Want to Sell Wireless? Visage Will Help You Mobilize Your Brand

Basketball was an OK game when James Naismith invented it in 1891. Buying a cell phone is an OK experience today. Basketball got better with the introduction of a few innocuous rule changes: adding the free throw, for example, and replacing the basket with a hoop and net. Similarly, cell phones got smaller, they got digital and over the last few years, they even turned pink. And both the sport and the cell phone were phenoms in their formative years, generating a great deal of “hoopla.”

But basketball changed forever with the advent of the jump shot, an innovation so intuitive that it's hard to believe it took nearly 40 years before someone thought of it. The model of the mobile virtual network enabler, or MVNE, could do the same for the wireless business. If it works in bringing private label wireless to the masses through its entry barrier-busting platform, entrepreneurs may soon be asking themselves, “Why didn't I think of that?”

Matt Johnson won't have to ask. As co-founder and CEO of Visage Mobile, Johnson, fellow founder and chief financial officer David Fraze and their team of industry veterans — including Whitey Bluestein, who is to the wireless industry what Kenny Sailors and Hank Luisetti are to the jump shot (did he or didn't he invent the MVNO?) — are coming to market as the first MVNE. They are in the final stages of introducing an enabling platform that will allow companies with recognizable, marketable name brands or relevant content to get into the wireless business without actually having to get into the wireless business — that is, without having to build a network or back office infrastructure.

Companies such as Virgin Mobile and Boost Wireless are proving the success of private-label wireless in North America with partners like Sprint PCS and Nextel, but theirs is not a model that easily extends to smaller or more targeted brands. The Visage model is. The million or so subscribers required for today's MVNO to break even because of the significant infrastructure investment necessary has scared most brands away from adding private-label wireless to their portfolios. But the Visage Mobile Technology Platform will supply all the infrastructure companies or organizations need to begin offering their own service. Brands interested in the market can get into private-label wireless for approximately $3 million to $5 million — Virgin, Boost and some European brands paid approximately 10 times that amount, according to Johnson. Visage-enabled private-label providers could conceivably break even and become profitable with as few as 50,000 to 100,000 subscribers.

For Visage, breaking even and making this business model successful is, as Johnson said, “either a home run or not even a hit at all.” The firm he worked for while incubating the MVNE model, St.Paul Venture Capital, and other investors have loaded the bases (or, to extend the basketball analogy, have “set the pick”) for him with financing. Selby Venture Partners joined St.Paul in the initial funding round, and Mobius Venture Capital and Advanced Technology Partners have chipped in with subsequent investments, which Visage will soon make public.

Now it's up to Johnson and his team to come through.

Johnson is a start-up veteran. He was founder and CEO of an online textbook company called Bigwords at the age of 23. There, he honed the capital-raising and company-creating skills he would need for Visage. He raised almost $100 million for Bigwords and grew the company to 350 employees before it collapsed with the Internet bubble in 2000. Johnson also was among the founders of Tierra Communications, a developer of intelligent information management systems.

“None of that is relevant to what we are doing here,” Johnson said. He tends to look ahead, a perspective perhaps shaped by years of competitive bicycle racing in Canada, perhaps to avoid the pain of his first business failure. He likes to think this new business is unique. “Visage is not analogous to any other deals getting funded right now, which are mostly hardcore technology companies.”

One of the more unique things about the Visage vision is how it addresses both sides — yes, a real live “symbiotic relationship” — of the business universe. Perhaps more important than how inexpensively it allows brand-conscious companies to offer wireless service is the benefit it can provide to wireless network operators.

“The first minute a private-label customer uses the network, it is profitable to the operator because they are out of the customer acquisition business,” said Tom Bobich, Visage's vice president of marketing and product development. Subscriber economics have been headed in the wrong direction, Johnson said. “Operators are looking for new growth channels that are capital efficient and can improve those economics.”

It doesn't get much more efficient than letting retailers, content providers and other brand peddlers market directly to their constituencies and supply their own billing and customer care. All wireless operators need to do after integrating the Visage platform, which will comprise systems they are already familiar with, is sit back and count the cash as their networks achieve the utilization for which they were designed. “Generally, in an MVNO model, a carrier will take out 40% to 50% of revenue for airtime,” Johnson said. “That can be very profitable when they don't have all the support costs.”

Visage recently received commitments from two major brands, according to Johnson, and is in discussions with four wireless operators, two of which have come down to pricing discussions. He expects to announce operator agreements within 60 days.

Visage also revealed the first of its technology partners last month, when billing behemoth Convergys signed up to provide its Geneva billing solution for the rating and billing of both voice and data usage for both post-pay and prepaid customers. As a leader in the U.S. wireless billing space, Convergys can make it easier for Visage to secure the necessary operator agreements.

“Convergys views the MVNO as an emerging growth market with opportunities for both billing and customer care,” said Steve Sissel, vice president of business development at Convergys.

The rest of the Visage Mobile Technology Platform is made up of three components. The main component is a proprietary gateway called Visage Velocity that provides the interconnection between the operator and the MVNOs.

The key to Velocity — and to Visage's ability to provide this platform to national companies — is that it will provide a single interface to multiple carriers despite their competing network technologies. Companies on the brand side of the equation can offer a consistent version of their product that works and is activated the same way across its footprint.

“It is a platform built once for the use of the many,” Bobich said. The rest of the platform handles the core service functions and process engines that support private-label wireless. Visage View will manage the partners that provide activation, provisioning, billing inquiries and customer care. Visage Verify manages the integration of partners for rating, billing, inventory, messaging, financials and signaling.

