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gunfight@okportal

Rediff and sify, chalk and cheese, rule the web in India now. But will they in another three years?

gunfight@okportal
outlookindia.com
-0001-11-30T00:00:00+0553

August 24. Dreary, drizzly Mumbai evening. But George Zacharias, president and coo of Satyam Infoway wasn’t going to let that dampen his spirits as he settled down to watch leotard-clad dancers perform at the rechristening of satyamonline.com as sify.com at the Taj Ballroom. "Bano No. 1!" full-page newspaper ads had screamed that morning, and that was exactly what sify.com wanted to be: India’s numero uno portal. "If any Indian wants to use the Net to search, learn, communicate, buy or just hang out and have fun, we’d like it to be on sify.com," says Zacharias.

That’s a big statement, and it wouldn’t have gone down too well with Ajit Balakrishnan, chairman and ceo of rediff.com, currently India’s most popular portal. While Balakrishnan is chary of discussing competitors - he prefers to talk about benchmarking himself against global godzillas like Yahoo!, msn and Sina - as you cajole and coax him, he’ll admit that sify is his closest rival.

bid4india What are the stakes? Huge. According to rough estimates, India has only about four million Internet users today, but according to International Data Corporation projections, that could jump to a huge 13 million users by 2004. And rediff and sify may be small companies by old economy standards (Satyam Infoway has a total turnover of Rs 67 crore, while rediff’s is Rs 8.6 crore) but they are also very big. Rediff gets 100 million page views a month and Satyam manages 80 million. Rediff has just raised $58 million on the nasdaq, while Satyam has spent $158 million on acquisitions alone. The top three portals in the US - yahoo!, msn and aol - control around 45 per cent of all Net advertising in the country; the rest fight for the crumbs. In India, rediff and sify control 70 per cent. None of the other Indian horizontal portals can charge the kind of money these two charge to place vertical portals on their platform. icicidirect.com and Apollolife.com pay Rs 6.5 lakh a month to sify.com for a button on the home page, while the five vortals on the rediff site reportedly pay close to a crore a year.

Yet, even as leaders, rediff and sify are not assured of survival. Competition never ever eases. And on the Net, you die far faster than in the real world. Darwin’s theory is applied with ruthless efficiency. Within months, Satyam Infoway’s market cap has plunged from $6.7 billion to just over a billion today. And rediff.com’s share price halved within weeks of listing on nasdaq from $20 a share. Today it floats at $9.8 to a share, compared to the list price of $11. "At best, three horizontal portals will survive in India," says G.B.S. Bindra, ceo of Firstandsecond.com, the country’s largest book e-tailer. "One will be a homegrown Indian portal, another will be a foreign portal’s Indian edition, while the third position could go either way."

growing2fast? Both rediff and sify have been growing at a staggering pace. In 1997, rediff had a puny $86,000 turnover. In three years, it has increased 23 times to $1.9 million. Satyam Infoway’s ramp-up has been even faster. The company, which began operations in November 1998, had a $200,000 turnover that year. Today, that number has multiplied itself a mindboggling 75 times to $15 million. But in the process, rediff also ran up $6.7 million (Rs 30.5 crore) in losses last year, while Satyam’s losses touched Rs 48 crore! How long can you keep this up? Yes, US investment bank Goldman Sachs expects it to be a $795-million company with $477 million in profits in 10 years, but how feasible is that?

The good news for the two portals is that already both have a very favourable revenue number for every 1,000 page views. "We get about $3 per 1,000 page views," says Balakrishnan. While sify.com claims revenues of $3.33 per 1,000 page views. That’s just a shade below Yahoo! Inc, which earns $4.8 per 1,000 page views. This, when it has an additional revenue stream in e-commerce, which accounts for about 20 per cent of its turnover. In contrast, both sify and rediff now earn only about five per cent of their revenues from e-commerce.

But you can bet your last Internet hour that portals like indiatimes.com, which follow closely behind the top two - with all Times of India properties reportedly getting 55 million page views a month - and 123india.com which claims roughly the same page views as sify’s, apart from new kids on the block indya.com and go4i.com believe that they are still very much in the running.

One reason rediff and sify are ahead of the pack is that they’re both listed on nasdaq. And money matters. "Technology is going to get more and more expensive, as are people in the technology world," says Zacharias. "Plus, customer acquisition costs are only going to go up." Then, a publicly listed stock gives companies the currency to acquire. Satyam has already spent $88 million in cash and $70.5 million in stock to acquire indiaworld, indiaplaza and a 25 per cent stake in cricinfo. Balakrishnan’s following suit. "We want to acquire Indian interest portals in the US, the UK, Southeast Asia and the Middle East, with managements that have the ability to run the portal business."

Plus, it’s also about size. The earlier you get size and scale, the greater is the advantage over your competitors. "Size gives you the networking effect," says Zacharias. That’s why sify has tied up with aol to use its messenger service. Since the aol messenger community is huge, more and more people sign up on it to be a part of that community.

verydifferent.coms What is interesting is that while their aspirations are the same, rediff and sify have charted out very different routes from each other. Rediff, the pioneering portal in India, was born in December 1995. Sify began operations only in November 1998. "Rediff had the luxury to take time and develop content," says Sanjay Jain, partner, Andersen Consulting. "Sify doesn’t have that luxury since 20 other people have already thought of the same idea." Since it was the first, and the Net was very new in India, rediff did everything on its own. It hired journalists to develop content, bought products from wholesalers to offer shopping on the Net and developed software on its own. For instance, its rediffmail and messenger services have been developed in-house.

