(FORTUNE Small Business) – Of the 275,000 official developers of applications for Palm handheld computers, exactly one has achieved the name recognition the others crave: Vindigo. Its city guide telling users where to eat, drink, and be merry while out on the town has more than one million copies in circulation as a subscription-based service ($24.95 a year). Vindigo Studios, the company behind the guide, generated about $3 million in sales last year--a 100% jump from 2002, earning it a spot on consultant Deloitte & Touche's fastest-growing-small-businesses list. According to CEO and founder Jason Devitt, four-year-old Vindigo will reach profitability by mid-April.

So it's a bit of a jolt when Devitt, 34, reveals that he's leaving the handheld behind--no more expansion, no new development--because that's not where the action is. To try to maintain his rapid growth, Devitt is betting his company on the nascent market for phone applications. He's in the middle of launching 20 to 30 phone apps this year, including Couch Potato, a movie-rental guide. Although he predicts a tripling of sales to $10 million for 2004, he also wonders whether he's dooming his company. "We're risking 100% of our equity," he says. "If we're wrong, we lose everything." The prize he's aiming for is leadership in cellphone apps, expected to be a $4 billion business by 2007, according to consultancy IDC. But even Devitt admits, "No one knows yet what basic stuff people are going to want" on cellphones. So the boyish, slight CEO is making his development plans haphazardly with no clear sense of customer desires, turning Vindigo into an entrepreneurial trial balloon for the new market--and one without a compass.

Devitt's first bet is that the timing is finally right to pursue the cellphone business. When he started Vindigo, he briefly considered the cellphone over the handheld but decided, correctly, that the technology and the business models weren't ready. Today, though, color-screen phones are more popular and priced more affordably, making apps like maps and games more attractive. The latest cellphones are equipped with embedded global positioning chips (because of E911, which will let emergency response systems locate cell users), opening the door to all sorts of innovative, location-based applications, such as the ability to let parents track their phone-toting kids. But most critical to Devitt, new software platforms such as Qualcomm's BREW significantly improve the application development process on cellphones. "This was the breakthrough," he says. "Not only is it a better development environment, but you can bill through the carriers. That's important, since it's a pain--and too costly--to bill people yourself for services that cost a few dollars."

Vindigo has released 11 apps so far for the cellphone, mostly ambitious subscription-based information services, including MapQuest Mobile (an online service that provides maps and driving directions), a movie showtimes service, and pocket versions of the New York Times and Vibe magazine. The apps are technically impressive but commercially dubious. MapQuest Mobile, for example, gets around the limitations of phone keypads by furnishing directions from a zip code instead of a street address. That gives users a rough idea of how to reach their destination, but for $3.99 a month many users will demand more precision.

Devitt claims that Vindigo has signed up "tens of thousands" of users on each of the services. Although no wireless provider will release subscriber numbers to confirm his claims, analysts say Devitt's numbers pass their smell tests. That said, "It's too small to be worth us tracking," says Ken Hyers of In-Stat/MDR.

Verizon already has more than 300 applications on its network, so Devitt must develop some winners or risk being cut loose. Although Vindigo is lauded by Verizon spokesperson Jeffrey Nelson as an "excellent partner," Nelson adds, "We can't have 18,000 apps, or people won't find what they want, so we have to reevaluate what works and what doesn't."

What's selling big in the marketplace, though, are not the information services in which Vindigo specializes, but eye candy--games, ring tones, and wallpapers (screen background images). Of the $254.8 million of wireless content sold in 2003, according to IDC, those were the top three sellers. So Devitt appears to be shifting his attitudes and his development to--you guessed it--games, ring tones, and wallpapers. As recently as November, Devitt pooh-poohed the idea of producing a game. By late December he was "not ruling out games," and by February he said, "There's a strong possibility you'll see us publishing a game."

The scattershot approach is both costly and risky for Vindigo because wireless carriers put the full burden of development on application vendors. "For the carriers it's great," cracks Devitt. He pays for any rights he needs to do a licensed version of a game or for branded content like the New York Times, as well as development costs, which can reach as high as $250,000 an application. Why? "Every carrier wants to differentiate itself from the others, which means Vindigo will have to do a somewhat different version of an application for everyone," says Edward Rerisi of market research firm ABI in Oyster Bay, N.Y. Worse, not all the money coming in--from monthly subscription fees or pay-per-use charges--goes back to Vindigo. Typically 10% to 50% of revenues goes to the carriers.

Perhaps Devitt should devote more of his energy to expanding the cellphone version of the app that started his company: the city guide. It's helpful, fun, convenient, easy to use, and a natural for taking advantage of the promising market for location-based services. For all of Devitt's flopping around for a hit, his new blockbuster may really be his old blockbuster.