Soul Proprietor

"God, I Hope He Gets There."

"Red card-blue card." It is a sort of mantra at smartRay, a principle that every employee learns and applies. And it is at the heart of how the company operates. If smartRay succeeds, red card-blue card will probably be the reason that it does.

The term is shorthand for a scenario that Tyler studied in a game-theory class at Harvard taught by Adam M. Brandenburger, who describes it in his striking 1996 book Co-opetition (co-authored by Barry J. Nalebuff). A professor holds 26 red playing cards and gives one blue card to each of his 26 students. The school dean offers to pay $100 to anyone -- professor or student -- who can turn in a pair of cards, one red and one blue.

The game creates opportunity for, and mutual interest in, free-form negotiation. The only rule is that the students must bargain individually; they can't share their intentions or bargain as a group. In this situation, Brandenburger argues, the outcome should always be the same: Because the professor and each student hold equal power within each separate negotiation, they will always agree to split the dean's money 50-50.

A faculty colleague decides to play the same gambit with his class. As before, he gives each student one blue card. But this time, he holds just 23 red cards; the other three have mysteriously been misplaced.

Now the professor enjoys a decided negotiating advantage. He knows, as does his class, that three students will be shut out of the money. So if one student attempts to drive a hard bargain, the professor can simply turn to a classmate and seek better terms. Any student who doesn't agree to the teacher's deal risks getting nothing, so anyone who ends up with even $10 is fortunate.

This dynamic, Tyler contends, is crucial for a small company: "Power is about the ability to exclude another party. So whatever we do, any time there's a negotiation, I tell my people to get on the phone and bring five more blue cards into the room. Find other parties whom you can use to exclude the one that's trying to muscle you. One way to keep 800-pound gorillas from squashing you is to get them to worry about each other."

The problem is, the gorillas are gaining leverage too. The gorillas, in this case, are the big wireless carriers -- companies such as AT&T and Sprint -- and the Web giants, such as AOL and Yahoo! Both camps own powerful distribution channels with access to millions of customers, but they lack the wireless services that can turn commodity pricing into something more profitable.

In the last year, dozens of small companies have swooped into this breach. "It's become a crowded space," says Iain Gillott, who studies the wireless market for International Data Corp. "If I had a dollar for every little company that had an answer for wireless Internet, I'd be on a boat in the Caribbean. Meanwhile, lots of big Internet companies have their own strategies in place. So there are going to be a lot of acquisitions."

Already, the dance has begun. Sprint has partnered with AOL, Yahoo!, and phone.com, a wireless portal that itself acquired smaller players in order to gain technology like smartRay's. In March, InfoSpace, a portal company, purchased the majority of Saraide, a smartRay look-alike, for $110 million in stock. Microsoft has partnered with Ericsson. And Nokia has entered a competing alliance with Motorola and Psion.

With each deal, Tyler, Playford, and Kidder have to reassure their sometimes-concerned investors that an opportunity hasn't slipped past -- that smartRay still has an edge in the market, that there are buyers still buying. Then they must reassure themselves. "That's what's difficult about all of this," says Playford. "It's not the hours. It's the intensity -- dealing all the time with things that threaten to take down the company, feeling like at any time we could be squashed."

Since the start, Tyler has kept a spreadsheet tracking all of smartRay's potential merger partners. He considers it his job to make every one of those companies aware of smartRay, "because if you're going to get married someday, you want all of the brides to know about the potential groom."

Because if all of the brides know that he's there, then the groom can play red card-blue card. When he negotiates merger terms, Tyler doesn't know for sure how much smartRay is worth. No one does: SmartRay is just a bunch of people with an unproven technology in a nascent market. But one thing's for sure: SmartRay's value is higher if more than one buyer is in the hunt.

Some of those brides have married themselves off by now, and smartRay's founders must contend with the increasing possibility of bachelordom. Broadly speaking, they face three potential outcomes. The first is outright failure and bankruptcy, although that seems unlikely. The second is acquisition -- a sudden burst of validation that gives their product distribution to thousands or millions of subscribers. "We all want that kind of dramatic success," Tyler says.