Branson Targets US Teens
"Well, there's something you don't see every day," your Unstrung correspondent thought to himself. "Sir Richard Branson in a bodysuit" (see Virgin Gets Naked on MTV).
We told you that Virgin Mobile USA LLC's nationwide launch event wasn't going to be your run-of-the-mill press conference (see Dick, Please Keep the Sweater On!). Sir Richard Branson and friends – including the cast of Broadway musical The Full Monty and scores of hired hands dressed in red leotards – launched the service, unveiled a content deal with broadcaster MTV Networks, and left little else to the imagination.
However, beneath the stunts and the oh-so-cheeky advertising ("Take me home and turn me on"), Virgin Mobile is undertaking a serious experiment in the stuffy ol' U.S.A. The carrier, part of Branson's Virgin Group, is targeting one of the last remaining untapped sources for wireless customers in the States: teenagers (that's 13- to 25-year-olds to all you marketing demographers out there).
In April, a report from the Yankee Group highlighted the youth market as one demanding a great deal more attention from the U.S. carriers (see Commentary: Beating the Saturation Blues). The solvent twenty- and thirtysomething professionals that carriers prefer to have on their books have now mostly signed up to wireless plans, so that market is getting saturated. Carriers need to look to the youth market if they want to keep on adding subscribers at a fast pace. The trouble is, the traditional carriers hate the kids: They hate dealing with their acne, their non-existent credit record, and the low ARPU (average revenue per user) they bring to the financial table.
"Our business model is very different from that of all the other carriers [in the U.S.]," Dan Schulman, CEO of Virgin Mobile USA, told Unstrung after the press conference. Because Virgin is piggybacking on Sprint PCS's (NYSE: PCS) network, it has only had to build minimal back-office facilities to support its users. In that way, Virgin can afford to target markets that generate lower ARPU.
Virgin is also betting that a prepaid service will be a big hit with American teens, in the same way it has been in Europe. "Prepaid" has been almost a dirty word for American carriers used to monthly service plans, but pay-as-you-go helped fuel the boom in wireless in Europe.
In fact, Virgin isn't even planning to offer a monthly service plan. Instead, users will buy prepaid cards or top up their minutes via a credit card. Virgin intends to charge customers $0.25 a minute for the first ten minutes of use, then $0.10 a minute after that. And that's a fixed rate: Virgin is making no distinction between peak and off-peak hours.
Users can currently buy a $99 or $129 CDMA handset. "We've budgeted for 350,000 sales by the end of the year," Virgin chairman Branson told Unstrung, as he adjusted his crotch-phone. "I'll be disappointed if we don't beat that."
The final part of the Virgin offering is all the "fun" applications it plans to offer its fresh-faced customers (see Dude, Where's My Phone?). These include SMS alerts, personalized voicemail, ringtones, and much more in a musical vein. This is where the association with MTV is critical, as the pair plan to develop much more interactive content as Virgin moves onto high-speed 3G networks next year.
The partnership with MTV is also crucial if Virgin is to get brand-awareness in the U.S., as Sir Richard candidly admitted. "We're known in the major cities in the U.S.," he said, but MTV will help the company to garner interest outside of New York or L.A.
Certainly, the association with MTV was a major selling point for the sheepish teens Unstrung queried about the service, in a very unscientific survey around Times Square. [Ed. note: sure they weren't merely unnerved by the funny bald man asking them about Virgins, Dan?] The consensus was: "If it has MTV on it, I'd be interested."
We had to ask Sir Richard one more question before we left, although it wasn't exactly wireless-related: Doesn't he ever get embarrassed by some of these events? After all, you'd never see Bill Gates strip down to his boxers for a Windows launch.
"Oh my God, yes," Branson says. "Sometimes, when they tell me what I'm going to be doing, I think, do I really have to do that? But I suppose if they make people smile, I'll carry on doing them."
— Dan Jones, Senior Editor, Unstrung