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)
service through the FreeCharge platform,
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 teams exe-
cution and the rapid growth and engage-
ment of users on the platform.
The companys core proposition is
driving customers through coupons for
offline and online brands. Kedar Tenny,
director (marketing & digital), McDonalds
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 McDonalds 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 FreeCharges 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-
ing coupon-redemption rates, they might
look at whether theyre 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 didnt 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) arent
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.
UpasanaTaku, isco-founder,
MobiKwik
E XP E RT 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 Bakshi
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
Alok Goel
CEO- Prior to FreeCharge, Alok was COO of redBus.
He was also head of search & mobile products for
Google India
Vasanth Sastry
CFO- Prior to FreeCharge, Vasanth was CFO for
Rediff.coms US operations
Ninad Takpere
CBO- Prior to FreeCharge, Ninad was business
head at timesdeal.com
Sandeep Tandon
Co-Founder : Tandon
also owns Tandon
Group
FOUNDERS BACKGROUND
TEAM