In contrast, sify was always battling against time and trying to play catch-up. That’s why it has had to buy indiaworld, indiaplaza and cricinfo, all for a total consideration of $158 million in stock and cash, which some believe is far more than it should have paid. "The cost of acquiring websites is coming down, because most dotcoms are at the end of their tether, with many having trouble completing their financing," says Jain. But since sify was compelled to buy early, it had to buy expensive. Compared to sify’s $158 million figure for acquisitions alone, according to Balakrishnan, till March this year, net investments in rediff were only $10 million. "We are very conservative and hate the idea that we make losses. Page views alone cannot be a reason to acquire," says Balakrishnan. Its only acquisition being a 26 per cent stake in a women’s portal, footforward. com, this February.

Sify and rediff are also two different business models. Rediff is a pure portal play, while sify.com draws on the access strengths provided by the company’s isp service, which has over 200,000 subscribers. That’s very much like the aol model in the US. The theory is that if you control Internet access and your portal comes up as the default site when the subscriber logs on, plus you have a good horizontal portal, the customer is yours. Milk him for e-commerce - as and when it finally takes off - get him to use your search, e-mail and content services, and rake in the advertising moolah. With Internet prices dropping - isps now charge approximately Rs 15 per hour for Net access, down from the Rs 40 that they began at - sify.com could provide more revenues for Satyam Infoway than its isp business.

But the key is, how many of Satyam Infoway’s Internet subscribers have retained their default page? Changing it is not at all difficult for Internet-savvy subscribers. Balakrishnan claims that 70 per cent of Satyam Infoway’s Internet subscribers log on to his site. Zacharias refuses to give out numbers but believes that the percentage of Satyam Infoway’s Internet subscribers changing their default page will come down. "Those who use the Net right now are very technology-savvy. The next wave of Net users will be less so, and the ones after that even less. They won’t know how to change the default page and will use sify.com."

Satyam Infoway has in the past relied on the brand strength of its various vertical portals, like samachar.com, khel.com and khoj.com - all acquired from indiaworld - to tot up page views. In fact, its home page earlier had the rather tedious title of satyamonline.com. Only now has it been rechristened sify.com. Says Zacharias: "Sify.com gives the portal its own identity." In contrast, rediff has relied on the strong brand equity that it has built up as India’s leading horizontal portal, to attract users. "Even when we acquire portals abroad, they will come under rediff.com’s umbrella brand," says Balakrishnan.

The two biggies on the circuit are also looking at different avenues to engineer future growth. Rediff has so far targeted surfers in India. "About 70 per cent of our users are based in India," says Balakrishnan. However, sify.com gets only about 55 per cent of its page views from India. The rest are accounted for by NRIs, thanks to an extent to its acquisition of indiaworld, which had a strong franchise overseas. Now, rediff is looking to focus on the overseas market as well. "Our first goal is expansion through acquisitions," says Balakrishnan. The company has reportedly shortlisted three overseas companies already. On the other hand, sify is looking to increase its domestic users through its control of Internet access.

herecomes.world The new variables in rediff and sify’s gameplans, however, are the international portals which are getting into the Indian market with seemingly bottomless war chests. Yahoo! and other global portals like Lycos launched their India editions earlier this year. While Yahoo! refuses to disclose numbers, the site is reportedly getting 20 million page views a month already. And its advertising numbers have ramped up faster than any other Indian website. "Yahoo! sold out its entire advertising inventory till September in July itself," says Vinod Nambiar, ceo of the Internet advertising company Webshastra. That’s something these two Indian sites have never managed. "And that too at Rs 750 per cpm (cost per thousand clicks), compared to rediff and sify’s highest card rates of Rs 650-700." Strange, considering ad agencies have been wary of Internet advertising. "Clients are still fence-sitters because portals haven’t done a good job marketing themselves," says Gopinath Menon, executive media director, tbwa/Anthem.

"The race to be India’s number one portal has hardly begun," says Manpreet Singh, managing-director, Multiple Zones, a computer e-tailing company. After all, users still haven’t selected their e-commerce platforms. Yahoo! will launch its e-commerce services in another 8-10 months. "E-commerce won’t happen before that," says Yahoo! India’s head of sales, Rajiv Hiranandani. The portal that emerges as the preferred platform can then safely assure itself of a place on the winners’ podium. Rediff’s marketplace, where it has 150 vendors - paying a fixed sum plus a transaction fee to rediff - selling their wares, and sify’s $8.1- million acquisition of the US-based indiaplaza, which will add $100,000 a month to its topline, are attempts to occupy the e-commerce slot.

Admits Balakrishnan: "We are all babies at the moment." That could mean two things: one, that enormous vistas lie ahead to be conquered; and two, there’s much much more to learn to face life on your terms. Whatever the future’s verdict on rediff and sify, one fact is, however, clear: it’s been two tough infancies. Which have created two rugged children.

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