Monday, 14 January 2013

failed MVNOs, MVNO myths, again, updated article

I thought I would update one of the most popular articles on my MVNO blog for a few years, now that MVNOs seem to be picking up again. The issues are the same, however with a bit more detail they are split out into 6 rather the 3 main points:

Not defining the MVNO product

Not defining the product properly is a key dependency of everything below: what are you selling, to whom, in what package, in which channels; moreover: Why can you do this cheaper than the MVNO and why can you keep this customer longer. So many people lose site of the fact that the bread and butter of MVNOs is acquiring the customer cheaper and keeping them for longer. once you have defined the product, you can do a business model that does not just read like "this guy has bought one of those MVNO business models off the internet and so goes straight to the bottom of our list". A well defined product will need and make way for a well defined word document defining everything, as well as an excel that is somewhere close to real, as much as possible obviously! This is critical to point 2) below as well, the MNO / MVNO relationship/agreement.

MNO MVNO relationship / agreement

Once you have easily got the MNOs attention by knowing point 1 above, defining the product, the negotiations will go a lot easier as you can focus on getting the right deal. There are so many people out there who are either a) so desperate to keep in favour with their old MNO employers/partners/etc. or b) the rogue  ex FD or wide boy who just negotiates and renegotiate every point that is in front of him until there is no goodwill left in the relationship and without any regard for whether this is a point that means £50,000 of revenue over 5 years or £50M...

The MNO / MVNO relationship is key, as when you launch, you will have some big competition, a big brother for the new kid in the playground is more useful that most people think... you do not want to be that kid whose big brother would happily see his annoying little brother's head flushed down the toilet...

You will also not get the agreement right at first: you will need some help to renegotiate after launch, if you have already negotiated this to death... this does not mean get a crap deal out of the MNO, this means get the right deal for the right model at the right time with the right MNO. If you have done point 1) above properly, you will have at least two MNOs to chose from and chose for more than just base rates! Think: Q: what would happen if I came to the MNO with....  Q: Can I work with these guys or will I be hating their guts at every meeting...

Choosing the wrong MVNO model / MVNE provider

I have put this here, even though it is part of point one, defining your product, as, your offers available may change your model choice during phase 2, the MNO/MVNO relationship. Having said that, do not let an MNO persuade you into a model that you believe is wrong just because they have a spare slot for that model... this is not just full, light or other MVNO: it goes as far as saying: do I need to be an MVNO at all or can I licence my "product" to the MNO wholesale team??? or even, in the case of the failed Disney Mobile, could this be done better via a content deal... Think about what Apple and blackberry did in certain markets. MNOs see so many MVNOs, and the wholesale team are bored silly of doing thee same old, stand out and ask for what you need, what you want from having done the points above, not just what is on the shelf.

MNO Legacy in MVNOs

never do anything just because it was the case in the last MNO, or MVNO for that matter. EasyMobile's CEO came straight from one of the greatest MVNO successes of all time: Telmore, but that was no guarantee for success. Online has gone from being sub 1% of sales in the already internet commerce friendly years of 2006 to now being serious double figures, SIM free sales are soaring, multi SIM ownership is increasing...

MVNO Execution. 

You have managed to get here, the "easy" part of your journey is over! You now have to sell! I have done due diligence on a few MVNOs and found all sorts of horrors that scuppered a deal:

  • SIMs in channels that cannot be recovered: the relationship soured, the model was broken, the systems were terrible, people got carried away, the MVNO gave thee SIM away for free... at the end of thee day, the MVNO lives by acquiring the customer cheaper and keeping them longer; wasted SIMs not only ruin/dilute/fudge the real figure, they can cost £100,000 or even £ millions and moreover destroy your brand. Think, if you have someone's SIM in your drawer for a year without putting it in a phone - what do you think of that brand? 
  • Partners / agreements that have to be used because you are tied into that provider
  • Scale/flexibility: you will most likely be much more successful than you anticipated if you got this far, however it is extremely unlikely it will be in the way you planned: do you get the stats, revise the marketing, reconcile the channels, reroute the stock, reorder the stock, etc. to ride that wave? Most MVNOs find out too late, have thee SIMs in the wrong channels (or not at all!) still spend marketing where its not working, etc...
  • start simple, easy to monitor, low/no fraud risk, low maintenance... drive that early advantage

MVNO Lifecyle

Read your technology books, or at least just Pip Coburn's change function; and remember - the needs of the people who buy your first product, to the ones who buy later to the mass market (if you are lucky) are all different, therefore your product will change, your marketing will change, your channels will change... therefore do not get obsessed with having the right handset or bundle to get X customer - your first customers will buy simple! you can add bundles for the me-too market!

Remember: acquire cheaper, keep for longer - with everything you do in MVNO!

