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START-UP CORNER TRACKING EMERGING INDIA W hile trying to recharge her phone online a few months ago, Palak Agarwal stumbled upon FreeCharge. The website had various offers, including ‘free’ coupons and dis- counts. Excited, Palak quickly spread the word among her friends. Today, she and her friends regularly recharge their mobile phones on FreeCharge, which has about 10 million registered users. The company launched operations on August 15, 2010, promising to provide ‘free’ talk time to mobile phone users. Every time a user recharges her/his phone, data card or direct to home television (DTH) servicethroughthe FreeCharg eplatform, she/he is reimbursed through discount coupons. For coupons, users can choose from 150 merchants listed on the site, including McDonalds, PVR, Costa Coffee and Myntra. A few weeks ago, the company announced it had raised $33 million in series-B funding from a host of investors such as Sequoia Capital, Sofina and Ru-Net. Business model FreeCharge provides a platform for retail- ers to connect with consumers. Shailendra Singh, managing director of Sequoia Capital India, says, “FreeCharge is creating a unique new category — an advertising platform, with a ‘consumption graph’ for the most valuable online consumers. We are very impressed with the team’s exe- cution and the rapid growth and engage- ment of users on the platform.” The company’s core proposition is driving customers through coupons for offline and online brands. Kedar Tenny, director (marketing & digital), McDonald’s India (West & South), says, “FreeCharge provides us a unique value proposition of driving promotions. It has been able to drive in a significant number of customers from the online world into our restau- rants, with performance-tracking that is on par with online digital advertising.” Companies are able to measure the effec- tiveness of their campaigns and collect data on consumer preferences. Sanjay Coutinho, chief executive of Baskin Robbins, says, “The exclusivity the site offers is an attractive proposition. As the website features strong brands, we are able to maintain our premium value, and not appear as a discount brand.” “There is a lot of traffic and a fair amount of brand visibility. Also, the cost of acquiring new customers is low, com- pared to other avenues,” says Sharat Dhall, president (marketing), Yatra.com . The company earns revenues from two sources. The first is the fee it gets when users recharge phones, DTH facil- ities or data cards through the FreeCharge platform. Experts estimate this fee is two to three per cent of the amount spent. Alok Goel, chief execu- tive of FreeCharge says, “Currently, 90 per cent of the transactions are in the prepaid segment, other segments are growing at an equally brisk pace.” The other income stream is the com- mission firms such as McDonald’s pay FreeCharge for driving traffic. While some companies might choose to pay every time a user opts for its coupon, others pay only when a customer walks into their outlet. Experts estimate this fee to be two-five per cent. Rather than focusing on profitability, FreeCharge seems to be following a strat- egy typical of online companies — creat- ing a system so big that it becomes diffi- cult to compete against. As Goel succinctly puts it, “The focus is on grow- ing, rather than on profitability.” Weaknesses “The absence of entry barriers could encourage others to enter this space,” says an expert. Tata Sky, for instance, has started offering a similar service on its site. Telecom operators such as Airtel and Vodafone, which already have large sub- scriber bases they can tap into, might easily replicate the model. As FreeCharge’s ability to scale up operations will be determined by an increase in its customer base, expanding its services to keep customers engaged on the platform is critical. Unlike sites such as MobiKwik which, in addition to pro- viding recharge facilities, also offer users services such as utility bill payments, FreeCharge is yet to offer these. While it is felt similar offerings from FreeCharge might be in the offing, there is delay in this regard. Nitin Sharma, principal at venture fund LIGHTBOX, says, “The question of how big such companies can become has to do with whether advertisers keep see- ing good results on a sustained basis...Recharge is a very quick interac- tion. So, is there a clear context for brands to engage consumers? Besides monitor- ingcoupon-redemptionrates, theymight look at whether they’re attracting the right kind of customers who are shop- ping beyond initial discounts.” Another issue, as a new user points out, is the limited set of merchants on the site. A typical user in Delhi looking for a free meal coupon will be hard-pressed to find a wide variety of establishments to choose from. Way forward According to Goel, “The immediate goal is to execute one million daily transac- tions by early next year.” While the com- pany didn’t share its estimate of the impact of this milestone on its finances, it is expected this will give FreeCharge the negotiating heft to rope in brands and strike more lucrative deals. As many high-end customers (DTH and postpaid mobile data users) aren’t aware of the site, the company has stepped up efforts to establish its brand by launch- ing its first TV campaign. Goel says a “sig- nificant share of the $33 million raised will be used to create brand awareness”. While there are concerns, Nitin Sharma says, “The leading players can see a bit of a network effect — more users will bring more brands and better economics (com- mission on airtime sold), and more brands and more offers could mean more users keep coming back.” When it comes to digitally transacting users in India, recharge is the least common denominator. FreeCharge has used the ‘recharge use case’ well to acquire a large number of users. It operates on getting a lot of eyeballs so that it can promote various brands in the form of coupons. From an advertising point of view, the proof of the pudding lies in how many new users it can acquire through this channel. To become a relevant advertising platform, it will need three things — a large user base, diverse brands willing to advertise with it and an intelligent platform to decide which brands to show to which users. The challenge for the company will be building a tech platform that is able to deliver on advertisers’ needs. How well it is able to deliver on this front will define its success. A number of ad networks and affiliate models already exist in the Indian market. Most of these (web/mobile) have their own publisher networks which, collectively, might be far larger than the FreeCharge user base. So, it will be interesting to see how things work out for FreeCharge through the next few years. Upasana Taku, is co-founder, MobiK wik EXPERT TAKE Connecting retailers to consumers While FreeCharge provides a unique value proposition of driving promotions, keeping customers engaged on the platform is critical, writes Ishan akshi FreeCharge offers discount coupons every time a user recharges her/his phone, data card or DTH service through its platform. PHOTO: THINKSTOCK Kunal Shah Co-Founder : Prior to FreeCharge, Shah was the CEO at PaisaBack AlokGoel C EO - Prior to FreeCharge, Alok was COO of redBus. He was also head of search & mobile products for Google India Vasant h Sastry CF O - Prior to FreeCharge, Vasanth was CFO for Rediff.com’s US operations Ninad Takpere C O - Prior to FreeCharge, Ninad was business head at timesdeal.com Sandeep Tandon Co-Founder : Tandon also owns Tandon Group FOUNDERS’ BACK GROUND TEAM
