Truecaller IPO is the latest on the block for Tech IPOs. This one like all others is "unique". Primarily due to the fact that they are not raising astronomical sums of money and one another reason of their business models concentration risk (2/3rd of users and revenue from India alone).
Before we dive into what the IPO Prospectus and the Annual reports say about their business, important to understand is How does Truecaller make money and what market does Truecaller actually operate in.
Truecaller can almost be classified (more on this in Truecaller Business Model section) as a "Communication Platform as a Service" (CPaaS). This market is hidden in plain sight and is actually filled with a "blessing" of deca/unicorns and soonicorns like MailChimp, MessageBird, GupShup, SendinBlue, Twillio and many more.
Communication Platform as a Service (CPaaS) Business Model
This sector primarily focusses on the connectivity between enterprise customers and their end customers. This connectivity can be of any type - Email, SMS, WhatsApp, App Notifications, RCS (Rich Communication Services) SMS, Telegram, Instagram, Twitter, Linkedin and what nots.
The primary offering of the CPaaS players is the API stack that they have built for connecting to the various modes of interacting with their end customers and this API stack is available on a pay per use model for enterprises.
For e.g. Mailchimp provides email connectivity to SMBs with their customers (more marketing automation here but still), GupShup provides SMS, Email and WhatsApp connectivity to SMBs, Large Enterprises with their customers and so on.
The Business Model here is to charge an upfront set up fee of sorts and then basis the product a usage fee per interaction (e.g. per email, per SMS, per WhatsApp etc.). In turn these CPaaS platforms have to pay back to back fee to the owner of the respective platforms to utilize their infra (e.g. WhatsApp charges fees to CPaaS platforms to provide WhatsApp for Business API to enterprises, Carriers charge per SMS to these companies and so on).
Almost every business (be it a blog like Unicornomy or a Large Bank or a Big Tech) needs to communicate with their readers, customers, users, buyers etc. on a transactional and marketing basis and thus the spends on this kind of global scale & these kind of services is huge.
Mailchimp itself boasted of $700M+ in top line prior to getting acquired by Intuit and that typically focusses on marketing email and automation around email marketing. The below image represents projected spends of enterprises (across the markets that Truecaller operates) in closed loop CPaaS i.e. excluding voice and marketing solutions (which typically form a part of the Marketing business) and focusing on non-intrusive messaging to the user (i.e. transactional communication via email, sms, whatsapps and other social networks etc.). Source: Truecaller IPO Prospectus (by BCG).
Truecaller Business Model
Truecaller is a Caller ID app, why they would consider themselves to be a part of the CPaaS market is an interesting twist to the business model. They primarily sit at the intersection of the user and the enterprise that is trying to reach the user via call/SMS, they neither facilitate the calling nor the SMS sending, instead they "build the wall and give the robber the tools to break in". Thus they let the enterprises communicate with their users/prospects by providing a communications platform as a service.
Truly Marvelous! Below is what led to this amazing flywheel:
- Core Offering: First they allow the userbase to build up using which they are better able to identify users associated to a particular phone number.
- Incentive: Second they ask the user to let them access their phone books (this is used as the 2nd, 3rd and so on validation of the correct name of a user behind a number and form a connection tree of users i.e. which user is connected to which all and so on, so as to accurately let the user know if they might want to answer that unknown number call)
- User Ownership: Third, they ask the users to report unknown callers as spam and other categories, which helps other users to avoid the call altogether, which makes the service more sticky for the user (especially in countries where the telemarketing and voice frauds are rampant)
- Value Proposition: and Finally they go to the caller (SMBs, enterprises) and offer them gatekeeping services for them to passthrough the gate that they built on top of the user's phonebook.
How does Truecaller Make Money
B2C Revenue Model
Truecaller has a Freemium Business Model, where the core offering i.e. the caller ID is free against access to the phonebook as a fee, and the app is laced with Ads. That's almost everything that you can do with the free version.