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Our Investment in OXIO

Matt Shapiro
November 17, 2020 | 14 minute read

I’m excited to announce Multicoin Capital’s investment in OXIO. We led OXIO’s $3.5M seed round last year, and now the company is emerging from stealth following a $12M Series A financing led by two of the top VCs in Latin America, monashees and Atlantico Capital.

The pandemic has made one aspect of life abundantly clear—the world is more digital now than ever before. Connectivity has never been more important, and for many, mobile phones are the primary gateway to the Internet. Given that, it’s shocking that 50% of the world’s population does not have mobile internet connectivity even though 93% of the population is covered, representing almost 4 billion people! Even for those that are connected, affordability of data and connectivity is still a major challenge.

One of the primary benefits of blockchain technology is opening markets to a broader set of participants, reducing counterparty risk and fees, and pushing value out to the participants of the network. There is a massive opportunity to utilize blockchain technology to reshape broken, permissioned markets. Telecom is one of the largest such markets.

In the long run, OXIO aims to financialize the largest, most ubiquitous commodity in the world that is not yet financialized: mobile connectivity. The centerpiece of that vision is a global, blockchain-based exchange where carriers, traders, aggregators, brands, enterprises, and users can come together in an open network to package and repackage mobile connectivity to better connect the world. Every other commodity has been financialized. Mobile connectivity will not be an exception.

Status Quo

Over time, industries go through unbundling cycles in which startups take market share from incumbents by creating better products and services for a specific subset of users. Typically, as those startups grow, they expand their product suite or geographic reach while retaining the unique vector of differentiation that enabled their early success. As the startups grow, the industry consolidates via M&A, and the industry re-bundles into a new equilibrium. For example, the financial services industry has gone through an extended period of unbundling, which has produced some tremendous outcomes—Carta, SoFi, Wealthfront, Credit Karma, to name a few.

Bank Unbundling Source: CB Insights

Telecom is one of the few industries that has not gone through an unbundling cycle even as software has done so for almost every other adjacent industry. It’s also one of the few industries that is truly full-stack: major carriers typically own everything from the underlying infrastructure (spectrum, radios, backhaul, etc.) to the customer relationship. However, it’s difficult to be the best at everything, and without being hyper-focused on the customer and their needs, carriers are not always in the best position to know and understand their customers.

As such, the carrier-customer relationship is arms-length at best. Customers want connectivity but are not particularly loyal to carriers. In fact, a 2018 study had the telecom industry ranked dead last in Net Promoter score (a metric to measure customer loyalty and satisfaction).

Telecom Net Promoter Score Source: Data via Satmetrix

In the US, Verizon, AT&T, and T-Mobile compete over a relatively fixed pool of users in a zero-sum game. Interestingly, the rest of the world generally operates on pre-paid plans, so the customer is much less sticky and they may not even know or care what carrier they are using. In most of those markets, consumers focus predominantly on price and convenience.

There has been little innovation in the core telecom business model, despite the underlying service becoming more and more commoditized over time. One notable business model innovation has been the introduction of mobile virtual network operators (MVNOs). In the US, this includes companies like Boost Mobile and Cricket Wireless. MVNOs are asset-light network operators that take advantage of this arms-length relationship between customers and telecom carriers. MVNOs rent a portion of the carrier’s network capacity, and sell it under a different brand to a different customer. MVNOs are basically sales and marketing companies, which make money by reaching consumers more effectively than the carriers from which they lease, by focusing their customer acquisition efforts on a particular segment such as seniors or foreign language speakers.

The challenge to the business model of both carriers and MVNOs is that they are always constrained by price, margin, and profit. Their customers are price sensitive. However, carriers and MVNOs need to generate profits to survive and thrive. This creates a high floor on the price of connectivity, limiting the number of people who can participate.

The First Carrier-as-a-Service Platform

To really understand the bull case for OXIO, one must challenge a fundamental assumption of the telecom market structure: carriers have been selling to the wrong customers. This sounds strange, because who else would carriers sell to?

The arms-length relationship between carriers and customers is unlikely to change. Carriers are firmly entrenched, and consumer perceptions of telecoms have been molded over the last couple of decades.

Despite this entrenchment, consumers simply don’t feel any sense of community, alignment, or loyalty to their carriers. OXIO’s key insight is that whereas telecom carriers have been unable to engender loyalty and real engagement, brands—such as Apple, Google, Airbnb, etc.—have excelled.

Brands have become increasingly important in society and have created communities of loyal customers that are proud to associate themselves with a company and product. At the same time, brands are constantly looking for new and innovative ways to increase engagement with their customers and differentiate themselves from competitors. The closer brands are with their customer base, the better they can serve them.

