Indian portals: Who will survive?

Arif Sharif

NEW DELHI: Indian Internet portals were investors' darlings less than a year

ago, as every Web start-up in the world's largest democracy promised to be a

success story.

But as the woes of US Internet stocks dry up financing and big foreign

players arrive on the subcontinent, the question has changed from "Where to

invest?" to "Who will survive?"

"You could see a shake-out very soon, probably over the next 12

months," Satyam Infoway chief operating officer George Zacharias told

Reuters.

Like their counterparts in the United States, Indian portals are discovering

the hard lessons of the Internet boom.

They provide a great service. They are doorways to the Internet, full of

news, chat and links to other sites. The problem is: the service is free. To

earn money, they have to sell advertising space on their sites, through banner

ads.

But even in the United States, the cradle of the Internet, portal sites have

difficulties meeting costs through ads alone. While India's population, at one

billion, is four times that of the United States, just 1.5 million Indians are

wired up, against 81 million Americans. The Indian numbers are expected to more

than double to 3.6 million by 2002, but until then, the pickings promise to be

slim.

India's annual advertising spending on the Net is estimated at no more than

Rs 350 million ($7.6 million), hardly sufficient to support a crowd of portals.

Only the strong



Analysts say the only portals that will survive are those strong enough and cash
rich enough to wait until Internet connections reach critical mass.

"The winners will be those with history, existing market position,

financial and operating leverage and clear path to profitability," said

Goldman Sachs Internet research head in Hong Kong Rajeev Gupta.

Sector leader Rediff.com is acutely aware of this and has used a listing on

the US Nasdaq exchange to arm itself with $64 million in cash–enough to see it

through several years at its current cash burn of about $1 million per month.

Rediff's frantic spending on advertising and operations clocked up operating

costs of $8.4 million in the year to March 31, against sales of just $1.8

million.

"Having cash in the bank is absolutely necessary... we are extremely

careful about cash. Cash is gold," Rediff CEO Ajit Balakrishnan told

Business Today magazine last week.

Increasing competition



But tougher conditions don't seem to faze the hopeful, as more and more
start-ups crowd into the market.

Besides Rediff, which boasted registered page views of 109 million in June,

there is Satyam Infoway, whose sify.com site had 80 million page views in the

same period.

Other players include Indiainfo.com with page views of 60 million per month,

indiatimes.com, 123India.com, indiaworld.com, Hungama.com and mantraonline.com.

To make matters worse, foreign competition has arrived, lured by India's

enormous potential and rapid growth.

Global portals such as Yahoo Inc!, Lycos and Altavista which offer material

geared to draw Indians on their sites, are fishing in the same shallow pool.

Cash reserves apart, the other keys to survival will be to crack e-commerce–selling

via the Internet–and to offer "vertical" portal services.

In contrast to horizontal portals, which try to offer something for everyone,

vertical portals offer highly specialized content, aimed mainly at the business

world.

Setting up a vertical portal could be easy, but e-commerce will take a while

to develop.

Besides transport woes and difficulties with electronic payment, India must

update its laws if e-commerce is to take off. Only in May, it introduced a law

to facilitate e-commerce by legalizing electronic transactions.

The National Association of Software and Service Companies has estimated

business-to-consumer transactions at Rs 18 billion in the year to March 2002,

against Rs 132 billion from business-to-business transactions. Portals unable to

win a slice of this pie will be forced out.

"Across Asia, the consolidation will progress in three phases, first

domestic firms amalgamating, then listed firms buying up unlisted ones and then

international firms buying up both listed and unlisted domestic firms,"

said Gupta.

(C) Reuters Limited 2000.