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Jun 11, 2001
Austrian Attitude - Forbes


A pair of Viennese turned a shoddy Soviet-era camera into a fad item. What makes them think they can do the same for a wireless device?


Second acts--even for a marketing whiz like Richard Branson-- are tough to pull off. But poor odds aren't stopping Wolfgang Stranzinger, 33, and Matthias Fiegl, 34. The Austrians hope to exploit an initial success with a clunky Cold War-era 35mm camera known as the Lomo Kompakt, the Soviet version of the Brownie camera, into another hit: a handheld device for wireless messaging, potentially the biggest medium of exchange since e-mail. What makes these guys think they can upstage Nokia?

They managed a storied rescue of the Lomo, which they discovered in a used-camera shop while vacationing in Prague. Hand-assembled by the millions for the Soviet bloc, the Lomo (named after the once-top-secret plant where it's made, Leningradskoye Optiko Mechanichesckoye Obyedinenie) was destined for the trash heap of other Soviet consumer goods once its distorting glass lens and shot-in-the-dark manual focus were forced to compete with the high-tech rapture of Minolta, Canon and Olympus.

"We thought it was a funny little camera," recalls Stranzinger. Fueled by a couple of bottles of vodka, "We just started shooting without using the viewfinder--from the hip--and were amazed at the results. The colors were brighter than with normal cameras, and there was this extraordinary tunnel effect in the shots." This effect--a lens distortion where shape and color tend to blur toward the edges of the photographs--became a signature look when the two marketed it to their bohemian pals back home as "Lomography." Their Lomographic Society and its interactive Web site (www.lomo.com) claims 500,000 members worldwide.

Stranzinger and Fiegl, inseparable since grade school--they even shared an apartment in Vienna with their fiancées, who are sisters--recognized a profitable market. But when the Lomo factory announced in 1995 it would cease camera production to concentrate on microscopes and military equipment, they arranged a meeting with the vice mayor of St. Petersburg, who had authority over the plant. They persuaded the guy to continue making the camera and got an exclusive contract to sell up to 540,000 Lomos over 15 years. The politician--Vladimir Putin, as it turns out--went on to become president of Russia. The Austrians unloaded 20,000 Lomos at around $150 each last year; this year they hope to sell another 36,000, with a gross margin of 30%. With help from line extensions into Chinese-made four-lens cameras and an international online photo development service, the Lomographic Society hopes to pull in $20 million this year.

It's a grandiose ambition, but it pales beside the next Stranzinger-Fiegl business plan. They want to take on the fast-growing market for Short Message Service mobile phones. SMS, a by-product of caller ID functions on mobile phone bandwidths, allows for written messages, usually limited to 160 characters, to be exchanged between Internet and wireless users. The technology hasn't yet caught on in the U.S., partly because of the dominance of pagers and the delay in standardizing a domestic wireless application protocol. But sms is bigger than voice mail in Europe and Asia, where an estimated 200 billion text messages will be exchanged this year. At roughly a dime a message, the estimated $20 billion market is expected to grow another 40% next year, thanks to its popularity among 12-to-25-year-olds.

Last year the Austrians formed a 50-50 joint venture with Uboot, a Lugano, Switzerland-based youth-oriented Web portal, backed by Deutsche Telekom. Telepong, as the venture is called, has built a mobile phone that looks like a cross between an iMac anda PalmPilot. It has a credit-card-size, foldout keyboard and a business-card-size screen for sending and receiving written messages. The phone lets you play games, compose music via a numeric keyboard and boom box, and create simple animated images for instant transmission. They've also planned a second-generation device that can transmit photo images using a digital camera integrated into a phone (the technology is available in Japan).

Christoph Atzwanger, Telepong's chief executive, is quick to point out that the phone is not revolutionary or proprietary. It operates on a standard gsm (global system for mobile communications) level of 9.6 kilobits per second. "What we have done is analogous to what Swatch did to the watch market," he says. "We've taken existing technology and put it in an exciting new package." They're also pricing the device for a younger market, at $150 versus the $400 to $500 for Blackberry's popular handheld e-mail system. Armed with a prototype, Telepong is talking to Flextronics, Hitachi, Panasonic and others about mass-producing the device.

A bit of a stretch. Introducing a novel mobile phone in an untested market, with more experienced competitors ready to jump in, is a tad more difficult than creating an online community of kooky photo buffs.

Not that the Austrians are betting der Bauernhof. Uboot and Lomo have each pledged a "single-digit-million-dollar" investment in the phone, says Atzwanger: "We expect a second round of investments to come in once we get a cobranding partnership with a manufacturer or telecom operator in the U.S." So far that's mostly wishful thinking. Stranzinger and Fiegl have started discussions with an unnamed American telecom.

The phones are set to launch in Europe next February and by next summer in the U.S. Telcos can customize them--for billing, access codes and so on--with a smart chip. Size of the potential U.S. market? "At least a million units," says Atzwanger.

You would be forgiven for dismissing the wireless message scheme as fantasy. But then there was that quirky success with a crummy camera.
   
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