Business model of select companies.

MONEY MATTERS CLUB Presents… August 2019, Edition The Financial Bulletin

FROM THE EDITORS

The Financial Bulletin Money Matters Club IBS, Hyderabad Est..—2005

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Dear Readers, It gives us immense pleasure to come up with the August 2019 issue of Finance Bulletin successfully.

In this issue, we bring in front of you the business model of select companies.

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Bhavesh Gandhi Prathyusha Reddy Rajat Jain Mahima Kumari Newsletter Coordinators

Facebook Introduction: Facebook is a popular social networking website that allows registered users to create profiles, upload photos, videos, send messages and keep in touch with their friends, family members and colleagues. Since the time it was founded in the dorm room by Mark Zuckerberg at Harvard in 2004, Facebook has become the largest social networking platform in the world with over 1 billion users. Facebook has become instrumental to businesses as most of them are using facebook pages to maximize their market value and enhance customer engagement. Users are able to comment, like and share posts from any Facebook page. Total revenue for 2018 was $55.8 billion which was 37% higher from that earned in 2017. The updates and content have a huge potential to reach a larger audience.

Revenue Model: Everyday more than two billion people use Facebook, Instagram, WhatsApp which accounts for more than a quarter of the world’s population. Facebook has relied on advertisements for revenue. The company has experimented with other types of revenues such as hardware with its Oculus VR Headsets and its new portal speakers. They have evolved it into targeted ads where an advertiser can pick the kind of audience they want to reach out to. The company has tons of data about its users and that’s very valuable to advertisers. But ads aren’t the only source of income for the social media company. It also earns through Data generation. The recent data breach involving exposure of 87 million users to hackers and data thieves, has curbed Facebook’s data generation revenue.

Recently Facebook has started to change its advertising strategy by placing an emphasis on its story product. It is hoping to ramp that up in a way that will eventually generate more revenue than the advertising that they get from news feeds.

Sources of Expense for Facebook: Research & Development: Facebook have had tons of competitors in the market and have successfully been able to suppress them all due to an insane amount of research and development. Hence, R&D is of utmost importance to Facebook to retain and to grow. Research and development has proved out to be a major expense item for Facebook.

Marketing and Selling Costs: This includes expenses for better user interface and other services provided to users, marketers and developers in order to attract and retain them.

Recommendations: • •

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Facebook should give an option of reporting irrelevant notifications.

Share a more detailed breakdown of how an individual is spending time on Facebook.

Offer a subscription option in exchange for no ads.

By Rohit Agarwal

YouTube Background: YouTube was created on 14th February 2005, by Chad Hurley, Steve Chen and Jawed Karim who were the former employees of PayPal Holdings Inc. an American company operating a worldwide online payments system. It was first started as an online dating website headquartered in San Bruno, California where the users uploaded videos where they introduced themselves and shared about their interests. Due to users likes and dislikes, YouTube became a general video sharing site. The first video was uploaded by co-founder Karim at San Diego Zoo titled “Me at the Zoo”.

Growth: In the mid of 2006, YouTube became one of the fastest-growing websites by hosting more than 65,000 new uploads. The website had an average of 20 million new users per month as per Nielson Net Ratings with around 100 million views per day. Within no time Google acquired YouTube on 9 th October 2006 for US $1.65 billion in stock becoming its second-largest acquisition at that time.

Business Model: As most of YouTube’s content is free, one can watch millions of free videos for as many hours as possible. YouTube follows an advertisement based business model. As the company pulls 1.8 billion users every month, it records a user’s activities and combines it to help advertisers in creating effective advertisements. Advertisements in the form of sponsorship, landing page advertisements, embedded advertisements are different types of advertisement based models of the company. It earns based on the number of views the ad gets from its advertisers. The company also introduced a subscription-based model named YouTube premium where it offers exclusive services to the subscribers by charging a nominal fee for the membership.

Revenue and Costs: Google does not provide detailed figures for YouTube’s running costs but its 2018 ad revenue in the US alone was worth $3.16 billion, an increase of 17.1% year-on-year. YouTube`s total revenue pegged in the year 2018 was around $15 billion as per Business Insider and its revenue is estimated to rise to $24.7 billion by 2020 as per e-Marketer and Alphabet.

By Bhavesh Gehlot

Google Pay Introduction: To enter the fast-growing market of UPI based payment application, Sundar Pichai, CEO Google came up with the application “Tez� on 18th September 2017. Later, on 28th August 2018, it was rebranded as Google Pay. It reported 55 million monthly active users in India in May 2019. They are planning to tap over 12 million ubiquitous (omnipresent) Kirana stores to write its next India growth story. Transactions on Google Pay had hit $81 billion in March 2019 at an annual run rate level. Google Pay currently has over 3,000 online merchants including Zomato, BookMyShow, Swiggy, RedBus, and others while it is accepted at over 2,00,000 offline stores across 3,500 towns and cities. Unified payment interface(UPI) transaction volumes in the country have outpaced all other forms of digital payments, including wallets, mobile banking, and cards. Google Pay clocked payments worth Rs. 43,000-Rs 45,000 crore in March 2019. Google India's total revenue was at Rs. 9,337.7 crores during 2017-18 as against Rs. 7,239.5 crores in 2016-17, according to the Registrar of Companies. The global competitors are Apple Pay, Samsung Pay and in India the competitors are Paytm and PhonePe. Operations Model: Google Pay enables customers to carry out payments in three ways. The first one is through UPI ID. Secondly payment through a QR code and thirdly via mobile(contact) numbers. Sending and receiving money is free on Google Pay. To push its payments platform Google Pay in India, the search engine had planned to offer cashback incentives on Android apps. The main intention of Google Pay is to increase its customer base. The special feature is that it integrates with other Google services. Google Pay earns most of the revenue from data. The pattern is the backbone of the data-driven market. The choices we make while buying something makes a pattern. These patterns can be leveraged to assume the next most likely move, and this helps to improve customer satisfaction and business productivity. For example, if a person is frequently using Google Pay for payment on a particular site, a buying pattern is depicted which can be used in the future. Now the free payment portal wants these patterns to come next to market leaders.

