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Sirius Radio's Radical Handheld

Steve McCallion set out to create the iPod of satellite radio. A designer at Ziba, the Portland (Ore.) firm whose clients range from 3M (MMM) to Whirlpool (WHR), McCallion led the team behind Sirius Radio's first handheld, rechargeable unit -- the S50, which debuts in late October. But if the device is successful, it will be more than "the iPod" of its industry, it will be an iPod competitor.

Yes, you might laugh now: Unlike MP3 players, today's handheld satellite radio market is stuck deep in the geekosphere, out of range of mainstream success. Only about 7 million people pay the roughly $12.95 a month to listen to up to 150 ad-free channels of satellite radio on the nonportable units that have been available for several years. Even though these radios, which pick up content that providers XM (XMSR) and Sirius (SIRI) beam from their satellites, are increasingly pre-installed onto high-end car models by auto makers like General Motors (GM) and Ford (F), the bulky devices are hardly commonplace.

MAIN SALES ENGINE? Today's market for truly portable satellite radio is even smaller. Sirius-competitor XM debuted the world's first such device, Delphi MyFi XM2go, last year. Although only a few hundred thousand MyFi units have been sold so far, the portable satellite player market is expected to grow to 10 million units by decade's end, according to Dan Benjamin, an analyst with tech consultancy ABI Research in New York.

Sirius is betting that the S50, which will list for $359.99, will be instrumental in expanding the market. It could also emerge as Sirius' main sales engine within a year, says Tuna Amobi, an analyst with rating service Standard & Poor's. "It's a big factor to long-term growth," Amobi says. That's because today, satellite radio sales growth is driven largely by the auto makers that pre-install units. With a popular portable, Sirius could potentially reach more consumers directly through retail stores and vastly expand its customer base.

A focus on what consumers want informed the S50's design from the start. The Ziba team visited the homes of 39 people, ranging from businesspeople to geeks and living in Portland, Boston, and Nashville, Tenn. The designers asked the subjects about their daily routines and took note of their cars and homes, in an effort to better understand how people use different types of entertainment.

NO RECEIVER. Ziba's research also showed that most people listen to the radio in order to discover new music, and that they don't care much whether they listen to a show while it's being broadcast or after the fact.

This led to the S50's most surprising -- and controversial -- feature: Unlike traditional radio or even XM's MyFi, the S50 wearable part can't receive live broadcasts when not plugged into its satellite-receiving dock. Once plugged in, it determines which three Sirius channels you listen to the most, and downloads 1 gigabit, or up to 50 hours, of content (thus, the S50 name). Users can also program it to record certain regular shows or upload their favorite MP3 music files.

This design and avoids the reception problems that have plagued the MyFi and also helped the designers to reduce the S50's size and simplify its use. The latter was important, as Ziba's research also found that most users find the vast majority of existing electronics are overly complicated. "There's a large number of consumers who feel an MP3 player is too much work," says Laura O'Donnell, senior technology strategist for Sirius.

NANO-LIKE. So as McCallion puts it, the S50 had to "look like a product that doesn't require a lot of work. Its simplicity should hit you right away." And it does: The interface has just one large button. But simplicity is complicated, and the small room at Ziba that's dedicated to the Sirius project has floor-to-ceiling whiteboards covered with sketches, and the workshop downstairs has churned out a dozen foam prototypes.

The final unit is black, an homage to radios of the past. But the S50 measures just 1.9 inches wide, 3.9 inches high, and 0.7 inches thick, and looks more like Apple's (AAPL) iPod nano than digital radio. As with any portable device, the designers faced the trade-off between size and battery life. To make that decision, they imagined the various scenarios in which the S50 would be used and decided that, as a baseline, the rechargeable battery had to last an entire coast-to-coast airline flight of continuous play.

"We ended up with more battery life than that, though," says David Thorpe, associate creative director at Ziba. "In the end, our priority was to deliver a truly portable device in size, weight, and experience."

BRAND-BUILDING CHALLENGE? Just how successful S50 will be remains to be seen. Some analysts say it's priced too high to appeal to a broad market. Perhaps users will opt for a plain iPod to download nonlive music or podcasts, which are, essentially, grassroots talk shows. As these podcasts get better, they could mount a challenge to satellite radio, says Roger Kay, president of tech consultancy Endpoint Technologies Associates.

Some analysts also question whether Sirius, which already has $654 million in long-term debt and is losing money, has the cash to build its own consumer-electronics brand. In November, it will release a $299.99 speaker system for it that can be mounted onto a desk or wall. Analysts whisper that Sirius is already developing a next-generation S50 as well. "We're hoping [the S50] establishes a DNA for a Sirius line of products," says Thorpe.

In the process, Ziba is adding to its own DNA as well. Lately, employees have taken to saying to each other during meetings, "Let's get Sirius."


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