What is the business model of Reliance Jio? - Kshitij Salgunan, Indian Internet activist (Edited excerpt, and an interesting read)
https://www.quora.com/What-is-the-business-model-of-Reliance-Jio
It is really simple. Most of you are going to pay the same or probably more money to Jio compared to your current network provider. After reading this answer, you will realize what a clever businessman Mukesh Ambani is. I have been following the news about Jio since many years, and have written multiple articles about Jio in the past many months. Why Mukesh Ambani wants to enter networking field so badly?
This story requires us to know why Mukesh Ambani is investing so much in yet another telecom company especially when there is already another company named Reliance Communications. In 2002, when Dhirubhai Ambani died, there were some major ownership issues between his two sons - Anil Ambani & Mukesh Ambani. After some public feud between both the brothers for the control of Reliance empire, their mother intervened and split Reliance into two parts in 2005. Anil Ambani got telecom, power, entertainment and financial services business while Mukesh Ambani received Reliance Industries and IPCL.
Although Anil Ambani got the Reliance Communications, it was Mukesh Ambani who started it and revolutionized the Indian mobile industry by reducing the call rates in the early 2000s, which made mobile phones affordable to Indians. It was his baby all the way, while Anil Ambani was not even having a seat in it’s board of directors. That is not all. To prevent Mukesh Ambani from making another telecom company and competing with Reliance Communications, they had inserted a non-compete clause in the agreement.
In 2010, as soon as the non-compete agreement was scrapped/expired, Mukesh Ambani bought 96% stake in Infotel Broadband which had won 4G spectrum in all sectors in India. [3] Later they renamed it to Jio, and started building fiber optic network around the country. Now, if you do not know much about Jio, then I recommend to read one of my previous answers. It will brief you about how awesome their network is. - Kshitij Salgunan's answer to How likely is that Reliance Jio 4G will revolutionize the internet market in India? This is not just about personal rivalry. With his experience in starting up Reliance communications, Mukesh Ambani knows that existing network providers are not good enough and that he can easily compete with them and win. Telecom is also a very lucrative business. It is like he gets to control Internet/communications in India.
Jio’s Business Model.
Everything Jio have done till now is intended at making money. Their tariff plans may look unbelievably awesome, but they will make more money by giving free voice calls than what the other companies make by charging you for it! In India, the monthly average revenue per user (ARPU) the current network providers get is around Rs 150 per month. That is the money they get on average from each user. If you spend over Rs250 per month, you are considered a high value customer.
Look at their tariff plan. Which plan would you choose? If you are a voice-only kindof person, then you would be okay with the Rs 149 per 28 days plan, as you will get free unlimited voice calls. But, even though you are not explicitly paying for voice, you are already paying over Rs150 per month, thus their ARPU will by default be as good as the current players. Now, if you are a moderately data using person, which plan would you choose? Did you see that there is no plan in-between the Rs 149 and Rs 499 plans? This is basically a psychological trick to get you into the Rs 499 plan. Many people will compare it with the smaller plan and see that you are getting Unlimited 4G night data and choose atleast the 499 plan.
Now, again see that if you want to really use more than 4Gb of 4G, then you have to spend double and move to the 999 plan. Did you notice that there is nothing in-between? Also, notice that all these plans are for 28 days which can easily be perceived as ‘a month’ by most people. If we divide the number of days in an year with 28, we will realize that we are paying for 13 ‘billable months’ in an year. (365/28=13.03)
They have some smaller plans at Rs 19, 199 and 299, but these plans do not really offer any more value than their main plans as they have even less validity. Also, it offers less data. Also, since there is no separate package for voice calls, I think you must be subscribed to some of their plans to even make calls.
What does 1GB costs?
If we exclude the unlimited night data and the wifi data which many of us may not have access to, then the price per GB of these plans will be
0.3GB for Rs149 = ~Rs 497/GB (Will anyone choose this for data?)
4GB for Rs 499 = ~Rs 125/GB
10GB for Rs 999= ~Rs 100/GB
20GB for Rs 1499= ~Rs75/GB
35GB for Rs 2499= ~Rs71/GB
60GB for Rs3999= ~Rs66/GB
75GB for Rs 4999= ~Rs66/GB
Did you see that even their highest plans doesn’t go as low as their advertised Rs 50/GB rate.
How can they provide unlimited night data?
