Currently there are more than 780 million mobile subscribers in India and 90% of them use prepaid mobile connections. The ARPU (average recharge per unit) for GSM subscribers stands at around Rs 105. Simple mathematics tells us that there are prepaid recharges of more than Rs.70 billion happening every month, with most of the transaction happening offline.
Start-up companies like PayTM & FreeRecharge are burning cash as a cost to 'change recharge behavior' to bring majority online and aggregate demand. Recently there has been a sudden upsurge in people preferring online recharges and the reason is quite obvious, the add-on benefits they get.
Steve Job once said- "A lot of times, people don't know what they want until you show it to them."
A year back no one imagined that they would get discounts and cashbacks on recharges done, getting free talktime for downloading apps.
Portals like PayTM & FreeRecharge account to just 3% of total recharge industry in India which leaves them with a sea of opportunities,so currently they are focusing on increasing their customer base rather than marginal profits.
Well, if you simply ask that do they make profit from recharges, the answer would be 'NO', but as a whole they do make money,a lot of money.
So how does it all work? Lets have a closer look there Business model and why do they give more emphasis on customer base than profit margins.
The business strategy which is followed by PayTM and FreeRecharge and other similar portals is Reverse Marketing. Instead of going to potential consumers free charge is attracting consumers towards them through coupons and Cashback. Because of this strategy FreeRecharge currently has 2.8 million registered customers and still growing. For bringing these many customers through conventional advertisements freecharge should have spent a fortune and moreover online recharge is very new to India so to build trust among masses that online recharge is more faster and safer was a big task for them.
There are three ways in which these companies earn profits:
1. Commissions from telcos on recharge (20% of there total revenue)
The primary revenue source is commissions from Telcos which ranges from 2%(for large & Established operators) to as high as 5% (for new & small operators). This again depends on whether they are directly connected to the Telco's recharge platform or are using an Aggregator (like Oxigen, Euronet, Cyberplat). The margins would be lower in case of the latter.
2. Content Based Advertising (30% of there total revenue)
A good amount of revenue comes from the advertisement which are displayed in form of Banner ads or coupons.
3. On boarding fees for merchants either for listing coupons or selling coupons(50% of there total revenue)
The major part of revenue are from coupons, when these coupons are used on merchant sites they get a percentage of the amount spent by the customer.
Additional advantage of customer based is raising capital from investors.As for any ecommerce biz the investors goal is not profit but customer base. The magic number is a billion! And that's what all companies aim for. The investors use this revenue potential to list the company in a public exchange and cash out for several times their investment.
So giving free recharge is going to profit such a company in the long run and the investment is just meant to create loyalty.
Start-up companies like PayTM & FreeRecharge are burning cash as a cost to 'change recharge behavior' to bring majority online and aggregate demand. Recently there has been a sudden upsurge in people preferring online recharges and the reason is quite obvious, the add-on benefits they get.
Steve Job once said- "A lot of times, people don't know what they want until you show it to them."
A year back no one imagined that they would get discounts and cashbacks on recharges done, getting free talktime for downloading apps.
Portals like PayTM & FreeRecharge account to just 3% of total recharge industry in India which leaves them with a sea of opportunities,so currently they are focusing on increasing their customer base rather than marginal profits.
Well, if you simply ask that do they make profit from recharges, the answer would be 'NO', but as a whole they do make money,a lot of money.
So how does it all work? Lets have a closer look there Business model and why do they give more emphasis on customer base than profit margins.
The business strategy which is followed by PayTM and FreeRecharge and other similar portals is Reverse Marketing. Instead of going to potential consumers free charge is attracting consumers towards them through coupons and Cashback. Because of this strategy FreeRecharge currently has 2.8 million registered customers and still growing. For bringing these many customers through conventional advertisements freecharge should have spent a fortune and moreover online recharge is very new to India so to build trust among masses that online recharge is more faster and safer was a big task for them.
There are three ways in which these companies earn profits:
1. Commissions from telcos on recharge (20% of there total revenue)
The primary revenue source is commissions from Telcos which ranges from 2%(for large & Established operators) to as high as 5% (for new & small operators). This again depends on whether they are directly connected to the Telco's recharge platform or are using an Aggregator (like Oxigen, Euronet, Cyberplat). The margins would be lower in case of the latter.
2. Content Based Advertising (30% of there total revenue)
A good amount of revenue comes from the advertisement which are displayed in form of Banner ads or coupons.
3. On boarding fees for merchants either for listing coupons or selling coupons(50% of there total revenue)
The major part of revenue are from coupons, when these coupons are used on merchant sites they get a percentage of the amount spent by the customer.
Additional advantage of customer based is raising capital from investors.As for any ecommerce biz the investors goal is not profit but customer base. The magic number is a billion! And that's what all companies aim for. The investors use this revenue potential to list the company in a public exchange and cash out for several times their investment.
So giving free recharge is going to profit such a company in the long run and the investment is just meant to create loyalty.