OXIO has built the first carrier-as-a-service platform. Through a simple API, brands and enterprises can launch their own customized, branded mobile service: a branded MVNO, which OXIO refers to as BrandVNO™. Much in the same way that Twilio enabled in-app SMS, OXIO enables brands to launch MVNOs.

OXIO’s solution is natively multi-network, which seamlessly overlays on top of many heterogeneous networks (LTE, WiFi, Satellite, etc.) to ensure that customers have the best coverage at all times by dynamically switching networks, seamlessly to the users. This opens the design space for how brands can engage with their customers in completely new ways.

Let’s touch on some unique ideas and use-cases that OXIO enables:

  1. Nike could offer their customers mobile connectivity. “NIKE” would show up on the top left of the phone, instead of the carrier name. Every time someone looks at their phone, they see “NIKE.” Americans check their phones 96 times per day! The top left corner of customers’ phones is extremely valuable real estate that brands want to occupy. By subscribing to Nike’s plan, users could receive priority access to the newest pair of Jordans. They could receive content from LeBron and other famous athletes that can’t be found elsewhere. They could get access to special events and experiences that are not publicly available. They could engage directly with Nike, offering feedback, and engaging at a deeper level, closing the value-exchange loop by earning free mobile data as a recompense for their engagement. Furthermore, Nike gets to understand their users at a much deeper level, surfacing insights and exposing actionable business intelligence, all gleaned from the operations of the telecom service. And without compromising user privacy.
  2. An organization like the NBA is always looking to grow international awareness. However, in many international markets, there are actually “offline fans” who love basketball but don’t have a mobile internet connection, cable TV at home, or even a reliable home broadband connection. The NBA could offer subsidized mobile connectivity in areas where they want to expand their reach. Customers in those areas could get streaming access to watch their favorite NBA team without having it count against their data plan. While significantly improving its engagement from users, the NBA gets to understand their customer better through business intelligence, which they can then use to drive their own strategy.
  3. Ridesharing and delivery services can use OXIO to ensure their drivers are always connected to the best network. Sometimes coverage is spotty, even in developed countries, and especially after large public gatherings. Every minute that a driver is off the grid is both frustrating for customers and lost revenue for both drivers and companies. Additionally, drivers need a large amount of mobile data for their day-to-day work, and making this cheaper or subsidized can be a valuable reward for, say a certain amount of hours driven in a week. OXIO allows them to build powerful loyalty and retention programs by understanding their drivers at a much deeper level.
  4. The same is true for payment systems and terminals. If a merchant doesn’t have mobile connectivity, they can’t use Square to take payment and may lose a sale as a result. That experience is equally as frustrating for the consumer. These kinds of companies are incentivized to seek out and pay for the best network coverage.
  5. We could even extend this to situations for international travelers who don't want to go through the hassle of purchasing an expensive international roaming plan or trying to procure a local SIM card in another language. Extending the BrandVNO functionality to travel and hotel partners could be both a valuable service for the trip and a new revenue stream for the acquiring partner.
  6. Access to credit and financial services remain a struggle for many. Despite the massive success of fintech broadly, it’s still challenging to both get users connected, and for fintech companies to assess risk for those who lack a traditional credit profile. The data from a mobile device can be used as valuable input, allowing responsible customers to generate creditworthiness, and fintech companies to better extend credit. OXIO’s solution helps address both problems, creating positive outcomes for everyone.

To be clear, these are just examples, but you can see how this enables new kinds of business model innovations and operational improvements.

Using OXIO, brands can not only engage with their customers in new ways, but learn valuable insights. These insights ultimately lead to better engagement, happier customers, and stronger financial results.

Structural Cost Advantages

Brands have an asymmetric cost advantage to provide affordable mobile connectivity in a way that traditional carriers do not. Brands already have loyal, captive customers and can monetize downstream in other ways, through the sale of other products or services. As such, offering mobile connectivity is a form of customer acquisition. Given the LTV of their customers, brands can subsidize their customer’s connectivity, either in full or in part using OXIO, or simply create engagement-driven loyalty programs. By doing so, brands can make mobile connectivity more affordable by removing the pricing floor of telecoms, and increasing the number of people who can participate in the digital world.

OXIO enables something that wasn’t possible before. It takes years to negotiate a wholesale agreement with carriers, in addition to millions of dollars of upfront CapEx and engineering costs for integrations, working capital for operations, and various legal and regulatory approvals. As such, it’s a market that very few brands have been able to access. OXIO’s solution opens this market to all brands in the world by reducing the cost and complexity of launching an MVNO into a simple task of API integrations.

