Take 5: Why Did Amp'd Mobile Fail?

MVNO Amp'd Mobile today announced they filed for Chapter 11 bankruptcy protection. I guess it is time to review my analysis of the MVNO market from last week.Last week I argued that the real cause for mobile virtual network operator flops was their intended market. Most of the high-profile MVNOs have targeted the affluent and/or the young (preferably young professionals with disposable income). Amp'd Mobile was no different. The company aimed its mobile service at the coveted 18-to-35 demographic.

It didn't help that Amp'd was spending money like a dot-com in 1999, or that it churned 7% to 8% of its subscribers each month. But without the proper market and business model, no amount of marketing could save it.

Anyway, to get a better perspective on the decline of Amp'd, I phoned Alex Besen, founder and managing consultant of The Besen Group, for this edition of Take 5.

Over The Air: What happened to Amp'd Mobile? Was this a case of old-fashioned dot-com cash burn or was it something else?

Alex: Yes, it was a bad case of cash burn. Same thing. But they may make a comeback -- they did apply for bankruptcy. Who knows, maybe they will just be in the online content business from now on.

Over The Air: What was wrong with their mobile content?

Alex: They couldn't create stickiness. Having subscribers demand the content. They just didn't come back.

Over The Air: What is the ideal target demographic for an MVNO?

Alex: There is no such thing. You have to understand the behavior and needs of your demographic, no matter what it is. And, of course, having a loyal subscriber base.

Over The Air: Should MVNOs focus on building core brands or on going after the business the carriers don't want to deal with?

Alex: Neither. Companies looking to launch MVNOs need to wait for mobile market saturation in North America to reach 100%.

Over The Air: What is the best model for an MVNO: Post-pay or pre-paid?

Alex: It can be both, it all depends on the target segment. If you choose 25-to-45-year olds, you want to go with post-paid.

Over The Air: After the collapse of ESPN and now Amp'd Mobile, is the MVNO now dead?

Alex: No, not at all.

Over The Air: Why is Virgin Mobile such a success?

Alex: I don't agree that they are 100% a success. If you look at their numbers, they're not as good as they could be. They count their subscribers on 150 days, rather than the 90-day industry standard. So if you do the math the correct way, they have 3.2 million vs. the 4.8 million they claim. Virgin's ARPU is declining and they have never been profitable even after five years. This tells us that their marketing and customer acquisition costs are high and their customer lifetime value is low.

Over The Air: Besides Virgin Mobile, what are some other profitable MVNOs?

Alex: Movida is an example of a successful MVNO. They target Hispanics and they are doing well. Tracfone is another example and they target both Hispanics and non-Hispanics in the low-end youth segment and they're solely prepaid.