Sramana: So you essentially stopped your business and went to school at USC. How did that transition go for you?
Rodrigo Teijeiro: My first semester at USC went well; I got all As. The problem was that I had too much time on my hands and it was a bit boring. I told myself that I had to do something else besides study. I wanted to find something that leveraged my know-how in technology, project management, and e-commerce. At the same time I could not spend much capital and it had to be virtual.
One day while my girlfriend was in Buenos Aires on a trip, she called me collect. That cost me $120. This was in 2002 and that figure really hit me. I had to either change girlfriends or I had to find a new way to communicate. I started investigating the call card business and found out that I could get calls to Buenos Aires for two cents. The call quality was perfect, and they went over VoIP. I spent a month doing research and analyzing the providers. By June I had opened a Delaware-registered company and by September 2002 I had an online site called TarjetasTelefonicas, which essentially means “CallingCards.”
I did that with two programmers in the Ukraine who were charging me $150 a month. The graphic design was done by my girlfriend. I would serve as customer support. When I bought calling cards, I bought some at face value and put them on the site after scrapping and putting the pin on the site, just to see if anyone would buy it.
Sramana: Were you focused on acquiring customers from Buenos Aires?
Rodrigo Teijeiro: I was acquiring them from anywhere, such as foreign-born people in the U.S. I was going to forums and Yahoo! Groups. I would get into small chats and then just push my domain.
Sramana: Did that technique work?
Rodrigo Teijeiro: It did. I also did some very basic SEO and some AdWords. I pushed it as much as I could through any means possible. The interesting part was that the first day I put it online I sold three cards. By the fifth day I was selling $500 worth of cards. The problem was that when I looked at the server logs, I found that one IP address was buying 95% of all of the cards. The IP address was from a foreign country and they were committing fraud. They had stolen credit cards and were buying these calling cards on the site.
I had to close down the site and change the purchase process. After that I kept buying more cards from different parts of the U.S. When I started getting more cash, I would go directly to the distributor. I always had to receive the physical cards, scratch the pins, and upload them to the database by hand. I was too small to get a direct deal.
Sramana: What was the business model? How were you making money?
Rodrigo Teijeiro: The business model from day one was to resell a card that I had purchased from a kiosk at face value, so essentially I lost money. I just wanted to see if I could do it. I eventually got to the point where I went to the distributor and ultimately the technological provider. At the end of the story, today, I pay only for the minutes consumed. That is a dramatic difference. Once you go to the supplier you are essentially getting a 20% margin, but you had to pre-pay the card. By the end I was able to charge $10 and then only pay for the minutes consumed. Today the business has a gross margin of 46 percent.