This creates a win-win value proposition for all stakeholder groups:

  1. Brands—Can now offer a highly personalized experience to their customer base, with the ability to integrate rewards, payments, and exclusive offers, while also drawing out valuable business insights.
  2. Customers—Can now receive fast, reliable, and affordable mobile connectivity from a brand they trust and already engage with on a frequent basis.
  3. Carriers—Despite overall increases in telecom revenue, margins have actually declined. By leaning on brands as a new distribution channel, carriers can supplement their existing businesses with more stable, high-margin, wholesale revenue. Furthermore, opening the market to under-connected or unconnected users can increase overall revenue without cannibalizing existing plan margins today.

Global Telecoms Revenue and EBITDA Source: EY

OXIO is live in Mexico with almost 10,000 mobile subscribers across 8 distinct brands today, and runs across most major carriers blanketing the entire Mexican population of about 125M people. OXIO has signed dozens of pilot customers to date—including many of Mexico’s largest companies—who are just beginning to ramp up OXIO deployments and integrate the technology. Companies across many industries—especially in retail and fintech—are looking to OXIO to get closer to their customers, reduce customer acquisition costs, increase loyalty/engagement, and measure and achieve other KPIs.

They’re scaling up in Mexico now and laying the groundwork to expand all over Latin America, the US, and around the world.

Crypto & Blockchain

So, what does OXIO have to do with crypto and blockchain? On the surface, nothing. But under the hood, it’s the key enabler.

The atomic unit of the OXIO service is a financial transaction between a buyer (consumer) and a seller (carrier). At any point in time and across physical space, there may be multiple sellers, so OXIO’s tech must run on top of all of the underlying networks. The utility preferences of each consumer, and the quality and cost of each seller vary. OXIO bundles connectivity from disparate sources and re-packages it into a standardized, fungible product for the end user. In doing so, OXIO acts as an aggregator.

However, what makes that possible is the ability to dynamically buy, sell, and provision the connectivity itself. The fundamental exchange of those assets is the big vision. Initially, OXIO is doing all of that in-house, crossing connectivity buyers and sellers on their own. But the plan is to steadily open that underlying exchange to third parties, including new carriers and suppliers, additional aggregators, brands, traders, and even end-users. In doing so, OXIO will introduce capital markets to mobile connectivity.

One of the defining characteristics of crypto is creating transparent incentive systems that align disparate—and often adversarial—parties. It would be difficult for a single business like OXIO to succeed in acquiring capacity from every global carrier and serving a global product offering to billions of people. There are too many carriers, too many niches, and too many crazy use cases that would be impossible to forecast. Instead, OXIO aims to open the market to new participants by leveraging blockchain as a neutral platform and exchange, with an economic incentive layer to encourage participation from a global set of market participants.

In doing so, the mobile connectivity market can expand to capture new customers, rather than just competing for existing ones.

Founder-Market Fit

I’ve had the pleasure of working closely with the OXIO team for almost 2 years now. While the entire team is great, the CEO, Nico Girard Ph.D, embodies exceptional founder-market fit. In many ways, his entire career arc has built up to this opportunity.

Nico is a repeat entrepreneur with deep expertise in telecom. He holds multiple patents and began his career by advancing multi-carrier networking technologies. His first company built software that allows mobile devices to simultaneously communicate over multiple wireless data networks and frequencies dynamically. His next company, Aquto, focused specifically on working with carriers and brands to create sponsored data and rewards plans. Aquto was acquired by Mavenir in 2018 and Nico started OXIO shortly thereafter.

All of Nico’s prior experience represents core parts of OXIO’s product and vision, and in many ways a precursor for what he has always wanted to do: financialize mobile connectivity and democratize internet access around the world.

When Nico and the team embarked on the OXIO journey, they knew that crypto was going to be paramount to their success, but they didn’t have much experience working with public chains or designing token systems. We have worked closely with the OXIO team on both of these fronts. We love investing in these kinds of opportunities, in which we can bring our crypto expertise to help entrepreneurs with deep market insights to disrupt legacy market structures.

Opening the Market

OXIO is opening up a massive market: annual telecom spend is well over $100B. Every single person on the planet will have at least one wireless connection. But mobile internet access is a broken market: almost all wireless service is purchased via one-off bi-lateral trades, rather than on an open exchange. Almost every carrier in the world sells at least a portion of their network capacity through wholesale agreements. As such, the OXIO model is not new for them. The delivery mechanism is innovative, but it’s actually business as usual for carriers. OXIO is simply making it significantly easier for carriers to optimize and manage their infrastructure and working capital. Therefore, OXIO is in a unique position to improve carrier outcomes without necessarily changing carrier behavior.

We’re proud to support Nico and the OXIO team, and honored to be part of their journey to make the world a more connected place!

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