It may help them get an insight into how people spend money whether they are early spenders, savers or they prefer discounts over cashback. Google Pay takes service charges from e-commerce sites for payment gateway services. It also integrates loyalty programs and promotions with other businesses.

COST/EXPENSES: Google Pay did not create and install its near field communication (NFC) infrastructure. Instead, they partnered with a company (Vivotech) who possessed the existing technology. Because of this readily available technology they have an edge over other mobile wallets.

RECOMMENDATIONS: According to an Assocham-PWC study, digital payments in India will more than double to $135.2 billion in 2023 from $64.8 billion this year with a compounded annual growth of 20.2%. Google Pay should try to retain its customer base.

By Jagriti Gupta

Swiggy About the Company: Swiggy is a leading food ordering and delivery startup in India founded by Sriharsha Majety, Nandan Reddy and Rahul Jaimini. The company started operations in 2014 and is headquartered in Bengaluru. Swiggy works by acting as a bridge between customers and restaurants.

Restaurants usually face manpower issues and their delivery personnel are usually not trained to deliver food. Swiggy started as a team of six delivery personnel and covered twenty-five restaurants. Swiggy currently has operations in eight cities and has more than 10,000 restaurants on its platform.

Revenue Model: 1. Commission from the restaurant: For every order Swiggy charges around 15 to 20% commission from the restaurant which varies according to the scale of operations of the restaurant. If restaurant provides food to Swiggy only (exclusive) then they provide them with a discount of 2-3%.

2. Swiggy owned restaurants: To become number one in the food industry Swiggy has come up with an idea of owning restaurants for providing better quality services. Example: Leon Grill.

3. Swiggy Access: Swiggy launched its first Access kitchen with five restaurants in Bengaluru, housing its own private brands, The Bowl Company, House of Dabbas and Punjabi Rasoi to share the 3,200 sq. ft kitchen space. In this they charge a higher commission from the restaurants.

4. Earning through Ads and Membership programs: Swiggy charges money from restaurants to show its advertisement on their application in order to increase its visibility on social platforms. By 2020, 25% of the revenue of Swiggy will come from advertisements only.

By Anush Khandelwal

Walmart About the company: Walmart is an American retail multinational corporation that operates a chain of grocery stores, discount departmental stores (stores offering goods at prices lower than the market price) and hypermarkets (combination of a supermarket and a departmental store). Walmart, the largest discount retailer in the world is headquartered at Bentonville, Arkansas in the United States. In 1950 Sam Walton opened the store named Walton’s 5 and 10 at the downtown square in Bentonville. Inspired by the early success of the store and to bring bigger opportunities and value to customers Sam Walton opened Walmart in Arkansas in the year 1962. It is currently one of the largest employers in the United States. As of today, Walmart operates over 11,300 retail units under 58 banners in 27 countries. The company recorded a revenue of $514.4 billion in the fiscal year 2019.

Revenue model of Walmart:

Walmart works on the concept of everyday low pricing. It has stores which have wide varieties of items for daily use and other consumer goods. It sells the items below the market price or below the price which is normally available at other stores. Suppose you want to buy a litre of refined oil in India and it costs Rs. 90 at a retail store, Walmart offers it for Rs. 85. A question may come to your mind that if Walmart is selling a litre of refined oil for Rs. 85 how is it making profits.

In reality it makes a lot of profits. Looking at this example from the supply side, let us assume Walmart approaches a manufacturing firm directly and books an order to sell 3 months of stock of refined oil for them. Now, suppose the manufacturing firm produces 100 units of a product in those 3 months and the total cost incurred is Rs. 8000, the cost per product will be Rs. 80 . The firm also gives a bulk discount of Rs. 2000 so now the total cost incurred is Rs. 6000 resulting in the per product cost being Rs. 60. Since it has directly approached the firm, the distribution costs will be zero. So in overall terms, even selling the product at a price of Rs.85 fetches decent profits of Rs.25 (85-60). As small stores cannot do bulk purchases, they also cannot afford a costly investment. In this way Walmart attracts large number of customers and has wide variety of products for the masses because they are getting each product at a price less than the price at which they are offered to other smaller stores.

Recommendation Walmart stores around the world should keep in mind the cross-cultural needs and demands of the citizens around the world and have products which will satisfy them. In this way Walmart will be as successful in other countries as it has been in the United States.

By Avishek Chakravarty

CBI Involvement CBI after filing the case against Vikram Kothari, his wife and son, and also on some bank officials started its investigation and carried a raid on the home and offices of Our monthly Newsletter– The Financial Vikram Kothari and then arrested Vikram Kothari.

Enforcement DirectorateBulletin (ED) has also filed criminal charges onisVikram Kothari under of Money Business Laundering circulated and readPrevention by all prestigious Act.

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