FreedomPop Is Great — Just Not Disruptive

by Joshua Lamel on October 18, 2012

When a product launches and is heralded in the press as, “throwing a firebomb in the middle of the industry,” and “on a mission — to do nothing less than shake up the entire mobile phone industry,” certainly one would expect it to be a disruptive product.  However, many times the hype does not match the disruption.  This certainly appears to be the case with the launch of FreedomPop (this does not mean that FreedomPop is not a viable competitor in the marketplace — to the contrary it is a welcome and interesting entrant).

FreedomPop’s business model is pretty simple.  For a security deposit of $49 for a stick and $89 for a mobile hotspot, users can access the Internet via a 4G connection.  The first 500MB are free and then each additional MB is $0.02/MB.  They also offer higher 2GB and 4GB plans for a fee up front and then a smaller $.01/MB overage charge.

And they sure are hyping up themselves as a disrupter, with CEO Stephen Sokols promoting the company as enabling mobile phone service, and potentially home broadband as well.

In an earlier post for DisCo, Matt Schruers laid out what is and what is not a disruptive product.  He laid out the working definition for disruption as:

  1. They begin servicing a new, niche market, generally with a simpler and cheaper good or service, produced at lower margins.  In the Internet context, for example, this may manifest as a freemium or ad-based business model;
  2. They are overlooked by established industry incumbents who are focused on feature-rich, higher-margin, ‘more interesting’ products and who don’t want to cannibalize revenue streams from existing products by pursuing this new, lower-margin product that the incumbents’ most profitable customers aren’t even asking for.
  3. Disruptors take market share from incumbents as the disruptive product or service’s performance improves and customers turn from the old market to the new entrant for the very characteristics that initially caused incumbents to eschew the ‘disruptive’ market (e.g., it is smaller, less complex, more efficient, more portable, easier to use, etc.).

A simple analysis will show how FreedomPop fails this test.

FreedomPop is not servicing a new, niche market with a simpler and cheaper good or service, produced at lower margins.  All four major wireless carriers offer both stick and mobile hotspot broadband to customers, at differing pricing models.  Let’s compare FreedomPop to Sprint as an example.

Sprint offers a mobile hotspot to customers for free if they sign a two-year contract.  No security deposit is required.  Additionally, customers can also use many smartphone devices, including the iPhone 4 and 5, HTC Evo and Samsung Galaxy III amongst other devices.  Since most people who would invest in a mobile hotspot are likely to have a smartphone, there is likely no extra “device cost” for a mobile hotspot for many of FreedomPop’s core market.  While a FreedomPop hotspot is free, it does require an upfront $89 deposit.  In today’s market, the choice between an $89 security deposit or using your smartphone with a two-year contract for a free device are different choices, but the $89 deposit is by no means a cheaper good, nor simpler.

As for pricing for the service, with Sprint you can get a 2GB of mobile hotspot, either with your smartphone or with a separate hotspot, for $19.99 a month.  6GB is $49.99 a month.  Compare this to FreedomPop, which offers 500MB for free, 2GB for $17.99 and 4GB for $28.99.  Both Sprint and FreedomPop are operating on similar networks due to Sprint’s partnership with Clear as well as FreedomPop’s partnership with Clear.  500MB is not a lot of bandwidth for how people use the Internet today.  It is a very low margin for sure, but what is the niche market FreedomPop is moving into that feels like they are not getting a product from the current players?  If that new niche market develops, then maybe there is a disruptive element to FreedomPop.  But for the current Internet market, 500MB would be 100 songs on Spotify, 1 hour of streaming video, 7-8 hours of Pandora, an hour of YouTube, 2 hours of Skype video calls or 15 hours of VoIP voice-only.  And bandwidth demands are increasing, not decreasing.

Additionally, FreedomPop’s competitors are not focused on feature-rich, higher-margin, more interesting products.  They are not worried about cannibalizing revenue streams from existing products.  Wireless carriers are not moving toward more feature-rich and high-bandwidth offerings.  They are not moving toward higher margin hotspot or stick offerings.  They are focused on increasing prices per MB (even though price per MB is currently falling because users are using a higher percentage of their available bandwidth they had already purchased), and in some cases throttling and bandwidth caps, not increasing bandwidth usage at lower prices.  FreedomPop would be disruptive if only 10GB for $100 was where the market was heading, but it is not.  Verizon’s new offering is very focused on multi-device pricing for the low-to-mid bandwidth user and increasing the costs on high-bandwidth users by eliminating unlimited data plans.  Verizon, AT&T, T-Mobile and Sprint are keenly focused on the under 500MB and the under 2GB market, and that is a problem for FreedomPop.

