The German news magazin "Der Spiegel" has published an interview with Martin Varsavsky (blog), founder and CEO of FON, the company that calls itself the world's largest WiFi community. FON sells WLAN routers for a mere 5 Euro; in exchange for this heavily subsidized offer, FON users ("Foneros") have to make their WiFi network accessible for free to other Foneros. As I write these lines, there are 83,469 Foneros signed up.
FON is backed with some $22 Mio. in venture funding by Google, Skype, Sequoia Capital and Index Ventures. WiFi wizard Glenn Fleishman had some doubts on FON's business model back in February 2006 when the funding was announced.
Here are the main take-aways from the interview:
- FON's only revenue source for now are the so-called "Aliens": These are folks who do not offer a FON hotspot, but who purchase a pass to go online through the FON network. Passes are available for 3 Euro/24 hours or in a bundle of five such day-passes for 10 Euro.
- As of September 2006, FON has signed up some 5000 Aliens.
- FON is spending 500,000 Euro per month more than they generate in revenues.
- Break-even is assumed to occur at 500,000 FON hotspots, based on 1 Euro monthly revenue per hotspot.
- Varsavky predicts that the FON network will reach the 500,000 hotspot-mark by the end of 2007.
- FON plans to bring a Skype/FON phone to the market in November 2006. The phone automatically connects with any FON hotspot. The price for the phone will be around 150 Euro.
- For December 2007, the "FON Liberator" is planned, which principally is a router with a USB interface and sufficient internal memory to store music and videos.
So at their current cash burn rate, FON probably has money for some three years. That would give a comfortable cushion of one and a half years compared to December 2007 when break-even is planned.
In the meantime, Varsavsky can hope to benefit from the momentum of a generally growing market for WiFi equipment and services (via Andy), which could have to effects: prices for equipment might further be driven down, so the cost of subsidizing the routers would decrease, but more importantly the number of people who are familiar with the use of WiFi will grow significantly, a fundamental success factor in FON's business model. As it can be seen from the subscriber figures, only the very early innovators are using FON right now.
One logical step to take would be to target the Skype user base. With Skype online users fluctuating somewhere between 4-6 Mio., the 500,000 mark could be reached with a 10% penetration of these users.
To reach a broader audience, another possible channel would be to sell the router and the Skype/Fon device over Ebay. Package it with discounted Skype-Out minutes, feature it on ebay.com with an ad, have Ebay offer free shipping and purchase the right AdWords on Google (no such thing as of now...) to get even more eye-balls. The only cash expense would be the free shipping, everything else should come for free, as Skype (and hence I would assume Ebay) and Google are among FON's backers.