Coverstory pg[2]: rediff.com: Waiting For the Sun

Waiting For the Sun
(Contn.)

A difficult market, and competition's tough

Interview with Ajit Balakrishnan, CEO Rediff.com

What should worry Rediff, staring at a market very different from the one it practically founded, is competition. Not only is Yahoo!, with five million Indian registered users as opposed to Rediff's one million, in town with an India site, Lycos has followed suit. Other biggies like Microsoft's msn.com and AOL are testing beta sites.

Then, there are the slew of Indian sites, aiming at the same marketplace: access-driven ones like Satyam Infoway's sify.com, Bharti BT Internet's mantraonline.com; content-driven ones like the Times Of India's indiatimes.com and India Today Group Online's india-today.com, and other horizontals like indiainfo.com and indya.com.

Not all will survive. The Asian experience has shown that two, perhaps three horizontal portals will be left standing. Rediff is betting that it will be one of them. Says Balakrishnan: ''Our competition is Yahoo!.. and nobody else.'' Rediff's strategy will be to continue to build on its branding bandwagon by offering services that grab Indian consumers in different markets. To start with, it will soon announce the acquisition of a US pure-play web-site.

Given the problems of connectivity in the domestic market, Rediff's international thrust is natural. It is evident that Rediff doesn't have the clout of other regions' horizontal portals; China's sina.com, for instance, has nearly 498 million page views and five million registered users. What strikes a discordant note is that despite Rediff's initial footprints, particularly in the US market, the usage pattern from overseas is being overtaken by domestic surfers. In fact, Goldman Sachs, the coordinator of Rediff's IPO, has predicted that domestic users will make up 99 per cent of the web-site's clientele in 2004. There is a possibility that Rediff has lost some ground to boutique Indian sites mainly targeted at the NRI community in the US, as well as media portals like indiatimes.com.

Rediff may also go in for domestic acquisitions a la Satyam Infoway. This year, it quietly integrated women's portal footforward.com into itself. At the same time, it has initiated content relationships with partner sites, like zdnetindia.com for technology and bidorbuyindia.com for auctions. While Rediff did not divulge figures for strategic reasons, these co-branding arrangements are an important revenue stream. Goldman Sachs' report says Rediff receives $75,000 (Rs 0.34 crore) a quarter from its content partners.

Simultaneously, with technology costs not an issue, Rediff will continue to develop sticky services on the back of its instant messenger and calendar launched this year. Says Nitin Gupta, 40, COO, Rediff: ''We don't have to invest that much in building the portal today. And our subscriber base and page views are rising dramatically.''

Where does that leave Rediff? With its main sources of revenue yet to reach anywhere near critical mass, Rediff is positioning itself to grab a substantial chunk of the revenues that do come its way. Says Sunil Lulla, CEO, Indya.com: ''Eventually, advertising, e-Commerce, and co-branding will all co-exist, with different inflexion points.'' A crucial point of inflexion will be April 1, 2001. If users do grow to 10 million, as predicted by some, Rediff will be among the sites left standing.

Balakrishnan says he's got the cash to keep going for a long, long while (at existing burn-rates, the money is expected to last at least around 60 months). Balakrishnan hasn't said anything about selling out yet, but this 'serial entrepreneur' has got off the companies he's promoted: in 1992, he offloaded his controlling interest in PSI Data Systems to Groupe Bull, and he has also sold some of his stake in the ad agency Rediffusion to DY&R. The question is whether Rediff will tweak its model, and barter its independence, in that road forward.

Additional Reporting By Brian Carvalho, Pooja Garg, & Roshni Jayakar

INTERVIEW
"Yahoo! is our competition. there's nobody else..."

Ajit Balakrishnan was in Delhi recently to break nine months of 'strictly enforced solitude'. He spoke at length with BT's Sunit Arora and Pooja Garg. Excerpts:

Rediff's current valuation: At $10 something, we are doing very well by the standards of emerging market portals. Life after an IPO is quarter to quarter...questions are being raised about good and bad revenue streams. Some have questions about the size of the market. The other factor is the Indian currency price.

Rediff's pure-play model: Pure-play portals are not under a crystal dome. The market says if you are a leader, you are a winner. It's an old model, and is exactly that of Yahoo's.

The competition: Yahoo! has been around for five years. They are the competition...there's nobody else. In terms of horizontal portals, maybe three... maybe two will survive.

Access: I have people who say Ajit, we'll give you money, but you don't go and fund access companies. They are terrified of access. If MTNL did not have access, it would die. But from a pure portal's point of view, it's suicide. The economies are against you. Sure, the bigger guys think that they can create their own portals. The moment ISPs set themselves up to compete with the world wide web in terms of content, they are gone.

e-Commerce: E-tailing sites will attract a horde of customers, and disintermediate all other middlemen and companies. e-tailers are not able to make more than 10-20 per cent gross margins. That's because they do not, yet, have the volumes that Walmart has. Consumer expectations of delivery are so high that unless you have your own logistical and warehousing system, you can't cope. So you have all the costs and then some more!

B2B exchanges: I think Satyam is seeing something we are not seeing. Their eyeglasses are different from ours. B2B exchanges can work in fragmented industries. However, the players do not have the technological power to put these things together. To succeed in an exchange, you need extensive domain expertise, you need to have relationships.

On future Indian IPOs: No company now going in for an IPO will get admitted unless it is a leader of a large-enough market, its revenues are growing by 50 per cent in the last two-three quarters, gross margin must be at 60 per cent plus, and consumer acquisition cost must be on the decline. Now, this is a big change.

Cash burn: We are spending up to $900,000 per month. Having cash in bank is absolutely necessary. If you look at dot.coms trying to get second and third rounds of funding, then... we are extremely careful about cash. Cash is gold.

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