An analysis of the third prong of the three-part disruptive test is not even necessary, as it cannot come about without passing the first two.

This does beg a great set of broader questions.  What types of services would be disruptive and cause consumers to stop getting broadband from their wireless phone providers?  How could we create a large, distinctive market for mobile broadband?  I will tackle these in a future post.

  • lword

    Using Voip with a national W-Fi network would be disruptive if it has
    seamless integration of hotspots. I believe that is what they are trying to do
    with CableWiFi and Passpoint. If that is successful, using something like the
    iPod Touch with and accessory like a MorphCase to give it the phone features on
    people’s home/work/school network would be the key to disrupting cellular. I
    think families being able to lower monthly bills by having a wi-fi network which
    includes cable tv/phone/internet is something definitely needed in this
    economy.

    • discutter

      > using something like the iPod Touch with and accessory like a
      > MorphCase to give it the phone features on
      > people’s home/work/school network would be the key
      > to disrupting cellular.

      I recall some people thinking about exactly that ~2 years ago (maybe 3), and up to now it has not materialized. If I recall correctly, Gizmodo claimed that WiFi calling with the iPod Touch was going to be “huge”. It wasn’t.

      To be honest, I don’t think it’ll ever materialize.

      • Oddlyme

        We have an ipod touch and we do use it for calls – using gmail chat.

        It’s not terribly convenient as most places we want to call from don’t have wi-fi but, it’s decent option. If we were in a city that had tons of wi-fi? Very different reality indeed!

        • discutter

          Too many “IFs”.

          Occasionally convenient? Maybe. Disruptive? No way

  • David Flores

    I’ve been using Freedompop’s wireless hotspot for the last couple of weeks. Really enjoying it. I think of it more as a “fill in the gaps” type device. As long as you rely on available free WiFi locations whenever possible, and use the device only in places where there’s no WiFi, then it’s quite possible to stay under the 500Mb per month free data allotment. I find I’m averaging about 10 Mb per day this way, using the hotspot to surf the web on my tablet when I’m watching my kids at the playground, for instance, or eating lunch at one of the handful of restaurants I frequent that don’t offer WiFi. I’m lucky, though, because I live in Baltimore, and we’ve got great Clearwire WiMax coverage here, both in the city and nearby suburbs. 

    With WiMax coverage is the biggest problem. Outside Clearwire’s 70 or so covered cities, there’s almost no coverage. If Freedompop offered a device that allowed you to also tap into Sprint’s 3G service, I’d probably sign up for the $10.00 Gb plan, since 3G is pretty much ubiquitous, even in fairly rural areas, and my family has a vacation home with no wired internet, no Clearwire coverage and only 3G for data where it would be nice to have a device like this.One thing to keep in mind is that Virgin Mobile sells a similar hotspot that taps into Clearwire’s WiMax and Sprint’s 3G. Their plan is $35.00 a month, but offers unlimited WiMax and a few gigs of 3G. Also, you can add tethering (3.5Gb 3G and unlimited WiMax) to Virgin’s cell phone plans for just $15.00 a month. In many ways, that’s the true bargain: Get Virgin’s HTC Evo V with the $45.00 plan and add WiFi hotspot for $15.00. Then for $60.00 a month you’ve got 1200 minutes  talk time, 3.5 Gb 3G and unlimited 4G WiMax tethering. That’s pretty much what I plan to do in 6 months when my contract with Sprint expires. Until that time, Freedompop is a nice thing to have.

    • Joshua_Lamel

       David: Thanks for the analysis – good stuff!

