(FORTUNE Magazine) – Danger Inc. is introducing a design for a really cool new device called the Hiptop, which seems as though it should succeed because it represents a fundamental contribution to the field of communicators--handheld computers combined with telephones. More likely than not, however, it will fail. In that conundrum lies a great story about why venture capitalists hate to invest in new devices from startups, why consumer electronics companies have never figured out how to be real innovators, and why huge telecom carriers can't put one foot in front of another, even when they try really hard.

I asked my partners to invest in Danger when the company first started two years ago, but we weren't comfortable with the amount of risk involved. (I did invest a little bit of personal money in the company then.) Since VCs take chances with money, we like to assume just one really big risk at a time, but new-device companies involve multiple hazards at once: How much are customers willing to pay? Should the device use its own operating system and hardware, or live with whatever is available to everyone? Should you license a design to consumer electronics companies, or just make your own device with your own brand? Can you get carriers to provide the network service, or do you need to buy it from them and resell it to your consumers? And none of these questions address the everyday concerns that any startup faces, including the strength of its management and the company's fiscal well-being.

Danger has worked through most of these issues over the past two years and has changed the design of the device and its business model several times. The first result is the T-Mobile Sidekick, a really cool gadget that will be rolled out this fall. It's the fastest, most usable handheld web-surfing communicator I've ever seen. It has AOL Instant Messaging built in (and will eventually have the other instant-messaging systems) as well as SMS, the short-message system that has been such a huge hit with young people in Europe and Japan. Its cellular telephone is very well integrated, and its keyboard is better than that of its only significant competitor, the Handspring Treo, because it's bigger and somewhat better designed for fat fingers like mine.

If only Danger's business model were as sure-fire--its novel approach to financing the project is brave and risky. The company is licensing the hardware design, called Hiptop, to whomever wants to buy it. (It says T-Mobile, the wireless subsidiary of Deutsche Telekom, is the first of many companies ready to license its hardware.) The first device--the one T-Mobile calls Sidekick--will be sold for less than $200. The U.S. cellular industry's structure is such that carriers often subsidize new devices for as much as $150 in return for customer contracts that guarantee minimum service fees for up to two years. That means, in theory, that T-Mobile could sell the Sidekick for as little as $50, a great plan for targeting teenagers.

The problem is that Danger can't tell T-Mobile how to price or market its cool new device. So if T-Mobile decides not to subsidize the Sidekick, it could go for $200--a huge mistake, because teens don't have that kind of money. And even if T-Mobile does price the device for the target market, there's no real assurance that the company will explain it or sell it correctly. Telephone companies have never been known as great marketing engines.

For this arrangement to pay off, Sidekick will have to sell like gangbusters. After all, T-Mobile used its own brand and has poured some serious cash into Danger. As for Danger, it's not charging T-Mobile to license the hardware design, and it's not receiving any money for voice calls made with the device. Instead it'll take a portion of the monthly fee users pay for web access, instant messaging, and e-mail.

You have to credit Danger for trying something original. That's more than can be said for consumer electronics manufacturers like Sony or Panasonic or handset makers like Nokia or Motorola. None of them take the risks necessary to make such an innovative device. Finding new ways of doing business would mean revamping distribution, marketing, and manufacturing systems that operate best on a large scale. Instead, they play it safe by introducing phones with music players, cameras, or other novelties, which are guaranteed hits in their first year.

Bottom line: Danger is well named for a company living on the edge. It deserves to win but might suffer the same fate as other innovative-device companies such as WebTV (never got past version 2.0) or General Magic (still alive but used its IPO proceeds to become a voice company) or even products like Apple's Newton (dead as a doornail).

STEWART ALSOP is a partner with New Enterprise Associates, a venture capital firm. Except as noted, neither he nor his partnership has a financial interest in the companies mentioned. He can be reached at alsop_infotech@fortunemail.com. His column may be bookmarked online at www.fortune.com/technology/alsop.