Mocking the latest smartphones, Jon Stewart recently quipped: “I wonder if there’s an app for making a phone call.” He has a point. There’s no question that today’s smartphones are marvels of innovation, but not all innovation is about bells and whistles. It’s ultimately about value to the customer. Certainly, smartphones and the business models built around them have been successful in delivering value to hundreds of millions of customers.
Consider, however, the recent success of TracFone Wireless, which offers basic phones along with no-contract plans under brands such as Straight Talk. While wars between Androids and iPhones have dominated the headlines, TracFone has quietly built a U.S. subscriber base of 18 million customers. In one recent quarter, TracFone signed up more customers than Verizon Wireless. Quarterly revenue clocked in at nearly $800 million, growing at a vibrant 62 percent rate. It’s now a top-five provider that piggybacks as a “virtual carrier” on the major telecom networks.
TracFone’s value stems from simplicity and affordability. The company caters to recent immigrants, senior citizens, and lower-income families. These customers might be considered undesirable to big players who are trying to sell app-rich phones for $300, while locking in consumers to spend $3,000 or more over a two-year subscription period.
Yet the company is no mere scrappy startup. TracFone is a subsidiary of América Móvil, Latin America’s largest phone company and the biggest source of wealth for the world’s richest man, Carlos Slim. As a student of business, Mr. Slim has no doubt seen this movie before.