Earlier this month, Pepsi India did something that no advertiser would have dared to do before. It launched a TV commercial on the internet. The three-part 'webisode', featuring Pepsi's brand ambassador and Bollywood superstar Shahrukh Khan as a flirtatious snake charmer, ran on Yahoo! India for an entire week and was a teaser for the TV spot that debuted later. This was the first time in India that an internet commercial was produced simultaneously with the TV commercial. "It shows the increasing importance youth marketers like Pepsi are attributing to the digital media," says Pearl Uppal, Sales Director, Yahoo! India.

Pepsi's innovative strategy of premiering a TV spot on the net is a pointer to how the Indian internet business has come of age. Ten years after the beginning of the commercial internet era, advertisers are finally taking notice of it. There are numbers to prove that: last year, media portals like Yahoo!, Rediff, Indiatimes, msn India and Sify had a combined advertising revenue of Rs 105 crore and are expecting to grow that by 50 per cent this year. Says Sanjeev Bikhchandani, CEO of India's largest jobsite Naukri.com, which is also one of the biggest advertisers on the net with some Rs 10 crore budgeted for online ad-spend this year: "There is a clear revival of internet advertising in India. We ourselves have doubled our online ad budget."

Rediff's Balakrishnan: Well, he sure has reason to smile

The Boom Is Here

For others, like Rediff.com, India's oldest (founded in 1995) internetmedia major, the increased online ad spend has meant a turnaround in fortunes. Riding on the boom, Rediff has been able to cut its net loss for the year ended March 31, 2005 to $1.4 million (Rs 6.16 crore) from $5.7 million (Rs 25.08 crore) in the previous year. In the first quarter of this year, Rediff's India revenues grew 114 per cent.

Says Rediff.com's Chairman and CEO Ajit Balakrishnan: "The beginning of the revival (of online advertising) actually started 24 months ago. But in the last 12 months, it has been great going." Now Balakrishnan has reached a stage where his advertisers have to wait for buying space on his portal. "We have all our inventories sold out," he smiles. Ditto at Rediff's rival Yahoo! India. "Ad inventory is in short supply. From October onwards, we are increasing our rates," says Neville Taraporevalla, Country General Manager, Yahoo! India. Portals like msn India and Indiatimes, too, claim that they have seen a 100 per cent year-on-year growth in ad revenues in the last two years.

What is interesting is, along with the boom, ad rates have also gone up. The rates for premium positions charged by Rediff and Yahoo! are as expensive as front page ads of a national daily. Rediff's Balakrishnan says he would charge anywhere between Rs 5-7 lakh a day for a display ad on the home page. Yahoo! raked in a whopping $25,000 (Rs 11 lakh) for two days for the Oye Bubbly campaign it did for cola major Pepsi. Says Taraporewalla: "We don't take ads for less than $3,000 (Rs 1,25,000). That's our minimum ticket size."

Growth Drivers

So, the internet in India has finally made its cut as a serious advertising vehicle. What has been driving the growth? First the broad numbers. India currently has 40 million internet users according to estimates available with this magazine (Software lobby Nasscom's projection for 2005 is 52 million). Companies like Yahoo! and Rediff, however, believe the number is smaller, around 25 million. Either way, that's up from a mere one million in 2000. This is expected to grow at 20-30 per cent year-on-year. But more than numbers, it is the category of users that online media companies serve up to advertisers that matters. The internet has penetrated over 30 per cent of India's English-speaking urban audience. About 60-70 per cent of the brand decisions on consumer categories like cars and houses are taken by people in the age group 20-35, where internet has penetrated more than 50 per cent. Says Rediff's Balakrishnan: "Most of them don't read newspapers or watch TV." So portals are pegging internet as a medium to reach this influential class of consumers.

An interesting twist to the story is that some of the ad-spend going to traditional media will now be diverted to the internet. India's total advertising market (print plus TV) is about Rs 10,000 crore. Print has a readership of 40-50 million, and accounts for Rs 4,500 crore or 45 per cent of this market. But print readership as well as print advertising is stagnating. So with internet grabbing more users, there is likely to be a shift in advertising-although marginal-from print to online.

Times Internet CEO Mahendra Swaroop: Boom time	Yahoo! India's Taraporevalla: Plans to hike rates

According to Balakrishnan, the inflection point for this shift will happen when India's internet user base reaches 40 million-comparable to the print reader base. By some estimates the growth in online advertising we are seeing right now is because that point of inflection has been reached. According to Balakrishnan, India is expected to have such a net base in two or three years.

Currently, the ad revenue per internet subscriber in India is $1 (Rs 44) as against $4-5 (Rs 180-220) in the developed markets. "As the net user base expands, we expect the per user monetisation to reach at least $2 (Rs 88) in India," says Rajneesh, Head (Marketing), msn India.

So who are the advertisers? Currently, internet job portals (like Naukri and Monster), matrimony portals (Shaadi, BharatMatrimony and Jeevansathi) and travel portals (makemytrip.com) account for about 25 per cent of the total online ad-spend, followed by financial services companies and banks like Citibank, HDFC, ICICI Bank and Tata AIG accounting for 22 per cent (see Eyeing Eyeballs). Says Vijay Ramachandran, Marketing Director, e-business, Citibank, "Online advertising is a significant component of our advertising plan, accounting for over 10 per cent of our total media spend." Ramachandran adds that the company will increase its online spend by 20 per cent year-on-year.

Mediaturf's Ramani: The internet can no longer be ignored	MSN's Rajneesh: Forsees surge in ad revenues

But, says Yahoo's Uppal, the next stage of growth will come in from traditional advertisers in categories like FMCG (HLL, Pepsi, Coke), telecom (Airtel, Tata Indicom, Reliance) and automobiles (Maruti, Tata Motors and Hyundai) whose share in online ad-spend could go up to 40-50 per cent from the current 30-odd per cent. Says Vipul Prakash, Executive Vice President (Marketing), Pepsi Foods: "I expect marketers, at least in our industry, to allocate 10 per cent of their total ad budget to online in the long term."

If Prakash's prediction is true, that's big money. For instance, Hindustan Lever alone has an ad budget of Rs 700 crore a year. In fact, the trend has already started. Lever has created a separate online ad budget (for its products like Axe deodorant and Close Up toothpaste, both targeted at the young consumer). Says Rohit Sharma, Head, Sales and Marketing, Times Internet Ltd, which runs seven online portals like Indiatimes and TimesofIndia.com, "They (Lever) have bought media from us for the whole year."

Besides, other traditional advertisers like Maruti and Tata Motors are increasingly looking at the net for customer acquisition and have started spending more. Says V. Ramani, CEO, Mediaturf, the leading online media agency: "The willingness of marketers to view the internet like other media forms is the key behind the recent trend." And with the net garnering increasing numbers of users, there will be no other way for marketers to view it.