Steven Sesar is the co-founder and COO of FreedomPop, here to discuss the revolution his company is spearheading in the U.S. mobile market.
Market "evolution" is often confused with market "revolution." Markets inevitably evolve and technological progress, price wars and M&A all perpetuate this evolution. Real market revolution, however, is driven by entirely new business models and/or new "disruptive technologies."
The US mobile market has been evolving for over a decade, but in France a mobile revolution has already taken place. Inspired by this latest French revolution, US companies are poised to start a revolution of their own.
In 2012, the French mobile market was dominated by three mobile carriers. Iliad, a 4th, looking to expand from home broadband to mobile, realized to gain share in a highly competitive market it had to launch a truly disruptive proposition and offered users a €2/month mobile plan. The operative term here is "truly disruptive" and a 90% price reduction was just that. In the US however, the 4th carrier, T-Mobile has claimed to be "disruptive" when in reality it is merely a"price leader" using discounts to gain moderate market share. Iliad, who went from 3% to over 10% market share in France, didn't want to compete on price, but rather wanted to redefine it.
Fortunately, Americans do not have to stake their revolutionary hopes on an existing carrier playing the existing game. Rather the first real revolutionary shot has been fired by a start-up backed by the Co-Founder of Skype and looking to do to mobile what Skype did to voice, i.e. make it free. The upstart, FreedomPop, recently launched the US's first free mobile phone service. It gives users 500 MBs of 4G data, 200 voice minutes and 500 texts 100% free each month.
Like Iliad, FreedomPop is playing a different game than existing carriers, leveraging an Internet business model and proprietary conversion technology to reshape pricing dynamics. In its first year, FreedomPop's disruptive approach netted it over 100,000 users and put it on a trajectory to grow 10x over the coming 2 years. In addition to generating strong organic demand, FreedomPop proved the economic viability of a new business model and created a new game that existing players will be slow to learn.
As promising as this may sound, FreedomPop is just the beginning in what could be a massive mobile revolution. What makes FreedomPop's early success so compelling is not only that it has figured out how to make "free" work economically, but also it's customer acquisition costs are 99% less than the market it plays in. That means to add 1.7 million new subscribers which cost T-Mobile over $500 million in advertising, would cost FreedomPop just $50 million. Real revolution results in different customer acquisition dynamics as well.
If larger US companies can learn how to play FreedomPop's new game, not only will they reap massive economic gains, but consumers will win too. Cable companies such as Comcast and Time Warner are particularly well positioned. They could not only leverage FreedomPop's disruptive model to offer unprecedented value to users, but they could massively accelerate market share utilizing their existing operational scale, distribution and install base. In addition, like their French counterpart Iliad, US Cable companies own and operate massive wifi networks. This puts them in position to leverage extensive wifi offload gaining 30% to 40% lower network costs vis a vis their cellular counterparts.
Market revolutions are usually initiated in the US and then broadened globally. In the mobile market however, it is France that has lead the charge but the US is not far behind. With FreedomPop validating a new approach and cable companies figuring out how best to utilize wifi networks, there is real promise that the US mobile revolution will alter the mobile landscape over the next few years. And, like in France, where consumers have seen the average mobile plan price drop by 40%, American consumers are poised to be the real winners in this new game.
Steven Sesar is the co-founder and COO of FreedomPop.