Free, a radical story turning disruptive (2/3)

Previous: Free, a radical story turning disruptive (1/3): Going Radical

Tackling disruption

In 2009, Xavier Niel, Free founder and owner, has made up his mind: the future of Internet will be mobile. Therefore, Free invests m€ 240 for a mobile license that will make Free the fourth mobile operator in France and changes its fate.

How will Free replicate the big hit of the Freebox, associating a dramatic advance in technology (ADSL), with an emblematic product (Freebox) and an unchallenged pricing (€29,9) in the mature mobile market?

When push came to shove, Xavier Niel found the magic formula, adopting a ‘Less is More’ approach and questioning generally accepted ideas:

• Operators subsdidize mobile handsets (against long-term commitments), and please customers wish to change regularly their device? Free will shape ‘Sim-only’ offerings, handset being acquired separately by the customer. Free message could be translated as: ‘Your real concern is now about unlimited calls and bill control, you don’t need running until exhaustion after latest shiny expensive phone’; it makes all the more sense in an equipped market where Smart Phones penetration tickles a 50%;
• Mobile consumptions are diversified, leading to a large range of rates and complex fee schedule? Free will propose a straighforward range made of 2 monthly susbcriptions: €2 for 2 hours of calls and unlimited SMS, €19,9 for unlimited calls, SMS, MMS and mobile Internet (3 Go data cap);
• Customers want to manipulate mobile handest in retail stores? Free will commercialize his service exclusively online, thus confining cost structure;
• Customers are used to a perfect quality of network? Free start will be somewhat hesitant on network capacity, hand-over with the partner network, and coverage.

What could have been a terrible bet resulted in a fantastic market entry:

• Free Mobile has attracted 870 000 subscribers in Q1 2013, far ahead of competition: SFR + 29 000 customers, Bouygues : + 20 000 customers, Orange :   -361 000 (+ 85 000 subscribers but loo of prepaid users) (2012 comparative analysis here);
• Consequently, Free subscriber base surged to 11,5 millions: 6,1 millions mobile subscribers, a figure higher than the 5,4 millions broadband subscribers;
• Q1 2013 tunover is m€ 907:  m€ 295 for Mobile and m€ 615,6 broadband;
• Iliad’s market capitalisation has risen more than tenfold since 2004 to €10bn;
• Last but not least considering legacy, Free is N°1 in customer satisfaction for the fourth quarter in a row (TestnTrust).

Let’s replay  the scene:

• A product worse from a traditional standpoint, but performing better in areas such as price?
• A first come to market which tends to be crappy but matching deeply social expectations, shifting value, and thriving a new market, through a combination of ‘low-cost’ and ‘Sim-only’ attributes?

Free Mobile clearly offers the ingredients of the disruptive recipe. Additional viewpoints show how Free inevitablbly moved from radical to disruptive innovation:

• Free adopted a classic ‘Low cost – High value’ approach that would cherish Christophe Midler : differentiation and lower costs are achieved simultaneously; it could be part of next ‘Blue Ocean’ case studies, as Free stresses a selection of features of the value proposition, while reducing or eliminating services that are less valued.
• According to Benoit Sarrazin, ‘Free Mobile’s strategy is not only about discounts; it’s a prime example of disruptive innovation, combining a change in the prevailing mental schema in the sector, identifying unfulfilled latent customers needs, communicating via a community of enthusiasts, and optimising cost structures’;
• Free does not only differentiate: it resonates with one of the deepest social crisis France has known, where millions of people under poverty theshold could not access mobile service otherwise. I prefer ‘Happy Ending’, so call me naive, but I like to believe Xavier Niel, Free founder, is sincere when he declares: ‘My greatest point of pride is that last year we gave the French €2bn in purchasing power. Each French person, I gave €40 through my work’.

Free roadmap

Free is not the type of firm able to stand still. What could be the coming marks on its roadmap?

• From the outset, Free is regularly upgrading its Freebox Revolution, and a new Freebox is  on tracks for 2014, to keep ahead of  Telco competition: Orange just released its Live Box Play, quickly adopted by 300 000 subscribers;
• Think out of the Freebox? Telco boxes are challenged by new entrants offering Internet streaming-boxes (OTT-Over The Top) such as Apple TV, Google TV, Roku, Boxee, Amazon, and ‘Smart TV’ sets; has a time come for Free to think of another form of box, ‘a Box in the Cloud’? Deutsche Telekom and others like Swedish operator Magine and Motorola are experimenting Cloud TV, ‘shifting all functionalities of the set-top box into the cloud’, ‘bringing live TV and cloud PVR, removing the complicated installation of set-top boxes, dishes and cables’;
• Free is concurrently working on reinventing its distribution model;
• Is Free thinking of going abroad? ‘Telecoms is a national business. There isn’t a European market’ answers Xavier Niel;
• What about extending its share in the value chain, going for content acquisition and production, set-up studios for original production as as Amazon and Netflix did recently? Free position has always been focused on being the best platform for multimedia distribution, not producing content;
• Going more on software and shaping a kind of ‘Free Operating System’ like Google did with Android? Free is much more focused than Google which juggles many things, sparkling innovation in multiple directions: it likes to play on a limited number of creative projects at a time, and control optimized sofware and harware integration… just like Apple;

Free is probably not going so far away:  it shrewdly bought itself LTE license for next-mobile generation (€m 271 for 4G 2,6 GHz, though no position in the 800 MHz frequency band), and it’s going to hit the mobile nail, according to its telco DNA.

What will be Free next shot? Stay tuned for our next episode on the Free story.

Next: Roads to ‘Free’ dom

Credits: www.clubic.com, www.20minutes.fr, www.not-a-pigeon.com, univers freebox

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Nicolas is a senior VP at Orange Innovation Group. Serial innovator, he set-up creative BU with an international challenge, and a focus on new TV experiences. Forward thinker, he completed a thesis on “Rapid Innovation”, implemented successfully at Orange, and further developed at nbry.wordpress.com. He tweets @nicobry