Start-Up Solavei Takes Cellphone Marketing to a Whole New (Multi-) Level

There have been a bunch of interesting new business models floated about to turn the wireless industry on its head, but a new start-up called Solavei has what may be the most radical approach yet.

Like other new start-ups, such as Republic Wireless and FreedomPop, Solavei is what’s known as a mobile virtual network operator, meaning it offers cellular service to customers by buying wholesale access to one of the established wireless carriers.

But Solavei’s business model is more like Amway or Tupperware than anything seen in the tech business.

Solavei’s approach layers aspects of direct sales and affiliate marketing on top of a traditional cellular business.

The company’s product is a simple one. Customers pay a $49 sign-up fee, and $49 per month for unlimited talk, text and data on T-Mobile’s nationwide network. Customers can either bring their own unlocked GSM cellphone or pay the full unsubsidized price of one of the three models being sold by Solavei. The models, from HTC and ZTE, range from $159 to $500.

Here’s where things get interesting. Solavei relies on its customers to sign up other customers. For every three customers they bring in, they get paid $20. They also stand to benefit when the people they sign up sign up others, and they can even make some from sales beyond that. Solavei also promises other one-time bonuses for signing up new customers within one’s first 60 days as a member.

Solavei also says there is an option to be a “member” without getting service, for $149 a year. It’s unclear what benefits membership provides beyond the ability to recruit and profit from other members.

While arrangements that pay people just for recruiting other distributors are generally classified as illegal pyramid schemes, those selling actual goods or services can be legal, though the Federal Trade Commission offers some cautionary guidelines on its Web site. Solavei says it has taken steps to ensure that its system fully meets all government regulations.

As for its business model, Solavei insists that it is simply removing a key inefficiency in the cellphone business model: The high cost of attracting and retaining customers. Indeed, beyond the cost of running the network, one of the largest expenses for cellphone companies are the costs related to getting customers, including subsidizing phones and advertising. Solavei says it is instead pouring those dollars toward its customers — who are also its sales force.

“Rather than giving you a free phone, we give you an opportunity,” said CEO Ryan Wuerch.

The company has lined up some big names as investors and advisers, and has raised approximately $15 million. Its Series B round, currently in progress, values the company at $130 million.

According to Wuerch, Solavei has also lined up more than 10,000 initial customers, with more than 1,000 preregistrations coming in each day. In the past two weeks, Wuerch said, Solavei has begun sending out phones to the first couple hundred customers, with an aim to begin nationwide service on Sept. 21.

News Corp.’s Jonathan Miller is among a long list of early investors and advisers, a list that also includes Amazon VP David Limp and former Walmart COO John Rittenhouse. On the staffing side, the company’s head of legal is Rick White, an attorney and former U.S. congressman, with former T-Mobile executives heading up finance and customer service roles.

Although the company is positioning itself primarily as a way to get low cost cellphone service or perhaps make a small amount of money each month, its marketing materials detail a compensation plan that mentions the possibility of making as much as $20,000 per month.

Solavei had been holding those preregistered for its service to a nondisclosure agreement, but that ended Wednesday evening, and Twitter and Facebook were quickly filled with posts seeking new customers.

“Yes, its time to have your PHONE PAY YOU!!!” reads one of the many posts on Twitter. “Send me a message … you do NOT want to miss this :)”

Others are more specific, referring to the $49 monthly service, while still others make no reference to cellphone service at all, simply touting the ability to make money.

Wuerch said that he personally doesn’t tell people to expect to earn more than a couple hundred dollars per month, though he acknowledges that the company’s compensation plans do illustrate the potential to earn more.

Some tech companies pay fees for referrals — LivingSocial, for example, gives customers their item free if three other people buy the specified product; other businesses, like DirecTV, routinely pay people for convincing their friends to sign up for service. But Solavei is taking this to a level far beyond that.

One of the challenges for the company will be ensuring that those looking to make money through Solavei don’t go overboard in their marketing. That has already been a challenge even before launch, with a variety of unauthorized marketing materials making it to the Web. Some tout Solavei as a moneymaking opportunity without even mentioning cellphone service at all.

Wuerch said the company has been working hard to get such sites taken down, though in some cases, finding the creator of the sites has been tricky.

The company aims to distinguish itself from other types of multilevel marketing, and says it has applied for patents for its method of compensation. While it does compensate members not only for the people they bring in, but also for the people brought in by those people, compensation beyond that is tied to the overall growth of the organization.

“We believe we are breaking the mold on traditional marketing and creating a new type of marketing that creates a new type of opportunity,” said Staci Wallace, a founding member of Solavei.

Solavei is being headed up by Wuerch, who left his post as CEO of Motricity following a string of disappointing earnings. Wuerch was also among several executives and companies sued by shareholders for misleading investors.

On his Web site, Wuerch dismisses those allegations.

“Motricity’s lawyers and I believe the suit is without merit,” Wuerch said. “The fact is: I’m proud of what Motricity accomplished under my watch. I founded Motricity, and spent nearly a decade building it into a business that was valued at more than $1 billion.”

A number of other Solavei’s other executives also hail from Motricity, while other top officials come from T-Mobile, Walmart and other companies.

Cellular industry analyst Roger Entner said that Solavei does have a chance to make a go of its approach.

“Depending on how it is executed, it is a pretty interesting idea,” Entner said. “They are putting the advertising dollars they would be spending in the hands of consumers.”