Mon, Oct 01, 2001 page24

• US firm cashes in on international toy with a Japanese accent

  MARKETING PLOY Ads for the pocket organizer have a voice spouting Japanese in the background but Cybiko readily admits that it has no offices or investors in Japan

  • NY TIMES NEWS SERVICE
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  Pokemon may be passe, but the nation's children will keep snapping up toys made by Japanese companies like Takara, Bandai and Tomy. That, at least, is the thinking of Donald Wisniewski, who hopes to ride the popularity of Japanese-sounding names to help sell the Cybiko, a pocket organizer and wireless communicator that almost every youngster seems to want.

  Children, especially 10 to 14-year-olds, use Cybikos to send messages to one another, to play games and to download pictures of rock stars. The devices have even found their way into schools, where many teachers are limiting their use to the playground, next to games of kickball and four-square.

  If you happen by the headquarters of Cybiko Inc here, you can see the company P.T. Cruiser in the parking lot, its lime green body emblazoned with pictures of brightly colored Cybikos and smiling faces. Children are likely to hear about them by word of mouth or in commercials on the Internet that use a voice spouting Japanese from the background.

  

  The Cybiko Xtreme is displayed.

  PHOTO: NY TIMES

  But Wisniewski, 40, the president of Cybiko (pronounced SIE-bi-ko), readily acknowledges that he has no Japanese partners or investors. The company, privately held, does not even have offices in Japan. It is all a marketing ploy.

  "It's part of the feel we want the company to have," he said.

  "The kids like the name," Wisniewski added in an interview at his office here, about 50km west of Chicago. "It sounds like something that they want to play -- some high-tech gadget out of Asia."

  Though Cybiko has only three offices and 172 employees, it is something of a global company. While manufacturing takes place in Taiwan, much of the research and development is done in a three-story building in Moscow. There, about 150 Russian computer engineering designers create technology for the Cybiko, which children are also adopting as a version of their parents' personal digital assistants, like the Palm.

  Running the show

  The company's founder, David Yang, is one of the most successful Internet technology entrepreneurs in Russia, and he runs the show in Moscow. Yang, 32, a Chinese-Armenian who started a software concern, Abbyy, in 1989 and graduated from the Moscow Physical Technical Institute in 1992, says the business plan makes perfect sense. Where else but Russia, he asks, can you start a company, hire 80 programmers and designers and produce a prototype for a communication device in less than a year for under US$150,000?

  While start-up costs are lower in Russia, Yang says, Cybiko's Russian roots initially scared off some early investors. "It was a new company, and they were concerned about Russia and development," he said. "We didn't have anybody in the US, and they were worried."

  In September 2000, Cybiko caught the eye of investors like America Online, soon to be AOL Time Warner, which now owns 20 to 30 percent of the company -- it would not say the exact amount.

  But in 1998, a year before Stephen M. Case, AOL's chairman, listened to a pitch about a wireless hand-held device that could send instant messages free over short-range radio, Yang's idea was germinating. He dreamed up the Cybiko while recovering from a bad cold at a Moscow hospital. By year-end, with only US$120,000 in seed money, he had gathered a staff of 10.

  Six months later, it created a working prototype, and the number of workers was up to 80. Only then did Yang meet Wisniewski. Surfing the Web, the two men had happened upon the same technology bulletin board where the topic of discussion was personal digital assistants and how to make them more efficient and affordable. Soon they were exchanging e-mail messages. Both men felt that they had found the way to create a product for a niche market. After more e-mail, phone conversations and business plans, they met in Manhattan in search of venture capital.

  The pair set up a temporary office in a small two-bedroom apartment in Battery Park City in Manhattan. They ate, slept and created business strategies there, along with the chief financial officer, Alexei Blokhin, and Yang's wife, Alena Abramenko, vice president for international relations. They took the idea to companies like Mattel and Hasbro.

  Carving a niche

  There was much interest, but little commitment, so they took it to market themselves. They set up a booth last year at the American International Toy Fair in New York; two months later, four major retailers, including CompUSA and F.A.O. Schwarz, began carrying the product.

  Electronics and communication devices for young people have carved a US$215 million niche in the US$22 billion-a-year toy industry, said Diane Cardinale, a spokeswoman for the Toy Manufacturers Association. Cybiko says it sold 200,000 of its devices through 10 retailers from September 2000, when they went on the market, through June 2001. The company would not disclose any financial figures.

