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The end of MVNOs is nowhere in sightposted by Joe on October 4th, 2007 - 12:00 pm | MVNO
We’re not out to cause malice of any sort. However, it grinds our freakin’ gears when someone writes about MVNOs. Usually, they point to Amp’d, ESPN, and now Disney as examples of why the model won’t work. To that we say: Do you even know of other MVNOs? This article by Paul Korzeniowski of bMighty, and IT blot, is particularly frivolous. Right from the first paragraph we can see he clearly doesn’t know what he’s talking about: “If marketing maven, Disney could not build a viable MVNO business, can anyone else?” Uh, yes. How about a company dedicated to cell phones, not one dedicated to other forms of entertainment.
Whenever someone brings up failing MVNOs, we point to a few reputable ones that continue to do well: Virgin Mobile, Page Plus, kajeet, and Tracfone come immediately to mind. These are well-run services that show no signs of dying. And yes, they’re all far superior to Disney Mobile. Yet everyone still points to Disney as a sign of the MVNO apocalypse. Why?
It’s all about name-brand
The Disney brand is ubiquitous. Everyone in America recognizes the logo and the characters it comprises. The company has used this to its advantage, as they spawned a number of entertainment services and features. Such was their plan, it appears, in creating a for-kids cell phone company. They felt that the ubiquity of their brand would bring them business.
Thing is, it’s not that easy. One thing is correct in all of this MVNO talk: Joe Schmoe on the street can’t just buy bandwidth wholesale from a major cell carrier, resell it to others, and turn a profit. Time, money, experience, and energy all go into the creation of a successful MVNO.
Give it time
Time is especial importance. This means time to research the industry, time to hire the right people, time to build a target market, and time to add subscribers. Without time and patience, an MVNO is bound for failure. Just look at Amp’d. They had a great business model, but they didn’t have the time necessary to turn it into a success. We still maintain that given another year (and another couple hundred million dollars), Amp’d could have at least shown signs of progress towards profit. Alas, Verizon was impatient and called in their debt, thus ending the Amp’d experiment.
We actually still have a test subject here. Helio, a joint venture of Earthlink and SK Telecom, works on the same basic premise as Amp’d. They seek the same market: media-obsessed youth. We’ve recently seen that Helio is a drain on Earthlink’s bank, so much so that the California-based telecom has temporarily ceased funding. SK Telecom, realizing the virtue of patience, is staying aboard, though. How Helio performs over the next year will be a testament to the MVNO arena.
(A digression: The difference between Helio and Amp’d, other than a more forgiving patron, is the approach. Helio opted for killer devices first, and put content second. Amp’d put content first and devices second. We’ll see if that has any affect in the long-run.)
Finding the niche that works
The entire purpose of MVNOs is that they target a market that is treated indifferently by major cell carriers. The big players — AT&T, Verizon, T-Mobile, Sprint — make their biggest money off of family plans. Such plans are governed by company-favoring two-year contracts, and because of upgrades and plan changes, those contracts are often extended mid-term. This means that they have different end dates, which makes it more difficult to cease using the service — or at least to all switch to another one.
In fact, niche markets are the only reason big carriers have incentive to lease bandwidth wholesale. After all, why else would they sell someone something that allows them to become an instant competitor? To answer a rhetorical, they realize that these would-be competitors 1) help them use all of their bandwidth, thereby maximizing profits, and 2) usually don’t target the same family-oriented market as the major carriers. If they did target that market, they’d surely fail.
Tracfone’s niche is prepaid. When all the carriers were requiring contracts, you could pay for only the minutes you wanted to use with Tracfone. They persist now because of name recognition. Virgin Mobile’s niche is the teenage/20-something market. Those two MVNOs are successful because they effectively target and market to their audiences.
Now, you might be saying “kajeet has the tweens market, but that was the market that Disney was going for.” Couple of reasons that’s not exactly accurate. First, Disney doesn’t have quite the appeal in the tweens. Yeah, your 8-year-old is going to recognize and love Disney. But once they start hitting double-digits, Disney just isn’t as cool — at least for the guys. So at that point you’re marketing to tweener girls, and that’s not a viable market by itself — at least not for cell phones.
The other reason kajeet thrives is because they spent four years researching and testing their product and market to ensure that when they fully launched they’d be ready for whatever came at them. Does anyone honestly think that DIsney was plotting their MVNO for even one year? We’re sure they had an idea of what they were getting into, but they likely didn’t familiarize themselves with the nuances. And sometimes the nuances dictate the market.
Not Disney’s first cell phone failure
Realize something about the three big failed MVNOs: Amp’d, Disney, ESPN. Amp’d, was a money-eater. It had a unique business plan, at least at the time, and required far too much in operational funds to survive. The idea was there, but they needed a lot more time to make it work. As we mentioned, its biggest creditor wasn’t willing to allow this time, so they prematurely bit the dust. So yes, Amp’d failed. But that doesn’t mean they wouldn’t have turned it around given adequate time.
The other two are both owned by Disney. Something peculiar rings about that statement. Two Disney-owned ventures decide to launch an MVNO, and two Disney-owned ventures failed. Now, it’s not like they’re the only MVNOs to fail. There have been a number of those. No two other than Disney and ESPN, though, have been owned by the same company.
So there’s at least an inkling there that this might not be the failure of MVNOs in general. It might, just might, be the fault of the company and it’s desire to penetrate all communications and entertainment outlets. Thing is, the cell phone industry is like none of its counterparts. It’s a game run by AT&T and Verizon, and we’re all just pawns.
Please, people, before you go getting paranoid and even writing articles about the demise of the MVNO, look at the successes. Virgin Mobile and Tracfone aren’t going anywhere. Beyond them, there are a number of quality MVNOs, like Page Plus. Remember, just because on aspect fails doesn’t mean the industry is doomed.