Fon
Fon = worldwide WiFi initiative
URL = http://en.fon.com/
Description
By Peter Kirwan:
"The Madrid-based startup Fon, in which Skype is an investor, turns the Freemium Business Model idea on its head – and takes Web 2.0 a step further – by letting users make money by doing without features. Fon has a mad scheme to cover the earth with inexpensive, in some cases free, Wi-Fi. It even has its own crazy lexicon. People who have bought a Fon wireless router (or installed free Fon software on their own router) are Foneros; those who haven’t are dismissed as Aliens. Some Foneros choose to share their connections with one another in return for free Net access at any Fon hot spot; they’re called Linuses (after Linus Torvalds). Others, known as Bills (as in Gates), choose to pay for access at Fon hot spots. In return, they get a cut of the revenue when an Alien pays to log on through their router.
In the old days, building an international telecom infrastructure and growing its market share required a colossal pool of capital. Today, Foneros do both of those jobs themselves. Sure, the company has $22 million to burn, which is nothing to sneeze at. But it also has an advisory board full of A-list bloggers like Dan Gillmor and David Weinberger, a powerful engine propelling the network to critical mass." (Bruce Sterling at http://wired.com/wired/archive/14.06/posts.html?pg=7)
Discussion
By Peter Kirwan:
"Today, Fon has more than four million street-level access points through which users can log on to the internet. This makes it the world's largest Wi-Fi hotspot operator. The company is essentially building a business on millions of underused Wi-Fi routers that largely stand idle in millions of studies around the world. As Varsavsky puts it, Fon is based on the "discovery" that "all the Wi-Fi signals were already there".
Building a telecoms network out of thin air is an enormous task. Niklas Zennström, the cofounder of Skype, invested in Fon six years ago. "The road to changing a market," Zennström says, "is rarely a straight highway. There are a lot of turns. You have to not quite reinvent yourself, but figure out along the way how to get there."
At Fon's headquarters in Madrid, pragmatism has replaced idealism, and corporate near-death has been followed by resurrection. Much of the credit must be given to the founder's sheer persistence. Last year, after years of struggle to move the needle, Varsavsky's brainchild turned a profit for the first time, delivering €28 million (£25 million). Looking ahead, the Spanish-Argentinian entrepreneur foresees revenues of "hundreds of millions".
Fon and Wi-Fi are coming of age together, Varsavsky argues. Both, he says, will play a major role in shoring up mobile networks that are creaking beneath the huge volumes of data traffic generated by more than 600 million smartphones." ((http://www.wired.co.uk/magazine/archive/2011/09/features/open-access-fon)
Business Model
By Peter Kirwan:
"It didn't take long for the non-profit ethos to evaporate at Fon. The manufacturing contract for Foneras was burning cash. Time-consuming efforts to squeeze Fon's firmware on too many different routers cost money. It was time to generate some revenue.
Varsavsky finally found his inspiration in Skype, the internet telephony startup founded by Zennström and Janus Friis. On Skype, it costs nothing to call another user across the internet, but calling a number on a telecoms network incurs a charge. Skype, recently bought by Microsoft for more than £5 billion, uses this revenue to pay the telcos, while keeping a tiny cut. In similar fashion, Varsavsky decided to charge "aliens" -- individuals who don't share their Wi-Fi at home -- for connecting to the wireless hotspots created by Fon users who has allowed access to their routers.
With a revenue model, Varsavsky started looking for backers. Zennström invested, as did Sequoia Capital, Index Ventures andGoogle. Fon raised $18 million, and then, in February 2006, Varsavasky took his Fon service global. But the company struggled to make an impact. Varsavsky describes the business model for the first iteration of Fon as "a strategy that didn't work".
Users were reluctant to buy Fon's routers. The alternative -- reflashing your own router, and installing Fon's firmware -- was daunting for most. Fon users in the suburbs, where there was little demand, proved happier to open up their Wi-Fi; but in city centres far fewer shared their connections. In the major cities that Fon hoped to turn into a riot of bandwidth, it was hard to find a hotspot.
Demand was problematic, too. "There were just not enough people walking around cities, carrying laptops, trying to "connect to the internet," Varsavsky says.
There was only one way out of the impasse. Varsavsky set about transforming Fon from his original revolutionary upstart into an establishment player.
"I realised I had to sleep with the enemy," he says "I had to help them work with us in a model that at first looked dubious to them.
In June 2006, Varsavsky took to the stage at Google's Zeitgeist conference in Hertfordshire. Sitting opposite him was Ian Livingston, the (at that time) 41-year-old former Freeserve executive who, a year earlier, had been appointed to run BT's sprawling retail operations.
Google had lined up the two men for a debate on the future of telecoms. "He was the big corporate guy and I was the up-and-comer with an idea that would be potentially harmful for the telcos," Varsavsky says. "Ian had probably never heard of Fon, or knew very little about us, but he was very open-minded."
