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Fon gets more investors - Is their business plan sound yet?

FON has just announced in a variety of places that they received 10million euros to help them spread more routers around the world. That's great news for them as a company and recently they've taken steps that I believe will make the business more sound as well.

Flaws with old FON business model

FON's original model was to give away routers for free. This got them lots of new "subscribers" and lots of new "foneros" (people who have a router) but it didn't necessarily grow the network very much. There were lots of posts on this topic when they originally released their maps product which allowed users to figure out that in fact, FON has a large number of "subscribers" but very few people have turned on their routers and get any real use out of them for making money for anyone. FON's response wasn't to justify the rate of conversion, but to disable the ability to gather those statistics. That was really dumb.

FON's current model - downplay the Linus and Focus on the Bill

I've believed all along that the "Linus" model was flawed and especially flawed when combined with a free router (an old post if Linus and Bill in terms of FON are new to you). If people are not motivated to earn money from their router AND they can get that router for free then they will get a free router and never turn it on (or reflash it and turn it on). That FON should instead focus solely on the "bills" or should charge more money for their routers has always been my feeling.

It turns out that now FON is charging around $40 per router and they are only giving them away to folks near a starbucks and using the split revenue to motivate the foneros. They are basically dropping the Linus unless the Linus wants to pay $40. This is the right move and hopefully will bring them to making money and not needing to rely on successive rounds of VC funding. To get nearly $20million last year and already need more funding is a mistake. Their burn rate was too high and in the end they have probably sold away too much of the equity. If they can become profitable then that's great and they can make a great business out of it regardless of needing so much VC money to get off the ground.

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