  • Matt Johnson

    So from a FreedomPop user, I could not disagree more. You are missing the entire prt here, this is not about device cost. You can get “a free device with a 2-year contract” – hello? a 2-year contract for 2 GB/month with sprint just locked you into  $480… what part of that are you missing? I never would buy a hotspot and lock into two years, i only use when traveling. And i’m traveling now and my FreedomPop device is awesome and won’t cost me a penny!
    and re the academia, better re-read Christiansan my man – it absolutely passes the disruptive test. 1) servicing data only low end niche ignored by most carriers (data only devices almost all targeted to enterprise users today), e.g. me 2) they are overlooked and have no features but rather creating simple data only products like the iPhone case to go “over the top” of iPhones. they don’t have their own smart phones or tablets 3) obvious – less complex, etcFreedomPop is a no-brainer and if the big guys ignore too long, it will be an issue since I for one plan on getting FP’s iPhone case when it launches and dumping my AT&T data plan

    • Joshua_Lamel

       Matt – all valid points, and all within Christiansan’s theory.  Where you and I disagree, is I just don’t see the low-margain market here. I think you are the exception, rather than the rule.  I hope I am proven wrong – I want to see disruption in the broadband space and have dedicate the last 12 years of my career to it.  I feel like we have seen this promise before, and the market has not developed.

      If a market were to develop for low-bandwidth usage monthly plans overtime, I will be proven wrong and it will be disruptive.  I just see, especially in the example you use of the smartphone space, bandwidth usage heading well above 500 MB per month.  It is going to require a second new development, like the home pc and laptop in Christansan’s look at the hard drive industry, to get us there, or a serious increase in the starting free bandwidth amount, which would likely prevent FreedomPop from being profitable.

      • David Flores

        Freedompop’s most interesting plan, and the one which most closely approximates your requirements for a technology or business model to be “disruptive,” IMHO is the $10.00 a month 1Gb plan. If Freedompop offered this plan along with a device that also tapped into Sprint’s 3G network, I would sign up for this plan in an instant, and here’s why:

        When you sign up for the $10.00 a month plan, your additional data is charged at 1 cent per megabyte. At this point, you are paying $10.00 a month for a very reasonably priced “pay for only what you use” plan. Even though Freedompop would like you to sign up for their $18.00 2Gb plan, as long as you’re using less than 1.8Gb a month on average, it’s cheaper to stick with the $10 1Gb plan. That’s because if one month you use 1.3 Gb, it’s costing you $13.00 over all. f the next month you use 2.0 Gb, then the two month average cost is $20.00 + $13.00 / 2 = $16.50.

        Now most carriers will sell you something like 5 Gb for $50.00… but you’re paying the $50.00 whether you use 5Gb or just 2Gb. Freedompop’s plan is much closer to the ideal of “pay only what you use.” Yes, if you use 5Gb you’re paying $50.00 that month, but if you use only 2Gb you’re paying only $20.00, for a $30.00 savings.

        But the lack of a 3G backup option is the deal killer: if you’re not in one of Clearwire’s 70 well-served metropolises, you’re basically dead in the water.

  • cloud

    I have been using Freedompop for about a month. It is great, as the signal is 4G and fast. I love the 500 Mb/mo free feature because that means if you don’t use that much, there is no cost, other than the $89 deposit which you can get back when you stop the service. 

    Using the Freedompop mobile hotspot, I can now make Skype to landline and cellphone calls on my iPod touch from anywhere a cellphone would work, and I don’t need an expensive iPhone and a 2-year contract to do that. A lot of people do not realize the cost of an iPhone plus the 2-year contract amount to over $2,000! I have Skype subscription which costs just $10 per month, and I can make calls to over 40 countries with a cap of 10,000 minutes per month! That averages out to 5.5 hours per day!

    Using this service, I no longer need to buy the more expensive cellular versions of gadgets, such as 4G/3G versions of the iPad or Google Chromebook. The Freedompop permits sharing of the 4G bandwidth by up to 8 devices.

    Yes, I still use a regular broadband Wi-Fi at home, but the Freedompop mobile hotspot  plus its free to cheap data plans have enabled me to have more freedom when I am away from home.

    Freedompop is permitting people who cannot afford mobile Internet to use one.

    I deem it ridiculous that the carriers invent all kinds of charge categories to maximize the money they make off you. They charge you for data, they charge you for voice, they charge you for text, and they charge you for using your phone as a hotspot! 

    I hope Freedompop can be as disruptive as possible, so that the big guys will take notice. Last year, a French carrier introduced something disruptive: it charged just $20 per month  for unlimited use! The company said “After all, they are just digital bits, why bother to charge customers so many ways?”.

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