The conversation continued off stage. Varsavsky pitched to Livingston by drawing a parallel with the music business. Fon, he argued, was the kind of peer-to-peer network that could encourage customers "to sell music to one another on the labels' behalf ".
Livingston, who became chief executive of BT two years later, says he found Varsavsky "enthusiastic, committed and entrepreneurial". He adds: "I had no instinctive reaction against Fon at all. We weren't blinded by mobile as the only answer. We'd known all along that Wi-Fi had a lot of potential."
Yet according to some analysts, BT Openzone, the company's network of commercial hotspots, was proving expensive to build and generating fewer revenues than anticipated. If this was the case, BT wasn't alone.
...
Fon's deal with BT, and subsequent deals with telcos in France, Portugal and Russia, weren't enough to build a sustainable business. In 2007, Fon burned through €16.2 million of its shareholders' cash. In 2008, post-tax losses were €6.8 million. But it's the revenue line that jumps out of the accounts: it was flat year-on-year at less than €2 million.
Fon was still tiny and it wasn't growing. "We had become the biggest hotspot operator in the world," says Varsavsky. "But we were still just the tallest midget in the market."
In the UK, Fon had plenty of coverage, but demand still lagged. "There still weren't enough gadgets connecting to Fon," says Varsavsky. "We were growing much more slowly than I had expected." As 2007 drew to a close, he wondered if Fon "might not make it".
"It was difficult, really difficult," he says. "I wasn't meeting the objectives. I thought maybe I was embarked upon something that nobody was interested in."
Under pressure from his investors, Varsavsky considered shutting down Fon. In the end, however, he decided to cut its burn rate. He made half of Fon's 100 staff redundant, contacting fellow Spanish entrepreneurs to suggest that they take on his former employees. For those who couldn't find new jobs, he financed "a kind of trust" out of his own personal fortune, to finance retraining.
...
In late 2008, with the global financial crisis in full swing, Varsavsky asked his investors for more funding at a board meeting. According to both Varsavsky and Zennström, who was also present, the response was a chilly silence. In Varsavsky's words: "Everybody gave up. It was the consensus."
For Varsavsky, this was a moment of truth. He says: "Generally, in situations like this, entrepreneurs say: 'Fuck it, I will write off my money.' Or they say to their investors: 'I will carry on and dilute the hell out of you.'" Varsavsky did neither. Instead, he started to underwrite Fon's monthly losses of €300,000 with an open-ended loan. He did so without diluting the shareholdings of his fellow investors.
"I had no idea how much this was going to cost," Varsavsky says. He adds that he took the decision not to dilute his investors because his partners had been "fantastic".
"It was my fault," he says, reflecting on this period. "It was me who hadn't made my targets."
Fon persisted, but it was living on borrowed time. But then, out of the blue, two saviours emerged: the iPhone and Android.
The iPhone, says Varsavsky, was "a wonderful product" and, for mobile operators, "a dangerous product". He adds: "The iPhone was sold because it was fun. But every time you tried to do something fun it would threaten your allowance. For example, it costs me £5 here in London to buy 250Mb of data from Orange. Watching an episode of Mad Men will consume 400Mb.
"The operators said to Apple that they were unwilling to see people paying for Mad Men and have their networks trashed in the process, without receiving any benefit. So the operators said to Jobs: send these downloads to Wi-Fi."
Having carved out a space for Wi-Fi, the operators needed a strategy to fulfil demand. Varsavsky wondered whether Fon could supply it. Months after the iPhone's debut on AT&T's network in the US, reports circulated of bandwidth constraints. In Japan, the world's most advanced mobile market, something similar was happening.
The iPhone took Japan by storm. "It was the desire of Japanese consumers to watch video on their smartphones that threatened to bring down the networks," Varsavsky says.
In Tokyo in 2010, he met with Masayoshi Son, founder and CEO of SoftBank Mobile, Japan's third-largest mobile operator. Son told Varsavsky that, since paying $15 billion to acquire Vodafone's stuttering Japanese operations in 2006, he had invested $14bn in building out its network.
SoftBank had spent big to accommodate new subscribers attracted by aggressive pricing and star-studded marketing campaigns. "The iPhone means I'm going to have to spend a lot more," Son said. A deal emerged: SoftBank would buy millions of Fon routers and offer them free of charge to customers who bought iPhones and Android handsets.
On the streets of Japan, Fon's routers would create a massive community of Wi-Fi hotspots. SoftBank, meanwhile, would pre-install Fon apps on every iPhone and Android handset it sold.
SoftBank has more than 25 million mobile subscribers in Japan. Today, Fon has 900,000 user hotspots there. Most are operated by SoftBank users, many of whom get their broadband from NTT, the former state telecoms monopoly.
This, Varsavsky argues, is the shape of things to come in every other mobile market in the world.
