Reliance Jio's Business Model: How Will Jio Make Money With Its 'Crazy' Plans?
Reliance
Jio's business model 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 Reliance 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 and 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 its board of directors.(Also see: List of VoLTE Phones That Will Work on the Reliance Jio Network)
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, Mukesh Ambani bought 96 percent stake in Infotel Broadband which had won 4G spectrum in all sectors in India. 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. How likely is that Reliance Jio 4G will revolutionize the internet market 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.
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 at least the 499 plan.
They do 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 per rupee. For example the 299 plan only offers 21 day validity and 2GB data. This may be adequate for many people, but if you ever exceed the 2GB limit, then you will have to purchase ‘add-on packs’ and these add-on pack will have the validity of the main pack. So, if you recharge on day 20 of this plan, then you will get only one day validity for the add-on. For practical purposes, you will be spending more for lesser value through these packs. The Rs. 19 pack maybe useful for those who want to use some Internet and voice calling once in a while.
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 a year with 28, we will realize that we are paying for 13 ‘billable months’ in an year. (365/28=13.03)
What does 1GB cost?
If we exclude the unlimited night data and the Wi-Fi 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. Jio came up with this Rs. 50/ GB rate by adding the Wi-Fi access you are getting, but I excluded it because it is not feasible for most people to utilize this as Wi-Fi hotspots are not available everywhere. It would be useful for you if there is a Wi-Fi hotspot near your house, at your work-place or your college.
(Also see: What You Need to Know to About Reliance Jio's Wi-Fi Network)
How can they provide unlimited night data?
Once you have built an entire network infrastructure, it really doesn't cost anything for the network provider to give you Internet data. I have explained this in the form of a story in one of my other answers – What is the cost of the Internet? How much extra are we paying?
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 fibre 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 fibre network, so they have to pay to use the fibre network of other companies. This is the reason other companies don’t usually provide unlimited plans.
Jio currently have the ability to provide 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 percent. 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.
Milind 17 December 2016
I have been following the news about Reliance 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 and 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 its board of directors.(Also see: List of VoLTE Phones That Will Work on the Reliance Jio Network)
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, Mukesh Ambani bought 96 percent stake in Infotel Broadband which had won 4G spectrum in all sectors in India. 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. How likely is that Reliance Jio 4G will revolutionize the internet market 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.
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 at least the 499 plan.
They do 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 per rupee. For example the 299 plan only offers 21 day validity and 2GB data. This may be adequate for many people, but if you ever exceed the 2GB limit, then you will have to purchase ‘add-on packs’ and these add-on pack will have the validity of the main pack. So, if you recharge on day 20 of this plan, then you will get only one day validity for the add-on. For practical purposes, you will be spending more for lesser value through these packs. The Rs. 19 pack maybe useful for those who want to use some Internet and voice calling once in a while.
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 a year with 28, we will realize that we are paying for 13 ‘billable months’ in an year. (365/28=13.03)
What does 1GB cost?
If we exclude the unlimited night data and the Wi-Fi 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. Jio came up with this Rs. 50/ GB rate by adding the Wi-Fi access you are getting, but I excluded it because it is not feasible for most people to utilize this as Wi-Fi hotspots are not available everywhere. It would be useful for you if there is a Wi-Fi hotspot near your house, at your work-place or your college.
(Also see: What You Need to Know to About Reliance Jio's Wi-Fi Network)
How can they provide unlimited night data?
Once you have built an entire network infrastructure, it really doesn't cost anything for the network provider to give you Internet data. I have explained this in the form of a story in one of my other answers – What is the cost of the Internet? How much extra are we paying?
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 fibre 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 fibre network, so they have to pay to use the fibre network of other companies. This is the reason other companies don’t usually provide unlimited plans.
Jio currently have the ability to provide 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 percent. 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.
No comments:
Post a Comment