Even as data usage has skyrocketed, U.S. carriers have remained stubbornly wedded to post-paid plans that offer users a surprisingly limited menu of pricing options. Yes, we’re talking about those monthly subscriptions that easily reach above $100 a month — even if you hardly touch voice calls or if you always come in far beneath your monthly data limit.
But this may be about to change. Andreessen Horowitz just led a $15.5 million round in a company that’s been in stealth working on this exact problem for the past four years.
ItsOn Mobile builds software for carriers that lets them offer dynamic pricing on mobile data plans. Think about a world where you can easily pay for more data directly from your phone if you bump up against a limit, or one where you could have advertising-supported access to mobile data. Or you could have a plan that gives you unlimited access to data for specific apps like Facebook, but pay as you go for services that you don’t rely on so much. E-commerce companies such as Amazon could offer free data access to their apps if you shop for goods directly from your phone, or they could award points that give you discounts on your monthly data bills.
While it’s hard to say what kinds of pricing models will become popular in the future, the point is that ItsOn builds technology enabling this variety. Plus, as carriers come to rely on data revenue instead of voice revenue, their profit margins are getting squeezed. So they’ll need to offer special, value-added services so they don’t get reduced to becoming access businesses or dumb pipes.
“The ItsOn service lets you offer the consumer many, many choices,” said co-founder Greg Raleigh. “They can buy the plan that they think is right for them. But if it turns out they need more, it’s no problem. This gives them an instant choice that takes seconds if they’re about to run out of credit.”
ItsOn is partnering with one of the big national carriers in the U.S. for a launch early next year, but they’re not naming the operator (whether it’s AT&T, Verizon, Sprint Nextel or T-Mobile/MetroPCS). They’re also looking at coming to Europe by the middle of next year.
The team behind the company is extremely experienced, which is why they’ve been able to stay in stealth for four years and attract Series B funding from a top-tier venture firm before launch. Raleigh is the inventor behind 4G’s “MIMO” technology and his other co-founder, Charles Giancarlo, is a former Cisco executive vice president and a managing director at Silver Lake Partners. He served on the board of Skype, which Andreessen Horowitz famously invested in before its $8.5 billion sale to Microsoft.
Andreessen is leading the round while SV Angel and an investor group led by Silver Lake co-founder Jim Davidson is participating.
“If the current situation continues, all of the current models for mobile networks are going to collapse. They’re not generating enough revenue from their users to keep the networks up,” said Marc Andreessen, who co-founded Andreessen Horowitz and Netscape. “We think carriers need the technology to better match revenue to expenses.”
Although U.S. carriers to date have been reluctant to move toward pay-as-you-go models, Raleigh said ItsOn could help on-board millions of customers who would otherwise be hesitant to sign up for data plans. Alternately, it could convince existing customers to add plans for tablets or secondary devices on the fly, without having to commit to years of service.
Andreessen says carriers are leaving this incremental revenue on the table. He gave an example: a mom could give her kids mobile data access to play games or access Facebook for a single day if they do their homework on-time. “The carriers will able to run more experiments,” he said. “They’ll be able to do more specific market segmentation, and charge the people who are using a lot of data.”
Right now, carriers don’t provide much flexibility, partially because post-paid plans generally produce higher revenue per user. Ultimately, that means most customers end up subsidizing heavy data users.
Andreessen said he could imagine carriers using ItsOn competitively to acquire marketshare from competitors as consumers look more for affordable plans.
“Some carriers will view this as a weapon against others,” Andreessen said. “Other carriers might say they don’t like this and that’s the part of the fun. Each carrier will make its own decision.”
The company has already been doing private tests with several carriers. But neither Raleigh nor Andreessen said how it affected average-revenue-per-user in these tests.
Even though Raleigh’s previous companies were funded by other venture firms, he sprung for Andreessen because of the firm’s direct experience in operating and scaling large companies.
“I’ve run and created two successful companies with great exits,” Raleigh said. “It’s a very difficult process to create a successful company. The thing we love about Andreessen Horowitz is that they’ve not only started and created one successful company, they’ve done it multiple times.”
Reflecting the firm’s entrepreneur-friendly philosophy, Andreessen Horowitz isn’t taking a formal board seat. Giancarlo is the firm’s representative.