Once you have build an entire network infrastructure, it really doesn't cost anything for the network provider to give you internet data. The reason why most internet providers limit your data is basically because they do not have enough bandwidth to handle so much data. In the case of Jio, they have already laid an awesome fiber optic network which is designed to even handle the 5G and 6G. So, they do not have much of the data bandwidth problem. Other telecom companies were primarily made to handle voice calls and they have limited data bandwidth. Also, other companies do not own nationwide fiber network, so they have to pay to use the fiber network of other companies. This is the reason other companies don’t usually provide unlimited plans.
Jio currently have the ability to provided truly unlimited data plans, but they will not do so, because that will decrease their profits. They have already decreased prices on average by 50%. This means people will anyway be happy to use their services. If they provide more GBs in the lower end plans, then lesser people will buy their higher plans. So, currently their pricing is optimally placed to increase their profit. When other companies reduce their prices, it is likely that Jio will also further reduce their prices.
How can they provide unlimited free voice calls?
Again, Jio has an all IP network, so all voice calls will go through the internet just like skype or whatsapp. There is not really any point in charging for voice anymore. It is an outdated system and there shouldn’t really be any surprise in why Jio totally abandoned it. If hypothetically, Jio had tariff for voice calls, then some company similar to whatsapp would have launched an app through which you can do free voice call over the internet.(Infact whatsapp itself have a voice-call option) Once everyone has a good internet connection, people would anyway use such services to make their calls.
How Jio makes money with LYF phones?
Many of you may be knowing about their LYF phones. Few months ago, purchasing these phones were the only way you could get access to a Jio sim card to get their their free unlimited preview offer. Did you ever wonder why they have so many versions of these phones? Nearly all of their phones have very low specs compared to the competition at the price point they sell. The only reason why people bought their phones were because of the unlimited internet+voice calls preview offer. This was a very clever move by Jio. The reason why there are so many versions of these phones is because of this business model.
Jio would go to china and then buy previous generation unsold 4G phones for dirt cheap prices in bulk. No one wants to buy these phones, so obviously the manufactures will happily sell it for very low price. Then it is re-labeled and sold in India. This is how they have several phones with totally different specs. A totally outdated phone which no one would otherwise buy is coupled with Jio preview offer and now everyone wants to buy it just for the Jio offer. Jio can now sell these phones and make profit. Plus, they get to test their network and solve the bugs. Plus, they can venture out into the mobile device market. Brilliant idea, isn’t it?
The real money is in Jio Apps
Many people may consider their apps to be bloatware and don’t even install it. I also thought of it as a bloatware when I first heard of it. But, when I tested them out, I saw real potential in them.
JioPlay : This has the potential to become the TV channel company. My prediction is that Jio will soon release something like Google chromecast to provide this service directly to TVs. The ability to watch Live TV channels on smartphones is also a cool idea, especially in India. This may become the most used app in rural areas too.
JioOnDemand : This has the potential to become the Netflix of India. Imagine if those who currently pirate movies had an option to get those movies in HD quality legally for nearly free. It can benefit both the users and the producers.
JioBeats : Legal music. It has the potential to become spotify of India.
JioMags : Most popular magazines in ebook format. My cousin who reads tech magazines on regular basis loved it.
You get the point? They can make any type of app in the future and dominate that category with minimal efforts.
They are currently giving these apps for free till 2018. But, that is done so that they can get maximum users to get addicted to these apps. Then they can start subscription charges for these apps. Instead of paying for your TV service or Movie-DVD or Magazines, Jio wants you to pay them. Apart from that, these apps are locked to Jio network. So, a person using any other internet service won’t be able to use it. Thus, this will force other people into joining Jio. Currently, only Airtel is capable of properly competing with Jio in the 4G market, but they too may not be able to release such apps on time.
Is this good? Yes, we need companies like Reliance to make such bold moves and invest in India. This is good for everyone. It is a win-win situation. It will increase the progress rate in India and will improve our quality of life. It will also give much needed jobs to millions of people. Also, we absolutely need competition in this stagnated telecom industry which is currently dominated by players who may have secretly made agreements with each other to not compete on the basis of price. Why do you think Idea, Airtel and Vodafone have similar looking pricing which charges Rs 250 for one GB data?
Conclusion
By just making their tariff plan in such a way that most people interested in 4G have to pay over Rs500 per month, Jio will be making way more money than the current players. Most of the high value customers of other players will instantly port to Jio, and they maybe able to achieve a huge market share in next couple of years. When their apps, devices, and fiber services are added up, they are here here to win multiple business verticals. And, at current stage, they are almost unstoppable.
