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 UK, ESPN 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 modeled 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

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posted by Christian Borrman 21:36pm 19/11/06, updated 14:26 15/10/07

Related Articles:

Apple Global MVNO Coup

Glossary

Glossary of all the terms used above on Christian Borrman's website.

links

MVNO Definition on wikipedia
Virtuser MVNO Consultancy
Diagrams:
Mobile and the brand
MVNO from the customer perspective
Legacy and Next Generation MVNO models
Other Resources:
Fixed-Mobile Convergence
Next Generation MVNO Report..

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