Headstart Talks: Kunal Shah, Founder & CEO – Freecharge

Shortly after they presented at Startup Saturday Mumbai, we caught up with Kunal Shah Managing Director, Accelyst Solutions Pvt. Ltd and talked about their new venture Freecharge.in and the mobile VAS industry.

What is Freecharge.in in one line?

We want to make mobile recharge free by offering equal value back to the customer in the form of different retailers’ coupons.

How does the company do that?

Freecharge enables the user to recharge his/her mobile phone and make it free. How can it be free? For every recharge done on Freecharge, we provide discount coupons of top Indian food joints and retailers, equivalent to the recharge amount. These coupons are delivered at the customers door step. The first two retailers on board are McDonalds and Barista.

It’s a win-win-win situation – win for the customers, they get their value out of the recharge; win for the retailer because they are able to tap into a large mass of people; our win we’re yet to figure out.

How can this be real?

People think that Freecharge is too good to be true. In fact, a large number of people commented so on facebook, when we came up with a dummy page to test potential user reactions. I think that “too good to believe” is, for us, a sign of success. The fact that people are now using it and in less than a week of launch there are close to 200 recharges a day, means that they are getting used to it.

Why is the company in this business? How did the idea occur to the founders?

The mobile telephony is one of the most penetrated markets in India. As of 30 June 2010, there were 635 million mobile connections which is approximately 50% of the Indian population. At the same time, almost 95% of these connections are prepaid. This opens up a huge opportunity for anyone wishing to ride on the success of this story.

I have been a big believer in free. New ideas occur to me all the time. Accelyst’s earlier venture, Paisaback looks at innovative ways of cashback promotions. People like free things, but at the same time, free has no value if there is no effort required on the part of the customer. While I was looking at ideas to club promotions with the most penetrated market that is mobile telephony, the idea of Freecharge occurred to me. Further brainstorming with my team led to the refinement of this concept.

Where do you see this (telecom) industry going?

Some sort of consolidation will happen. Indian market is the fastest growing and currently there is no branding or positioning that a player can sustain. It mostly works on providing the least calling charges to the customer and every new entrant causes a lowering of tariff and

There might be a point where all plans are done away with and fixed fee unlimted talk and data plans will be the norm. Prepaid is 3 to 4 times cheaper than postpaid and that too for the same service. No wonder close to 97% of new connections are prepaid.

VAS is where everyone is looking for revenue and growth, since that is the one avenue that will let the telecom companies increase their ARPUs. The third parties which will help improve ARPUs will turn out to be more valuable.

Freecharge is not exactly a VAS provider. It rides on the core, the mobile recharge business.

The online recharge market (all recharges done at ATMs, web, etc, but not through a human operator) is valued at around Rs. 100 crores a month and this is less than 1% of the prepaid recharge market. This means that there is a huge opportunity in this sector. Hopefully the 3G rollout will open more avenues to make money.

What goals have you set for yourselves?

The first couple of goals are to make sure that there is a significant amount of recharges happening through Freecharge and that the first few retailers are on board. The biggest challenge for businesses working on the couponing model is the number of coupons that people with potentially buy. We are looking at volumes at which they become attractive to all national retail brands who we are talking with, like Dominos, PVR, etc. Then we will aim to scale revenues.

How are you funded?

Freecharge is a product from Accelyst Solutions which was funded by the Tandon Group and is now profitable. So we’re self funded currently. We will need investment later on and we have been approached by multiple investors.

How do you make money?

Initially we want to make sure that we don’t make losses. Currently the payment gateway fees are just about paid by the commissions that we make on recharges. Retailer fees would be one of the future avenues of making money, and this model can justify the ROI for retailers, because they can exactly track the footfalls that the coupons bring in.

As a startup, What are the hurdles that you have faced in the business?

From Oct 2009 when the product was conceptualized till date, there have been several problems, most of which have been overcome. One of the major hurdles is that big companies have a mindset that goes against the concept of “free”. It has taken us a lot of effort to convince operators and retailers that this does not in any way harm their brand. Fortunately some have seen the benefit that we can provide and have given us an enthusiastic reception. Others are willing to go along as soon as they see others on board. We have driven hard bargains when it comes to payment gateway commissions. There have been some issues when it comes to integrating the payment gateways with our website but now things have smoothened out. Logistics is proving to be a slight hiccup but we are working with courier companies to work that out.

Who are your competitors?

There are players based on the online recharge model, and players working on the couponing model. We think that as of now we don’t think there is any competition yet. Of course, tomorrow there might be another service that competes in the exact same space, but the market is very large. I would say that non-believers are also our competition and we would be glad to convert them over to our side.

Are there any turn of events that have changed the way you function?

Since we came up with the idea 9 months ago, we have brainstormed a lot. On how things functioned at the back-end; the user interface, which we have taken special care to make it simple and user friendly; and a host of other things that we have learnt from experience. So that way, we haven’t had to change much.

We came across your campaign via google ads, how else are you advertising?

We have been experimenting with different means of promotion. We tried out google ads, we have a facebook page and a twitter page where we interact with people all the time. We would like every user to be our ambassador and tell their peers about it. We’re also looking at tying up with other free services like 160by2 and way2sms.

How did you select and how do you manage your team? As a startup do you see this as as a challenge going forward?

Well, part of the team is the old team from Paisaback. Some were good at managing logistics. I took over business development myself and went out to get retailers on board. Naman who was a regular blogger at pluggd.in and he was upbeat about online recharge. He was someone who understood the game and he came on board to develop this product and build it from scratch. I believe that if the team is sufficiently empowered, they would be quite motivated to be a part of a success story.

How was your experience of presenting at Startup Saturday? Do you have any feedback for us?

I think that Startup Saturday is a great medium for entrepreneurs to come together. There are people who want to learn and people who want to share. And there are benefits for everybody. The sessions are interactive and most speakers are well prepared. The initiative to connect startups with media is great. It was good to present here because we did manage to strike a chord with the people gathered, especially the student community.

Some feedback: Use a feedback form. Look at tying up with more corporates, because there might be people in companies to look at starting up or looking for ideas.

As a startup what are two things you have learnt that you might like to share with your fellow entrepreneurs?

1. You have to accept that there is a high probability of failure, but you shouldn’t stop moving in spite of that.

2. Everything is doable, You just have to believe in it and work relentlessly for it.

In closing, I believe that this will be an interesting journey. I hope that people like what we do and that we can give great value to everyone who is a part of it.

By Gurudatt B