Asia Times: India's great portal crash


	January 31, 2001	atimes.com

India/Pakistan

India's great portal crash
By Raju Bist

MUMBAI - Within a single month, October 2000, Yahoo, Alta Vista and Lycos launched their Indian Internet portals. The official reasons they gave for their entry: India's increasing net presence and a growing demand for Indian content. The unofficial reason: fear of being left behind in the race as new portals kept popping up every other day.

About two years back, there were only about 100 Indian portals. Now, there must be 500 times that number - the correct figure is anybody's guess.

According to one estimate, Mumbai ranks 10th in the world among cities with the largest number of websites. Feeding the Indian surfer's seemingly insatiable appetite for new sites are a host of established business houses as well as brand new entrepreneurs.

Recognized media operations like The Times of India, The Indian Express and Hindustan Times have jumped on the bandwagon. Australian media tycoon Rupert Murdoch has taken a stake in indya.com, promoted by local networking giant Microland.

But the largest number of portals - and some of the most interesting ones - have been developed by young Internet entrepreneurs. Unlike the biggies, these wannabes are handicapped by limited budgets and hence are concentrating on smaller, niche, vertical portals, or "vortals". A vertical portal is a better bet because it is easier to distinguish oneself by targeting a niche segment.

Manu Agarwal, director of Design Expo Network Pvt Ltd, a Mumbai-based Web-based integrated solutions provider, explains the mad rush for setting up portals: "It is an easy business to implement. You need in-depth knowledge to start any other business like steel or cement. Here, at least conceptually, things look easy. The net also theoretically allows you to sell to millions."

Most of the entrepreneurs were attracted by the crazy valuations that were being attached to dotcom companies. Rajesh Jain started indiaworld.com with a small office and a staff of three. Four years later, he sold it to Satyam Infoway for Rs5 billion (US$110 million). Alok Kejriwal, CEO of Contests2win, started off with Rs2,000 and built a site is worth Rs900 million.

The honeymoon, though, is finally over. In the past three months, the rug has been swept from under the feet of many Indian dotcoms. Some of them have slashed their staff numbers. Others have suspended operations for want of funds. Among the high-profile ones that have met an early, unexpected demise:

totalcricket.com, promoted by Mark Masceranhas of WorldTel fame;
Agriculture vortal mahamandi.com, launched by Mumbai-based PR firm Adfactors;
musicurry.com was acquired by indiainfo;
Indian operations of the US-based chaitime.com;
Pacific Internt shut down its Indian operations, and;
Madhu Trehan-promoted wahindia.com.

Initially, most of the portals were funded by venture capitalists. But once the initial round of funding dried up, it was time to take a closer look at the bottom line. And in most cases, the balance sheets seem to have been splashed with red all over.

In a way, the venture capitalists (VCs) themselves were to blame. Most of them were funded by overseas VCs flush with profits from the booming Nasdaq. The Indian VCs - as well as the clients they were funding - did not have a clue about dotcoms. Money soon started flowing like the Ganges. But it was only a matter of time before it dried up.

While setting up their portals and splurging on fancy advertising campaigns, the net-entrepreneurs had preferred to turn a blind eye to the special drawbacks of the Indian market: inadequate bandwidth; low Internet user base; poor PC penetration; high access cost; and Indian inhibitions over using credit cards.

Another big problem was that most of the Indian portals were saddled with a "me too" image. The general portals, adopting one of the easiest formats, displayed the usual content: a little bit of breaking news with add-ons like chat, mail, horoscope and weather.

When Indian portal developers made their initial forays, they had not looked beyond banner advertising as a revenue stream. But they soon realized their short-sightedness. "In 1995, 2.5 percent of net surfers clicked on banners. Today that figure has fallen down drastically to 0.36 percent," says Agarwal. The future, he says, will belong to companies which can successfully exploit the "click and mortar" model. "The Net will simply end up as a front-end marketing tool," he adds.

According to analysts, the number of Indian websites and portals was growing at a faster pace than the market. There was a lot more activity out there than was justified. The portals needed to generate astronomical revenues to justify their existence.

Amar Sinha, another director at Design Expo, feels that those without fat purses, who do not have the staying power for at least another three years, are the main sufferers in the shake-out that has begun. "The non-serious are being weaned away. Now, the professional dotcoms will consolidate their positions by acquiring brick and mortar companies."

According to Macrina Benjamin, operation manager (India) of Web solutions company NRI Network Corporation, service-oriented sites like those catering for travel, health and fitness, and Indian antiques have a very good chance of survival. "These sites can earn revenues if they can think up an appropriate marketing strategy module. What they should keep in mind, however, is that there has to be a lot of interactivity with visitors to their sites. Only such sites will be able to survive and sustain."

Speaking in a similar vein is adman turned Net-entrepreneur Sanjay Bapat, whose vortal on non-governmental organizations has attracted funding from automobile giant Mahindra & Mahindra. "Only commercial sites will survive - those that will be able to attach physical things to the Net." Another category of survivors, he continues, will be found among those portals that offer clearly demarcated services. "People will not pay for surfing or for hosting a couple of pages," says Bapat. "Only portals that offer transactions will have long life."

Agarwal feels that in the long run, Internet service providers (ISPs) are best suited to emerge as winners, for the simple reason that there are more surfers in India than there are on-line customers for any product or service. In 1999, the country's 340,000 customers of ISPs spent a whopping Rs2.4 billion simply to stay connected to the Net. Also, even though the number of PC-owners in India is minuscule when compared to Western countries, technological developments now allow people to surf the Net by using their TVs. So, the ISPs straight away have another 55 million potential clients to cater to.

But the real fun lies in extending the reach beyond the confines of being merely a connectivity provider - which is exactly what some of the wiser ISPs are doing. From connectivity providers they are metamorphosing into service providers - just as their name suggests.

Thus, Satyamonline is offering additional user features like greeting-card services and free classifieds. Another ISP, Mantraonline, has added corporate services like setting up intranets, extranets, and virtual private networks.

The bloodbath has begun but amid all the drama, a few wise ones will definitely survive.

(Special to Asia Times Online)