points out the advice he took from working closely with former CEO Rippy, whose job he took back in 2004: “The concept that top talent hires top talent. ‘A’s hire ‘A’s. She and I were focused on hiring the very best. What I’ve seen time after time is the best talent seems to attract and retain and develop great talent.”

With seven years of “measure, test, and learn” under their belts, Eisenman and his company have a unique position of leadership and wisdom—don’t tell them the cell phone software market is young. Handango has no time to back down as its market grows, understanding that smaller players will try to chip away at its high level of distribution. But Eisenman has the utmost confidence and trust in his staff. It’s a world of difference from his 23-year-old start as a CEO, and nearly eight years later, the story makes the guy feel, well, old.

“I look back on it, and I don’t think I really want to do it again, but when I was in it, it was a total adrenaline rush,” Eisenman says. “Those first couple of years, our team worked seven days a week, 14 to 15 hours a day. I didn’t sleep much and there were some sacrifices I made, but in the moment, I was loving it. We were creating something unique and special and truly believed we had a great business. I won’t say we have done it yet, but we’re on the way. Absolutely no regrets, but would I want to make those sacrifices again? No. I’m married now, I have a baby, so I just … I don’t have the same energy, but even if I did, I’d want to direct it elsewhere.”

He talks about his father, owner of Stanley Eisenman’s Shoes in Fort Worth, and spending time as a child at the shop and wanting to enter the business world already at a young age. Now a father himself, does Randy plan on bringing his son Aidan around to see Handango’s smartphone world?

His immediate answer is fitting: “He’s on my smartphone. I have pictures of him on my smartphone.”

Handango’s Seven in ’07

>> Randy Eisenman makes seven predictions for the smartphone market.

1. Smartphones Will Go Mainstream
With the introduction of slimmer models with faster speeds, excellent screen resolution, and full QWERTY keyboards, today’s smartphones are more consumer-friendly. Combine that with mainstream consumer marketing tactics and a significant drop-off in handset prices, and smartphones are quickly becoming more attractive and more economical for the mass market consumer. Approximately 123 million units are forecast to be shipped worldwide this year, giving smartphones almost a 15 percent share of the mobile phone market, according to tech research firm ABI Research.

2. Mobile TV Will Hit the Small Screen in a Big Way
Smartphone screen quality and download speeds are constantly improving, making mobile devices a convenient choice for viewing more than just photos or quick video clips. With popular television shows now available for download, people are increasingly watching programs on-the-go.

3. GPS-Enabled Location-Based Services (LBS) Will Be Killer Applications
According to ABI Research, subscribers using GPS-enabled, location-based services will total 315 million in five years. “GPS” is now the most popular search term on Handango.com despite the fact that the majority of existing GPS applications require an additional piece of hardware.

4. Smartphone Adoption in Europe Will Continue to Explode
Research firm IDC expects that from 2006 until 2010, shipments of converged mobile devices in Western Europe will grow at a compound annual growth rate of 49.3 percent, the largest of all regions across the globe.

5.Over-The-Air (OTA) Downloads Will Grow at a Faster Pace
Content downloads occurring from Handango’s on-device storefronts increased 186 percent year-over-year, and Handango expects that growth to increase even more in 2007.

6. More Professionals in Vertical Markets Will Rely on Smartphone Content
Smartphones are becoming popular among a variety of vertical markets, including real estate, law, finance, and medicine, where professionals utilize mobile content for business productivity. As an example, Handango reports that revenues for the top four medical applications for Pocket PC have grown more than 25 percent from 2005 to 2006 and remain an often-requested type of content.

7. Large Consumer Brands Will Create Content for Smartphones
This year, companies such as ESPN, Google, The Weather Channel, Konami, TV Guide, and Skype began distributing their branded content though Handango. Handango believes this is only the tip of the iceberg as more traditional, non-mobile companies begin to capitalize on the opportunities presented by the smartphone content market.

Handango in a Nutshell

Cell phones are getting smarter, but they’re often shipped with limited features. Handango sells some of the best add-ons for phones to unlock their potential (e.g., instant messaging, voice recognition, photo album arrangers, etc.).

Handango’s exclusive contracts with nearly a dozen handset makers (Samsung, Nokia, and Motorola, to name a few), three service providers (Cingular, T-Mobile, and Verizon), and more than 16,000 program developers make the Hurst company the biggest distributor of these
very add-ons
. More often than not, Handango co-brands its online stores with its partners,
hiding its identity, but the company’s Amazon-like customer service experience can be found at every one.

Smartphones are growing in the U.S. thanks to three important factors, according to Eisenman: price, design, and durability. “Carriers love smartphones because they churn less and have a higher revenue per user,” he says. As a result, carriers are more eager than ever to cash in on the smartphone craze. Apple’s iPhone, even before its release, has reinvigorated the market as competitors scramble to catch up to its technology and ease of use. Handango is already working on how to make their clients’ devices work better.

Smartphones aren’t just big in America. They’re growing across the world, and Handango has already been in Europe for years; now, thanks to $60.5 million in investment capital, the company is devoting more resources to its overseas division and looking to its next target: Asia.

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