Johnson leaves all that to the experts. He spends 70% of his time working with brand partners. “I don't have a wireless industry background,” he said. Nor does his business partner David Fraze, who came to Visage by a circuitous route that began in molecular biology at Harvard (after violating a three-generation family tradition of attending Yale), meandered through the offices of Boston Consulting Group and then to the e-commerce world of pet products, where he co-founded Petopia. (Fraze also is probably one of the few CFOs in any industry who has served under and co-founded companies with husband and wife CEOs — Johnson's wife, Andrea Reisman, headed Petopia.)

As he did at Bigwords, Johnson recruited a lot of industry expertise for Visage. “We recognized we couldn't be a bunch of cowboys coming into this market believing we knew everything that has happened over the last 25 years,” said Johnson. “So we brought in a team of seasoned veterans.”

That team includes the aforementioned Whitey Bluestein, executive vice president of business development. Bluestein was EVP and chief development officer at NorthPoint. He also is credited with pioneering the MVNO model while at MCI more than 10 years ago. There he helped ink a $10 billion airtime agreement with NextWave Telecom.

Other wireless veterans now on the Visage team are chief and deputy chief information officers Paul Nelson and Rashesh Jethi. Nelson recently served as CIO and vice president of information technology at Rogers AT&T Wireless in Canada, where he built the company's operations support systems and business support systems. Jethi comes to Visage with experience in the young MVNO market. He was vice president of IT at Virgin Mobile USA. There he managed the creation of the company's support systems. Like Bluestein, Jethi also worked at NorthPoint.

And at the helm of Visage operations is the company's president, David Stevens. Stevens spent six years with Sprint PCS as both western region president and area vice president, and spent the seven years prior to that in various executive positions at Los Angeles Cellular Telephone Co.

On paper, the Visage blueprint looks promising. However, the team's collective experiences — in one MVNO model that never really caught on and another that is still proving itself, in the building of a CLEC (NorthPoint) that went bankrupt, and in dabbling in e-commerce with a pet company that didn't live up to expectations before getting bought by a bigger pet company — are not the ideal guarantors of success one might expect for start-ups in this tough market. Nor is Johnson's own experience with Bigwords: The company's two-year run propelled the degree-less Johnson to Wonder Boy status at the age of 23, but two years later he became more of a poster boy for irrational exuberance when his company burned through the nearly $100 million it had raised and went bankrupt.

Not yet 30 years old, Johnson nonetheless still has the ear of investors and a vision for changing the face of wireless. The former is both a mission statement and the origin of the company name: “Visage” means “face” in French. Not that he needs to save any visage, but applying some of the lessons from his young career could make the difference in both making him the leader he longs to be and helping his company find the long-term success it has a good chance at achieving.

“We'll know in about 18 months,” said Jack Harrington, general partner at VC backer Advanced Technology Partners. “But they can do it if they stay the course.”

One hurdle on that course is executing on the technology platform. “It has to scale, and it has to work,” Harrington said. He added that being first to market with its platform will be extremely helpful to Visage, especially since there won't be more than five competitors in the space and probably less than three.

“Wireless [operators] have always had a mass-market play. Now they are clamoring for growth and profitability, but they don't want to deal with a bazillion brands,” Harrington said.

It should take only a few to get the ball rolling, according to Fraze. It certainly won't take as many as MBNA, the credit card company after which the MVNE scheme is modeled. MBNA has approximately 4700 affinity-associated credit cards. Affinity marketing targets those customers with a known interest or association with a particular brand or cause. One of the things that has kept interested brands from getting into the MVNO game was the uncertainty over how large their affinity base was for wireless service.

By estimating that it can take as little as 50,000 subscribers to turn chance into profit, Fraze said that uncertainty has been removed. “We're not looking for MVNOs with millions of subscribers,” Fraze said. “We're looking for the guys that know how to go after targeted audiences.”

Not all the guys Visage is looking for will be doing private-label marketing just to promote or extend their already popular brands. Some will be promoting their content. Beverage companies, cigarette companies and Tommy friggin' Hilfiger can all slap their names on a handset and become MVNOs — and they probably will. But music companies, gaming companies and maybe even casino companies will drive the proliferation of smaller, more targeted MVNOs by leading with their content.

Soon, Bobich said, customers won't think of buying service in terms of going to a carrier that offers data. Instead, they'll look to content companies for a way to carry that content with them. He cited Kodak as an example of data content that can sell itself: If a certain market segment consists of heavy photo users, it might be easier to sell them a branded Kodak product than trying to sell it as an add-on to existing wireless service, he said.

“I believe that within a few years, affinity marketing of wireless services and devices will become mainstream in the U.S.,” said wireless industry commentator Andrew Seybold. That can't happen without a platform like Visage's that enables a multitude of MVNOs. Seybold also said that brands such as MTV, Disney and the latest fad-based clothing or any company with a brand name and easy access to a market segment will be selling wireless. That's what Visage is hoping for — all except the fad part.

“Trendy brands don't carry the differentiation we have in mind,” Johnson said. His business model, he said, is based on lifetime subscriber value — a long lifetime. “You can't get long-term value with that kind of brand. There are enough marquee names interested in this that we don't have to go for that group.”

The business case for operators seems easy: No marketing or acquisition costs for customers they may never reach on their own. But can too much of a good thing put wireless operators in danger of losing their own brand identities? Bobich said no.

“Carrier brands will not go away,” he said. “They will merely be supplemented by special purpose or special interest brands.”

But Seybold said that's exactly why wireless operators have resisted the MVNO concept: “There is no upside to being simply a transport company.” Wireless carriers won't cease to exist any more than wireless phone vendors will, he said, but many wireless phones will no longer carry their brand names.

Success for all players — MVNOs, enablers, content providers, device companies and operators — means striking a balance. That's something Johnson himself must do between the highs and lows of his Internet days and the slow but steady world of wireless.