Coffee Byte

[Arun 795]

Gouri Shukla / Mumbai June 29, 2004

In March 2003, when Reliance Infocomm launched customer service outlets for its CDMA (code division multiple access) phones, their name — WebWorld — didn’t quite seem to fit. Now, it does. By May 2004, customers at 59 of the 250 WebWorld operational across the country could get more than new connections.

They could browse the Internet on high-speed broadband, chat on video with multiple WebWorld users across cities, or just sit back and enjoy an espresso. All under one roof. By the year-end, the number of WebWorlds offering these facilities will increase to 241.

The new retail initiative from Reliance Infocomm currently accounts for just a fraction of its revenues and customer acquisitions (the company did not share figures). But it marks a radical change in the retail approach. When the Reliance India Mobile (RIM) service was launched in 2002, the retail of new connections was done through direct selling agents called Dhirubhai Ambani Entrepreneurs (DAEs).

Most of the DAEs were small entrepreneurs — shopkeepers (who sold Reliance Industries’ textiles) and individuals who persuaded their family and friends to switch to CDMA phones. At present, Reliance is retailed through more than 20,000 DAEs and 40,000 outlets, and company sources say they still account for the lion’s share of revenues.

Still, the DAEs weren’t helping the company tap into what was emerging as the most important segment for cellular services — the youth. Studies have shown that 15- to 25-year-olds account for more than 30 per cent of mobile phone usage, up from 15 per cent in the late 1990s.

Nor were the DAEs projecting a sophisticated image of RIM. Also, the service RIM provided — CDMA — had its own peculiarities. One, unlike GSM phones, which can be bought almost anywhere, CDMA handsets are not available off-the-shelf.

Also, CDMA features include data applications like fast Internet access, multi-user gaming and data transfer. These need to be explained in detail to prospective customers.

Reliance, therefore, needed to set up brick-and-mortar structures that would convey an upscale image of the RIM service as well as provide space for customers to walk in and understand CDMA technology. That decision taken, it was easy to take it a step forward.

Reliance Industries can lay claim to a 60,000-km fibre optic network that spans almost the entire country and can support high-speed broadband services. Reliance decided on a three-pronged business model: a broadband centre, café and, of course, the customer service centre. “The idea of a multiple activity centre began from the need to leverage the potential of our fibre-optic network,” says Sarup Chowdhary, chief executive officer, Reliance Webstore.

But then, coffee chains and Internet services are not core competencies for the company. So while the idea was conceptualised back in 2002, Reliance played safe and rolled out each business in phases. In March 2003, the first WebWorld opened in Bangalore, but remained just a customer interface point.

The broadband centres followed in October, in Bangalore and Chennai. By end-2003, the WebWorlds in those two cities also hosted the Java Green coffee chain. Chowdhary says the south was the ideal learning ground, since it is the hub of software companies and coffee bars in India.

What learnings did the WebWorld experience throw up? The first was to be as close to the target audience as possible. All WebWorlds are located within a few km of colleges or youth hang-outs. Then, establishing contact was done in a number of ways: direct mailers and fliers, banners, redemption coupons and contests. Then, in April 2004, Reliance launched a prepaid card, specifically targeting the youth. Now, Reliance could offer cross-promotions for WebWorld services with the RIM Prepaid. For instance, RIM users were offered an introductory discount of up to 30 per cent discount on coffee or broadband surfing at the WebWorlds.

Attention was also paid to the interiors since three separate businesses would be housed under one roof. “We didn’t want packed outlets with customers sitting or standing in queues, waiting for their turn,” explains Chowdhary. Digital queue management systems were installed, with customers being called by the number on their token. This also helped in diverting some waiting customers to the Java Green café.

In fact, at most WebWorlds Java Green enjoys the maximum visibility from the street, so that the café attracts walk-in customers as well. The broadband centre and video-conferencing facilities are tucked away at the back, so that the store doesn’t look like there’s no room for more customers.

The well-planned retail strategy may find favour with customers. But competitors aren’t impressed. CEO of Internet service provider Sify, George Zacharias isn’t in favour of mixing business models. “Coffee and computers don’t go together. You’ll need to hire extra people to keep an eye on people who’re drinking coffee while browsing,” he points out.

Others agree, although for different reasons. “It appears to be a confused strategy. Reliance is extending into unknown territories,” says a competitor. “The strategy needs to be sustained nationally to prove it’s working,” says another.

That may take time. As of now, only 10 of the 59 integrated WebWorlds have broken even in terms of operating expenses (minus rent). To prune operating costs, it will need to employ multi-skilled employees who can operate the entire store; at present, WebWorlds have an average of 10 employees for all three divisions. “We are working towards that end,” says Chowdhary. And given that Java Green is a completely unrelated line of business, it is being run by a separate business unit within Reliance WebWorld.

Reliance is also considering offering franchises for the fully-integrated WebWorlds, where the franchisee will be responsible for only managing the outlet — the infrastructure and investments will remain with Reliance. Since the WebWorlds are dogged by low awareness, it will be the franchisees’ task to grow the business.

Next month, 57 stores will be handed over to franchisees, all of whom have completed a nine-week training programme run by Reliance. As more WebWorlds become fully integrated, they’ll be turned over to franchisees within two to three months.

The franchisee route has had a mixed history since 2000 with some other Internet café chains. Sify i-ways, for instance, grew to over 1,900 outlets in less than three years after it allowed franchises; Dishnet Hubs, on the other hand, declared 26 franchises out of 136 unviable within two years of franchising its business.

Sify grew because it worked on its learnings, says Zacharias. The most important was ensuring franchisees did not dodge revenue-sharing by under-reporting Internet usage on PCs. To counter this, Sify developed its own software to track usage per computer.

Reliance is prepared for that, as well. Customers at WebWorld have to use a swipe card on the computer before they can operate it; the card automatically records the usage of the machine and the customer is charged accordingly (charges for the Net and gaming are from 50 to 70 paise a minute).

Nevertheless, the challenge of making this business viable remains. Currently, gaming and broadband each account for 40 per cent of WebWorld’s revenues, while the rest is from video chat.

Java Green cafis.

Java Green’s clientele is still dependent on the broadband centre: it has few walk-in customers. To justify the spend and effort on branding its coffee café, WebWorld will have to see revenues perking up.