The Difference a Device Makes: How the iPhone Saved Fon

Fon was once a company on the verge of bankruptcy with an unsustainable business model, but a new era of mobile computing ushered in by Apple’s iPhone (s aapl) and the devices that followed have completely turned its fortunes around. How? By jump-starting the demand for Wi-Fi everywhere.
The idea behind Fon is that using the company’s Fonera routers, customers can offer up a small portion of their home internet bandwidth for use with public Wi-Fi spots maintained by the company throughout the world. In exchange for buying a Fonera router and sharing a small fraction of your bandwidth, you get access to Fon’s more than three million worldwide Wi-Fi access points for free, and, once you link your PayPal (s ebay) account, you also make money based on the revenue Fon makes from users buying paid Wi-Fi access via your router’s public hotspot (which the company calls a Fon Spot).
Om mentioned in his piece on the hard truths of Wi-Fi that Fon never anticipated the unique opportunities that the company would glean from the introduction of the iPhone and the connected device revolution it was instrumental in popularizing, but Fon founder Martin Varsavsky went one further, arguing that Fon would not even exist today had it not been for the iPhone, the iPod touch, the iPad, and all the other devices these provided the mold for. “Fon almost went bankrupt until the iPhone came along,” he told me over email.
According to Varsavsky, before the arrival of the iPhone, interest in the Fon model of public Wi-Fi sharing wasn’t sustainable with laptops alone:

So our strategy was failing. We had spent all our funds building our systems and giving Foneras away (through you as well) and there was just not enough interest in Fon. So Fon let go of half of its people, my partners stopped investing. Things were BAD.

Varsavsky believed in the core concept behind Fon so deeply that he wound up funding the company with a personal loan in 2008, determined to stick it out until the company could find its way to profitability. And profitability did come, on the backs of the BT/Fon partnership in the U.K., but more importantly, because the pool of devices that most benefit from available mobile broadband experienced a massive boom. The introduction of iPhones and iPod touches, and later iPads and Android (s goog) devices, meant that, in Varsavsky’s own words, “Fon became USEFUL.”
The company’s revenues grew from around $5 million in the previous year to about $40 million in 2010, and instead of losing $4 million a year as it did during the worst years, the company started seeing profits of around $4 million in 2010. Varsavsky was able to pay back his loan, and the company looks very strong in 2011, especially now that much of its business comes from selling its routers to mobile network operators in order to help those companies offload 3G traffic. Offloading mobile broadband demand now accounts for much more of Fon’s business than does the consumer side, and cable and fixed operators see Fon as a cheap way to reduce subscriber churn, increase their average revenue per unit and¬†decrease¬†customer acquisition costs, according to Varsavsky. The company’s next move is to gain a major foothold in the U.S. market, something it hopes to achieve thanks to a recent $14 million funding round led by investment fund Atomico.
The impact of the iPhone and devices that followed its example on the Wi-Fi and broadband ecosystem is often explained with charts, figures and graphs, but Fon provides a good look at how it actually affects companies on the ground. The iPhone may not be solely responsible for the sea change when it comes to mobile data usage, but it clearly lead the way and helped galvanize the realization that the future of computing is in the palm of your hand, and companies like Fon couldn’t exist without that realization.