Gregory T. Huang
Scratch Wireless has a dream. That one day people will talk, text, and use apps on their smartphones without having to pay $85 a month for wireless service. In fact, the Cambridge, MA-based startup believes it should be free—but good luck convincing the wireless carriers.
So here’s the idea behind Scratch: build a new type of carrier from the ground up. Make voice and data services free whenever smartphone users have access to a Wi-Fi network (at home or the office, say). When users are away from Wi-Fi, make it pay-as-you-go for cellular voice and data, via a deal with a traditional carrier.
Scratch Wireless said today that its mobile service is now available on the Motorola Photon Q, an Android smartphone priced at $269. It’s an intriguing prospect for consumers—who doesn’t want to lower their wireless bill?—but it seems like a challenge for Scratch to get distribution, since it’s banking on people who might buy that particular phone.
The two-year-old company has to start somewhere. “We’re trying to disrupt the industry,” co-founder and CEO Alan Berrey says. “Our biggest competitors are not AT&T and Verizon. It’s actually more the entry-level folks, for people who want a low-cost service.”
Parents of teenagers looking to lower their monthly bills, for example, might be “a really compelling market for us,” he says.
Berrey and his co-founder, Eric Giler—who’s also the CEO of wireless-power startup WiTricity—first talked about the Scratch concept over lunch around 2008. Berrey was at SoundBite Communications, which had acquired his previous startup, Mobile Collect, and Giler was on SoundBite’s board. The industry veterans were dreaming up ways to make a free wireless offering. Then Giler was tapped to run WiTricity.
“I kept noodling,” Berrey says. “Finally, I said, ‘I’m doing this.’”
Scratch saves money by not having to pay for cellular towers, wireless spectrum, retail phones, and the like. “The cost of supporting a smartphone user is almost nothing,” says Jon Finegold, Scratch’s vice president of marketing.
What Scratch had to do, though, was find a mobile operating system and a device maker that were willing to work with an upstart. Enter Google and Motorola. The Scratch team went into the Android OS and modified it so voice, texting, apps, and other services would work well on Wi-Fi and on a cellular network, for a specific device (the Photon Q).
“We don’t expect to go beyond Google. They were open enough to get our changes onto” Android, says Berrey. Not surprisingly, he adds that Scratch would “love to partner with Apple or Microsoft” down the road.
The last piece of the rollout was a partnership with Sprint, to provide cellular service when Wi-Fi is unavailable, via passes instead of contracts. (Interesting to see Sprint and T-Mobile trying to shake things up in carrier land, while AT&T and Verizon are nursing their lead in the market.)
And that’s the rub that makes Scratch not actually free—but it’s a necessary part of the company’s strategy. “We considered being a Wi-Fi-only device,” Berrey says. “But the feedback we got was the device would be more compelling to consumers if it has a cellular component.”
Berrey acknowledges the “long list of dead companies,” such as Helio, that got into the alternative-carrier market as what are called “mobile virtual network operators”—offering wireless services without owning the infrastructure. The successful ones, he says, had key relationships with carriers and pursued lower-cost plans (often prepaid).
For now, Scratch’s goal is obvious: “Get out there and get more phones in the hands of consumers and prove this out,” Finegold says.
The challenge is how to do that without a big carrier’s billion-dollar marketing budget. Scratch raised $5 million from CommonAngels and other investors last year. It’s a pretty lean operation, with about 25 people working full-time.
To make a dent in the wireless world, Scratch will need help spreading the word about its offering to both consumers and industry leaders. It will need to get onto many more devices and score some big strategic partnerships to take off. And, probably most important, Scratch’s users will need to see a big benefit—quality service at a lower cost—before they ditch their traditional carriers and tell others about it.
Berrey goes back to his and Giler’s initial premise. As he puts it, consumers buy laptops, tablets, gaming consoles, all kinds of electronics, and “you don’t have to pay every month to use the thing.” Thanks to the Internet, he says, people can “talk all day for free and spend all day on social media, for nothing. Why is the mobile phone so fundamentally different?”
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