Digital Orchid
Digital Orchid sells branded content to cell-phone users
By Kathryn Balint
UNION-TRIBUNE STAFF WRITER
October 28, 2005


Die-hard NASCAR fans can't go a moment without knowing the latest news about their favorite stock-car drivers or who is ahead in a race. Entrepreneurs Daniel and Georges Daou know this all too well.

So the Daou brothers launched their latest venture, Digital Orchid, by building, managing and distributing cell-phone programs for NASCAR. With NASCAR.com To Go, the stock car association's wireless brand, fans can follow along in real time as drivers race, listen to drivers as they talk with their pit crews, watch video clips, keep up with the latest NASCAR news and download ring tones.

Law school student Jonathan Hadaya can't live without it.

"This program is a godsend because I'm at school all week long and am not able to watch the races on television," said Hadaya, who has a class at Thomas M. Cooley Law School in Michigan on Sundays, when the races are held.

The only place he hasn't sneaked a peak at his NASCAR.com To Go is in church.

The NASCAR applications developed and marketed by Digital Orchid are available to cell-phone users for up to $9.99 a month through Verizon, Sprint, Cingular and other wireless companies.

For Digital Orchid, the race has just begun. Started three years ago, the San Diego company now also makes wireless applications for 53 name brands, including Hawaiian Tropic, the National Hockey League, Quiksilver and Roxy.

The company has a strong presence in Latin America with applications for popular soccer teams, models, athletes and Major League Baseball. Digital Orchid also has created wireless programs to play Mexico's national lottery, Pronosticos, and to bet at Caliente sports books over cell phones.

Digital Orchid expects to have $14.8 million in revenue next year. The company doesn't disclose actual revenue because covenants in its financing agreements prohibit it. The company did say that its revenue grew 600 percent last year.

Daniel Daou, the company's chief executive, said he expects Digital Orchid to turn a profit very soon.

The story of Digital Orchid's beginnings is a testament to the importance of powerful connections - as well as a bit of audacity - in the business world.

Before there was a company, much less a name for it, Daniel and Georges Daou landed a deal in 2002 to develop NASCAR's wireless brand. That's the way the Daous work. Their philosophy is that every company starts with a deal, not the other way around.

"If you can't sell it to one person, you can't sell it to anybody," Daniel Daou said.

When they were in their 20s, Daniel and George Daou founded Daou Systems, a multimillion-dollar enterprise that designs, installs and manages computer networks for the health care industry. They retired from the company in 1998, when Daniel was 31 and Georges was 35. For a few years, they invested in a few companies and helped fund charitable endeavors, including a Catholic Web site. Then they decided they would start another business.

They looked for an industry "that would revolutionize things for years to come," as Daniel Daou put it, and zeroed in on ring tones, games, wallpaper and other applications for cell phones.

Of course, it helped that wireless technology giant Qualcomm was practically in their back yard. Georges Daou turned to Qualcomm to learn about the industry.

It was a strategic move.

Through Qualcomm, the Daous met Bobby Betros, an engineering graduate from the Massachusetts Institute of Technology who had worked on everything from e-commerce to space research. Betros is now Digital Orchid's chief technology officer and the driving force behind the company's patent-pending technology.

Qualcomm also tipped off the Daous that Turner Sports Interactive, which owns the interactive rights to NASCAR, was interested in entering the wireless arena.

"If we couldn't sell our idea to NASCAR, and if couldn't make the NASCAR deal work, we didn't want to be in the business," Daniel Daou said.

So without a track record in the wireless industry, Georges Daou and Betros flew to Atlanta to make their pitch to Turner Sports Interactive. The Daous were prepared to pay Turner for the rights to use the NASCAR brand in their applications. Friends thought it was mistake. At the time, the wireless industry was in a slump. The gamble paid off.

In the meeting with Turner executives, Betros used a prototype he had made to demonstrate some of the fun programs that could be delivered via cell phone.

As the Daous were signing the contract, there was one thing missing: a company. They wrote a business plan and set out to choose a name. Monikers such as Wireless Mobile Solutions were bandied about. But Daniel Daou thought about Apple Computer, and how the memorable name evokes the image of something that is good for you. The word "orchid" conjures up images of a beautiful flower. And, as Daou said, "it's not boring."

One thing that differentiates their company from others is that Digital Orchid is a one-stop shop for wireless applications. Tom Meservey, who owns the digital rights to Hawaiian Tropic suntan lotion and operates HawaiianTropicGirls.com, spent a year looking for a company to bring the brand to cell phones.

"Some were saying, 'I just want to make your wallpaper,' " Meservey said. "Some focused only on video. With Digital Orchid, I realized I was going to have everything."

The Hawaiian Tropic brand now has its own wireless game that awards winners with free downloads of its cell-phone wallpapers. With Digital Orchid's help, Meservey is about to offer free downloads to cell phones from the Web site. Perhaps Digital Orchid's biggest advantage is its custom platform that allows the company to easily convert Web site content or other digital data into wireless applications.

"Our competitors build solutions using hundreds of engineers because they don't have the automation tools that we do," said Chris Duggan, president of Digital Orchid. "They go offshore, where there's cheap labor, and they manually build applications. We've broken through that barrier by using automation tools instead of hundreds of people."

Of Digital Orchid's 20 employees, fewer than half are engineers.

The company's patent-pending platform for launching wireless applications has attracted the attention of other companies that want to license its use. The company is in discussions with them, Duggan said. Since its start in 2002, Digital Orchid has raised about $10 million from private investors, such as Hollywood producer Burt Sugarman, USA Networks founder Kay Koplovitz and J.D. Edwards founder Jack Thompson. In December, Qualcomm invested as well. "The money was a token - a couple of million dollars," said Daniel Daou. "Where the biggest value was in them helping us and us helping them."

Qualcomm spokeswoman Bertha Agia said the investment in Digital Orchid supports the larger company's mission of fostering wireless Internet markets.

"Digital Orchid has done a great job in helping to establish brands for those companies not traditionally known in the wireless space, and translate their brands into wireless applications, wallpaper, ring tones," Agia said. "Digital Orchid is helping to bridge the gap between well-known names, such as NASCAR, and the wireless market."

In 2003, market research firm IDC listed Digital Orchid as one of the 10 emerging wireless companies to watch. The small firms were chosen because they are playing increasing roles in the evolution of the U.S. wireless market or have a unique vision of market needs, IDC said. For now, Digital Orchid is focusing on the growing market for cell-phone applications in Latin America. Daniel Daou tapped his neighbor, Nour Dean Anakar, to lead the sales in Latin America.

"We're going to dominate the Latin America market," Duggan said.

He believes that cell-phone users in Latin America are more likely to access wireless applications than those in the United States. Michael King, a San Diego-based analyst with Gartner market research firm, said there is "tremendous market potential" for Digital Orchid in Latin America.

"In Latin America, there are certain sports and certain franchises that people are extremely passionate about, even more so than football in the United States," King said.

Still, the market for cell-phone applications is still in its infancy.

"The big content guys are still making very small investments in this category," King said. "They're not sure if it's a viable market." Wireless companies are pushing cell-phone applications to consumers. The shift toward video, wallpaper, ring tones and 3-D video games on cell phones is the result of cellular companies deploying new networks capable of transmitting data at higher speeds. Carriers also hope to make more money by selling these extra features to subscribers.

In the second quarter of 2005, U.S. wireless companies brought in about $2 billion in revenue from transmitting data over their networks, according to IDC analyst Lewis Ward. About one-fourth of the revenue came from sales of applications.

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