by Terry Pender
Waterloo maker of low-cost smartphones saw revenues almost double in 2015, but Canadian carriers aren’t interested
Derek Ting will be spending more time in San Francisco as his seven-year-old startup prepares for a marketing campaign to push the low-cost provider of smartphones way past $20 million US in annual revenues.
Ting, co-founder and chief executive officer of TextNow, recently opened the San Francisco office for data mining and analytics to drive marketing and sales. The vice-president of growth, director of business intelligence and director of data science will work there.
A few years ago, TextNow employed 30 people in its Waterloo office. Today, it employs 77 people in the David Johnston Research and Technology Park, three in San Francisco and two in Los Angeles.
Revenues in 2014 totalled $11.2 million US. Last year the company earned more than $20 million US.
“We increased our revenue 75 per cent year-over-year,” Ting said. “And we are trying to meet, or beat, that growth rate this year.”
TextNow was founded in 2009. In 2011, it raised its only round of venture capital — $1.5 million led by Silicon Valley’s David Samuel. Today the company has no red ink, and it has not needed any more outside financing. All of the growth since 2011 was organic.
“We are very, very proud of that,” Ting said.
TextNow has an active user base of between six million and seven million people a month in the U.S. A year ago, it was selling about 1,000 smartphones equipped with its software each month. By December, its monthly shipment was 7,000 smartphones.
Almost all of the company’s business is in the U.S. because no carrier in Canada will partner with the low-cost upstart. TextNow can be used in Canada only on Wi-Fi, so Canadians are a minuscule part of the company’s business.
After graduating form the University of Waterloo in 2009 with degrees in computer engineering, Ting and Jon Lerner wrote an app that enabled text messaging and phone calls on the iPod Touch using Wi-Fi. It was downloaded 13 million times from the Apple app store.
TextNow now was founded. It quickly evolved into the world’s first cloud-based smartphone carrier.
It partnered with Sprint in the U.S. and provides smartphones and monthly plans at a tiny fraction the prices of its big competitors. Its most popular smartphone these days is the Moto E that it sells for $5 US. Plans start at $19.99 US per month and there is no contract.
And now it is preparing to use 21{+s}t-century analytics to increase sales.
“We want to be able to take some of the money we have and reinvest it in into marketing, but we want to do it in a smart way,” Ting said. “We don’t want to spray and pray.”
The data scientist working out of San Francisco, along with the director of growth and director of business intelligence, will lead the way on marketing. They will work at the intersection of marketing, business and engineering. The office was located in San Francisco because the skill sets and talent for that work are readily available there.
“There are a lot of consumer companies there that get their growth this way,” Ting said. “We are a consumer company and we need that knowledge to grow.”
The San Francisco team will develop software that crunches data, provides constant feedback and uses predictive analytics to drive marketing.
“Building the capability to measure if things are working or not working is huge for us,” Ting said.
The startup began with the name EnFlick, but changed it to TextNow. It wanted the same name for the company as its flagship product.
It recently expanded to 15,000-square-feet inside 375 Hagey Blvd. There is a customer care centre that receives an average of 3,300 calls a week. There is another room for software developers and user-experience designers. There is cafeteria for catered lunches that has craft beers on tap and snacks. A company gym opened earlier this year, and on the main floor is the customer fulfilment centre.
TextNow has several suppliers of used, and sometimes new smartphones, from the U.S. It has one supplier in China. Most of the devices are less than two months old. After the smartphones are equipped with TextNow’s firmware, new SIM cards are installed. The devices are put in new boxes with the TextNow logo on the cover. New manuals and accessories are packed into the box.
Every work day a UPS truck picks up a palette of devices around 4 p.m. TextNow promises delivery to anywhere in the U.S., including Puerto Rico and Hawaii, in two business days.
Ting walks into a storage room where the shelves are packed with smartphones in new boxes, waiting to be shipped. He takes a box of the shelf and opens it.
“So this is our cheapest phone that we sell right now, the Moto E. This is actually the brand new version. The brand new version is $20, and the refurbished version is $5 US, no contract,” Ting said.
TextNow has several makes and models ready for shipping.
“There is a Galaxy S3. I think this is $40 US on our website,” Ting said. “And you get the brand new version for $50.”
The Galaxy S4 sells for $130 US, the S5 costs $200 US and the high end S6 for $300 U.S.
“We’ve got a lot of great connections,” Ting said. “It is not from one supplier, we have a bunch of suppliers. That is part of our secret sauce, being able to find supply.”