Post on Medial

Soundbox - why is it a great product but not a great business? Soundbox is not just a speaker, it's configured to note debit and credit payments, it has an integrated sim in the speaker that notes the notification and communicates it Soundbox is definitely one of the best product innovations in the fintech space, helping merchants receive confirmation of payments by audio, the second-order effect is not that fraud incidents decreasing Today there are millions of sound boxes that are used by merchants today Paytm being the market leader Players & their market share: Paytm ( 7M soundbox), phonepe(2M soundbox, bharatpe ( more than a 1M soundbox), pine labs (voice-based confirmation by their poc machine, the numbers are unclear tho) Where do they make these soundboxes: All the market players procure their soundboxes from different vendors in bulk quantities and resell them to merchants How do they plan to make money : Free installation ( bharatpe charges 600 RS per installation and others charge 1rs) - charge a monthly subscription of Rs 75 to 100) ￲What the world thinks: Many assume that Soundboxes are generating millions in monthly revenue, observing and just reading articles will make you feel, this is absolutely great business to be in - will make you feel it is a jackpot But here's the harsh truth: The average cost involved in the disbursal of a soundbox: ( Fixed cost) Sound Box HW - 1234 ( price varies upon the model) Packaging- 10 / Charger- 38 to 50rs /Sales- 200 to 300rs / Logistics - 50 Total -1532 to 1700rs It costs 1500 to 1700rs for the market players to install a soundbox for "FREE" The average cost involved in maintaining the soundbox monthly: MTM sim charges - 30 to 40rs I always say the biggest beneficiary of the entire soundbox spectrum is the telecom companies - Irrespective of the activity of the soundbox, the tech companies are supposed to pay 30 to 40 rs per month per device, to these telecom companies - so on average for their 7M soundbox Paytm pays (7m soundbox × 30rs) - 20 to 25 crores monthly Now you might think there are subscription fees so they can recover the money invested and become profitable in this business isn't? Well, here's a big problem - all tech companies have an incentive system that says if a merchant can do more than 40/50 transactions a day they don't have to pay a subscription - which means ideally most of them don't pay a subscription ( you can go and talk to a 5 kirana shop guys and most of them should say we pay nothing) This market is a huge competition - so unlikely for anyone to choose a profitable path Can this ever be a profitable business? It's hard I would say, the simple reason your lifetime value of a customer has to be higher than your customer acquisition and expense cost In this case, tech companies spend 1700 to disburse the sound box and 400rs per year for MTM sim. Total - 2100 For tech companies to become profitable here they need 21 paying months ( merchant paying 100rs every month) which is very hard in the merchant segment + the lifetime value of an average merchant is not greater than 3 years / The amount of money a merchant makes keeps decreasing after a point of 3 years Well, who is the biggest beneficiary of this entire play: The biggest beneficiary isn't someone who makes more money but someone who makes money with very little input Telecom companies will be making 100M$ every year just by this soundbox play - all they do is initiate a sim, and they don't do anything out of the box.