  In December, after only a few months on the shelves, Cybiko held the third-largest share of the youth electronics and communications market, behind Tiger Electronics and Kid Designs, according to NPD Toys, a market research company. Reyne Rice, director of marketing and communication at NPD, said that although Cybiko's overall market share for the year was only the 10th-largest, "the company's strong showing in December proved it is a top player in the industry."

  A Top player in the industry

  Walking around his sun-filled office in a denim shirt and khaki pants, Wisniewski did not seem the least bit threatened by the conventional toy market, where electronic toys are often regarded as fads. On the walls are a Batman calendar and ads for high-technology devices like the Palm and his own Cybiko.

  "Can we get the other headphones?" he asked, picking up the new CybikoXtreme, scheduled to hit stores next month, in time for holiday shopping, at US$139. The CybikoXtreme, which has screen icons like those on a desktop computer and can be used to watch still-frame music videos, is aimed at 14 to 25-year-olds. The company has lowered the price of the original Cybiko, which went for around US$130, to as low as US$69.99 at some electronics retailers to make room for the new product.

  The headphones soon arrived, and Wisniewski plugged them into a lightweight, silver-and-black zebra-striped computer and pulled them over his spiky white hair. As the music blared, he watched approvingly as the screen played a slow-motion video.

  Esther Dyson, chairwoman of EDVenture Holdings, which invests in Russian technology companies, including Cybiko, said there was much more to the company than toys. "I'm interested in what else this technology can be used for," she said. "I wouldn't have invested in Cybiko if I didn't think something more was coming."

  Until recently, the company had no direct competitors for its product, and most retailers filled shelf space next to Cybikos mainly with GameBoys. But in the summer, Tiger Electronics, a unit of Hasbro, introduced my.data, an electronic organizer with a calendar, phone book and two games. And next month, Kessel Electronics, a maker of communications toys, will introduce W.A.V.E.Back, a Palm-like hand-held organizer that can transmit audio, video and text messages but is not interactive.

  Toy industry experts say the evolution of such devices for teenagers is natural. "They're emulating their parents," said Maria Weiskott, editor of Playthings, an industry magazine. "They see their parents' Palm, and they want it, naturally. This market is going to grow to meet that." Ryan Slate, vice president for marketing and sales at Kessel, said: "Everybody's fighting for the same shelf space. In this retail climate, we're all up against each other."

  Wisniewski disagreed. "This is a stand-alone product, and frankly, I really don't think we have anybody else that's doing what we're doing."

  Emulating mom and dad

  At Concordia University in Oak Park, Illinois, during breaks from their 3-D animation project at summer computer camp, Zak Ross, 10, and Mike Schulz, 11, scrambled from their computer pods to grab the magenta and blue Cybikos.

  "It's like a Palm, but it's not," Zak said. "It's just really cool. Pretty much this is a Palm for kids, but it's much better."

  Mike had already started to play Reversi 31, an electronic board game, on his Cybiko. "They're fun and can do a lot," he said, pulling up the antenna on his Cybiko as it started to beep. "If I want to talk with him," he said, referring to Zak, "all I have to do is walk near him and my Cybiko knows he's there." The beeping means that another Cybiko user is nearby.

  The games enticed Sami Masri, 12, a camper who was gulping down Orange Crush while he played with a Cybiko. The company has almost 430 free games available for downloading from its Web site. "What's awesome is the games are free," said Sami, who received his Cybiko last Christmas.

  During the company's second round of financing in December, two venture capital funds, the Vesta Group and SUN Capital Partners, joined AOL in taking a substantial stake. Cybiko would not disclose terms, but New Media Investor, the financial publication, put the new money at US$16 million.

  Teenagers in Russia may still have a long wait before they have Cybikos in their hands, because they are expensive by Russian standards. Yang says that day is coming, but he would not be more specific.

  Until then, the lucky few that land positions as game testers can sit in a room next to the inventors' office and, with furrowed brows and sore thumbs, search for glitches in the software. They can earn up to US$1 for each one they find.

  In September, Cybiko was introduced in Britain. And maybe someday, Russian programmers in Moscow will compete in a game of Cybiko pinball against their marketing co-workers in Bloomingdale.

  But before that happens, Yang plans to have Japan's store shelves lined with Cybikos, possibly by the end of the year.
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