Is Vindigo’s Deal with Palm a Sign?

Last March, when Jason Devitt and David Joerg braved a Manhattan office building with no heat to build out the first official version of their Vindigo product, venture capitalists and beta testers hailed it as a “can’t miss” business prospect.

The homegrown Silicon Alley start-up created buzz with its database application for the Personal Digital Assistant (PDA), a city guide service which works like a cross between the Yellow Pages, Zagat’s Survey and a stripped-down Mapquest.

Two years later, with the advertising market in the dumps and big technology companies scrambling to push out products that allow high-speed Web-browsing on PDAs, many believe Vindigo’s darling status among early adopters has been reduced to a yawn.

Why continue synching with Vindigo when I can have the same information delivered to me at real-time speeds? While Vindigo’s location-based concept remains unique, the about-to-explode wireless space isn’t about synching applications.

Ask PDA-enabled hipsters and they’ll tell you the consumer-focused wireless future is about a tiny wireless modem delivering information and real-time browsing speeds to their devices.

Forced to cope with this reality, Devitt and Joerg has just cut the biggest deal in the company’s history to have the Vindigo application pre-loaded and boxed with the Palm m100 and m500 products sold by California-based Palm Inc. .

On the surface, the deal looks to be a home run for Vindigo. Despite signs that Palm Inc. is fast losing market share to competitors like Handspring, Compaq and Microsoft, the partnership will certainly deliver new users (read eyeballs for advertisers) to Vindigo.

Unless we know the terms of the deal (how much is Vindigo paying for the distribution deal?), we can’t say for sure how the numbers will pan out but this is certainly grounds for a rare smile to come from the lips of Devitt and Joerg. If they can somehow double the current 450,000 PDA-enabled subscribers to its service, advertisers will take notice.

Although it styles itself as a technology company that will make the bulk of its dollars from licensing its location-based software, Vindigo has felt the crunch from the drying up of the advertising market.

A round of layoffs at Vindigo has helped fuel talk the company is preparing for an acquisition (the Vindigo-up-for-sale buzz has resonated in the Alley for months but the company’s executives aren’t commenting).

Is this the first indication that Palm Inc. might buy Vindigo outright? Is it true that one of AOL/Time Warner’s entertainment subsidiaries has been sniffing at Vindigo?

After watching its “pervasing computing” venture capital strategy backfire –Kozmo, Urban Box Office and Scout Electromedia have all closed shop — Vindigo backer Flatiron Partners is desperate for a winner.

The question is whether Vindigo can deliver on the early hype. Word is Flatiron and other investors will once again participate in a funding round for Vindigo, a surefire sign that the interest is still there. (Vindigo has raised almost $10 million from Flatiron, General Atlantic Partners and Carlin Ventures).

Part of the long-term problem for Vindigo is the same headache facing many companies in these dark days for start-ups. If the Palm distribution deal is the answer, what happens when Microsoft or Compaq uses their sheer muscle to develop/acquire a similar service and bundle into their own PDAs?

That’s a story for another time. For now, it’s all about finding new users.

As Devitt himself puts is, “Vindigo is already the most popular platform for publishing location-based information to Palm handhelds…[Our agreement with Palm] confirms the value that our application brings to the Palm platform, and enables us to deliver a much larger audience to our publishing partners.”

And, we think, it sure sets tongues wagging on a possible acquisition deal.

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