The key MVNO myths:

  • MVNOs cost $50Million - no they don't; Virgin did, most was mass market ATL marketing, both the mass market MVNO (5% of country subs) and big ATL budget days are over, at least in technology
  • MVNOs need a handset - no they don't... do not have the time or space here....
  • Pre-pay is nasty Post pay is better- no it is not, Virgin mobile got to ma good few million customers with pre-pay and auto top up.
  • I cannot compete without a bundle - yes you can, MVNOs have sold per minute and per text in a bundle fuelled market, data will go the same way, you can get 40% of your customers and your first customers without a bundle: bad staff blame their tools!
Did I reiterate: acquire cheaper, keep for longer? :)

Original "Failed MVNO" article 2007 -:

Failed MVNOs
DOT MOBILE ADDED TO LIST OF FAILED MVNOS
It is not hard to see why. In 2005 I was lured to head up the mobile arm of £12m start-up icom, which included a youth MVNO, however, the most common expression I would hear to my repeated youth MVNO business models and plans from the billionaire funder and financier in board meetings was “Bollocks!”. The only thing more annoying than being constantly black-balled, was of course, the horrible realisation that he was right. (Actually at the time his new bean counter who would just nod and agree with him but knew nothing and cared less about the whole idea was even more annoying... we called him “the nodding donkey”).
Youth MVNOs, as they have been rolled out, and as I would have rolled out, and as the mobile operators, handset manufacturers and marketers would have backed me up, do not work; the technical term for which is apparently “bollocks!”. The problem is that they are devised by people like ourselves, who are advanced users, for what we see as even more advanced users, which they are, which also means they know how to, and have the time to obtain this advanced usage we pay for, usually for free. Their spend is neither predictable nor regular. There are many youths with surprisingly high disposable income, however those £500 per month in the UK will sometimes have £50 to £500 spent on mobile one month, then just £5 the next when they renew their wardrobe or even less for 3 months when they are saving for a new scooter. Today’s 50mb on myspace data is nothing by the time you have launched a myspace service on your MVNO, because by then they will have moved on to face book, and so on.
Dot mobile going bust was no surprise really, as neither was...
Extreme mobile never got off the ground for the same reasons, i remember doing the due diligence for a VC looking to fund extreme; there was no fault in Damien Brady’s pitch, it was one of the best I have ever seen, its just the youth model is flawed.
While the youth market is seen as premium, as they have huge disposable income and are advanced users, as we can see in the mobile youth report, however, it is divided among too many pulls, with too many seasonal, weekly, fad based and just plain inexplicable variances upon which to base a x month business model. The only people who could make a go of this are the likes of Lebara and other low cost MVNOs that presently focus on communities, with a youth brand, they have the lean, mean base model to be able to withstand the ups and downs, they just do not have the brand... but that is where they are strong, as a branded youth MVNO is commercial suicide. You need a vanilla MVNO that lets them use whatever brand or service takes their fancy at the time.
It will be interesting, as there is definitely opportunity, and it will be interesting to see Blyks rise or fall, as a similar problem arises in terms of planning ads and campaigns that are devices months or years in advance, while making them relevant to a constantly shifting market. What can save the likes of Blyk, is the booming space in mobile web advertising, rather than the planned-for direct marketing.
But good luck to the bunch of thirty and forty-something, even twenty-somethings who think they can make a go of selling predictably or reliably to 14-24 year olds. I spent two years of my career doing it, did endless user experience sessions just for the mobile festival guides, let alone a mobile service, and learned in the process to be prepared, be surprised, and move quickly.
posted by Christian Borrman 21:36pm 19/11/06, updated 06:26 05/07/08
The most common failed MVNOs are those we never got to hear about! Many underestimate the undertaking that is an MVNO and how long it takes to get the model right, and the MVNO never makes it to market. Once launched, the second most common failures, in my opinion and 7 years experience in MVNOs, are caused by one of three things:
1) "Legacy" elements of the MNO excesses and MVNO forerunners; like expensive tariffs, cost based propositions, large cost bases like subsidies, flashing handsets on a small scale, or MVNOs based on the brand propositions of the past, like the Virgin Model of obtaining millions of customers when those days have well and truly passed, etc. etc. Many of these have been contributing factors to the recent demise of Disney Mobile UKESPN Mobile in the US and most recently Easy Mobile in the UK.
2) Failure to business model properly and negotiate terms that are based on the business model's ability rather than "instinct" or just trying to get the best deal out of the operator without knowing why or being honest with the host MNO.
3) Flexibility. Take three examples: 1) Virgin mobile business modelled to have 200,000 customers, by which time they had 2 million. Three planned to have 1 million users, by which time they had a few tens of thousands. If you were a betting person, you would have lost money on these numbers for sure! There have been too many MVNO models that lose money as they could not grow quickly enough and continued with MNO penalties, or they could not scale their funding or supply channel quickly enough to handle handset subsidies and shipment... Many of these are just outcomes of points 1) and 2) above.
For more information on why MVNOs fail and succeed, see Latest article RE: Why Europe's MVNO Sing