...
What emerged after the SoftBank deal was a third iteration of Fon: a company that does deals with broadband providers and mobile operators. Fon mark three may have solved its growth problem. Last year, revenues rose fivefold to €28 million. It turned its first profit in September 2009, and repaid €2.7 million-worth of emergency loans.
Varsavsky still talks of his creation as a "network built by the users". But the truth is that Fon has become an adjunct to telco business plans, a defensive offering.
But it's a useful offering. Six years ago, Fon was a solution in search of a problem. Today, it's helping to solve one of the defining technology challenges of our times: how to make mobile networks fit for purpose.
Fon survived long enough for technology trends to start moving in its direction. "Over half of new handsets now have Wi-Fi installed," Enders Analysis's James Barford says. "Today, every broadband provider throws in a wireless router for free. Most homes now have Wi-Fi, which they didn't have five to six years ago."
Offloading traffic from mobile networks on to broadband might take Varsavsky even further from his original dream of open Wi-Fi networks, shared for free on the streets of the world's cities.
Evans, Barford's colleague, points out that the peak hours for mobile data traffic occur between 10pm and 1am. "The problem doesn't occur on the streets," he says, "but at home, when people take their iPhones and iPads to bed, to watch video or iPlayer."
As a result, Fon may become a developer of apps that help us to use networks efficiently -- in our homes.
How far can Fon go? Varsavsky, naturally, is bullish; Zennström, one of its investors, says that Fon "has the potential to become a very big company". He adds: "We're looking at an explosion of demand for wireless capacity. Fon is in a very good position to take advantage of that. It's already the winner in this category. What we don't know yet is how much this category will ultimately be worth."
Barford doesn't blanch at the suggestion that Fon might become a billion-dollar-turnover company. "Quite a few small businesses can get to $1 billion turnover if they operate on a global basis," he says. "It's certainly possible."
But it won't be simple. For, as mobile networks sag beneath the strain of smartphones, Varsavsky's startup is facing competition." (http://www.wired.co.uk/magazine/archive/2011/09/features/open-access-fon)
History
By Peter Kirwan:
"The idea for Fon came to Varsavsky one afternoon in 2005, while he was wandering the streets of Le Marais, in Paris, searching for a Wi-Fi connection.
"I had a wireless modem and I was being killed by these roaming charges," he says. "Everywhere I looked, there was lots of Wi-Fi but it was all locked. It was three o'clock in the afternoon. All of these people were out at work. I thought: what a waste."
He wondered whether Parisians could be persuaded to share their Wi-Fi if the favour was returned when they travelled through Europe and visited Madrid or London. Thus was born what Varsavsky calls "a global federation of routers". At first, Varsavsky says, he "couldn't see a business model" in his idea. "But I thought it could be a great thing. I thought, 'I'm going to develop some firmware that people can download into their router.'"
By November 2005, Fon's firmware was ready. Users could install it on the hack-friendly Linksys WRT54G router, which was built around Linux. Subsequently, Fon developed the Fonera, its own low-cost router custom-built for sharing. Varsavsky decided to give away the first routers to seed the market. After that, he would sell them at, or around, cost. In an early blog post from December 2005, Varsavsky guessed that Fon would need an installed base of one million units to generate what he called "a global Wi-Fi signal". All of this could be achieved, he reckoned, for little or no cost." (http://www.wired.co.uk/magazine/archive/2011/09/features/open-access-fon)
Status Report
2011
Fon has more than four million street-level access points and turned a profit since 2009, but it does so in close cooperation with traditional telco's. [1]
2008
New York Times, May 2008:
"At the moment, there are just 830,000 registered Foneros around the world, and only 340,000 active Wi-Fi hotspots run FON software. Because it’s built upon the concept of sharing Wi-Fi access, FON works well only if there are Foneros everywhere.
And as he struggles to expand the FON network, Mr. Varsavsky faces particular hurdles now that the Internet’s commercial side has reached a crossroads. Born a few decades ago as an anarchic, digital version of a barn-raising, the wireless Internet is now a battleground between two giant technology consortiums seeking to rein in the Web’s chaotic openness in favor of creating uniform, global access built upon wireless data networks.
The two camps, known as WiMax and L.T.E., for “long-term evolution,” are both top-down, highly structured approaches that will cost billions of dollars to build and may close a door on some of the architectural openness that led to the rapid growth of the Internet.
But their potential advantage is that closed standards can encourage the kind of growth that offers more access to mainstream consumers and business users, as occurred when Microsoft imposed a measure of conformity on software development.
For his part, Mr. Varsavsky hopes that FON can offer a middle ground — deploying the original, bottom-up strengths of the early Internet movement and at the same time wedding them to a more formal, corporate approach to expansion.
Although FON faces huge obstacles in realizing those ambitions, the company also has a growing number of devotees."