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JUNE 3, 2007
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Trillion-Dollar Club
India has joined the elite club of 12 countries with GDPs in excess of a trillion dollars. The country's GDP crossed the trillion-dollar mark for the first time when the rupee appreciated to below Rs 41 against the greenback. According to a report by Swiss investment bank Credit Suisse, India's stock market capitalisation has risen to $944 billion (Rs 39,64,800 crore), which is also closing in on the trillion-dollar mark. An analysis of the Indian economy.


Minding The Monsoon
The India Meteorological Department's prediction that the total rainfall in the coming monsoon season is likely to be 95 per cent of the long-period average, with an error margin of 5 per cent, is good news for agriculture. But experts say there's a need to revamp monsoon prediction so that the region-wise and timing of rainfall patterns can be forecast much earlier. A look at the credibility of monsoon models and their impact on agriculture.
More Net Specials

Business Today,  May 20, 2007

 
 
It's Back
Dotcom funding has jumped 10 times to $166 million, all the internet giants, including AOL now, are in, and old media is taking to the net with a vengeance. Something's different about the internet's second coming in India: The players are going all out to make the market happen.

Roving arc-lights, a mock up of the Golden Gate Bridge and dark-suited security men whispering into their two-way microphones. The visit of AOL's Chief Operating Officer Ron Grant to India a couple of weeks ago to launch the company's country-specific portal was meant to be a high-decibel event. For good reason. AOL, which has had a call centre in Whitefield, Bangalore, for about five years now, is a lot late to the Indian internet market compared to its global rivals such as Yahoo!, msn (of Microsoft) and Google. That's a pity because, as part of the $44-billion media behemoth AOL Time Warner, AOL is the only media conglomerate of the four. "We're very excited about our launch in India and believe this market can be a key growth driver for us globally," says Grant.

Wait a second. What are we talking about here? The future of global internet giants riding as much on India as on the us and China? That's a joke isn't it, considering that everyone knows India has less than 50 million internet users, just a little over 2 million broadband connections and a minuscule online advertising market worth Rs 240 crore? "It is definitely not the current market base or size that is enticing any player worth his salt to come here," admits Jaspreet Bindra, MD, msn India. "Everybody wants to get in hoping that they can play a seminal role in influencing the shape of the market." Adds Sandeep Singhal, Managing Director, Sequoia India, the most active venture capital (VC) firm in the Indian internet space: "These numbers are eerily similar to those of the us a decade ago. In 1997, in the US online ad spend was just around $65 million. Today, it is probably more than $10 billion. I see a repeat of that kind of growth happening in the Indian market."

"If somebody announces unlimited mail storage, others will offer it too"
George Zacharias
Managing Director/ Yahoo! India

Well, folks, in case you haven't noticed, the internet is back. In calendar 2006, according to Venture Intelligence, 27 dotcoms got funded compared to just two the year before. The VC investment also shot up from $17 million to $166 million, and in the first four months of this year, while fewer dotcoms have been funded-four versus eight in the same period last year-the average investment is higher at $5.25 million compared to $4.75 million. In some sense, then, this is Indian internet's second coming. And this time around, there's a fundamental difference. Earlier, VCs said 'show me the business plan', but now they are saying 'show me the money'. Says R. Ramraj, former co-founder CEO of Sify: "You will be laughed out if you try to raise money based on just an idea. You need to have a concrete business plan and indicate how exactly you are going to make money."

"India is a top growth driver for AOL and the growth of the online ad market is a positive sign"
Manish Dhir
Executive VP/
AOL India

From the overall internet environment, too, things seem far more propitious and real. The market, for one, is growing at close to 100 per cent year on year, and over the next three years or so, the user base is expected to touch 100 million, with over 10 million broadband connections. The bandwidth costs are falling by half every 18 months and those of storage costs, every 12 months. it and Telecommunications Minister Dayanidhi Maran is talking of cheap (perhaps, free) broadband, besides setting up 100,000 cyber cafes in India's hinterland to bridge the current digital divide. Some others are talking of low-cost PCs for kids, while yet others are working on applications that don't require users to be literate. Says Rajan Mehra, Country Manager, eBay India: "Around 12,800 people in India use eBay as their primary source of revenue and there is a growing number of such sellers, specifically from the smaller towns. Going ahead, we see more opportunities in the non-metros." Meanwhile, thanks to the mobile revolution, millions of Indians are getting onto the wireless bandwagon, giving marketers an alternative, but merging, technology with which to tap them.

The biggest reason of all, and which is driving old media towards the internet (see Attack of the Old Media, page 62), is that advertisers are getting serious about online advertising. Says Tushar Vyas, National Director (Interaction), Group M: "Many clients are talking about spending 8-10 per cent of their total ad spends on online advertising." Such clients, Vyas says, include marketers of mobile handsets, computers & peripherals, travel & tourism, and banking and financial services. One should add car-makers as well. Maruti Udyog, for instance, has used the internet aggressively ever since it launched its B-segment car Swift, and now it plans to launch a massive internet campaign to promote its newly-launched sedan, the SX4, which already has a micro-site (www.marutisx4.com). Says Mayank Pareek, General Manager (Marketing), Maruti Udyog: "Online, you know your customers better, they visit the site because they proactively click a link after seeing an advert in some of the larger web-portals. On TV, you hope that your target customer sees the advert, but online you know that they have, and we can even target them better." More importantly, a buck goes farther online than in any other medium in India today. More about that later.

WIRELESS SWEET SPOT
In India, internet companies have to crack the mobile market.

All the major players on the internet are eyeing the mobile space. If you are wondering why, the answer is simple. India has an installed base of around 20 million PCs that is growing by 5 million every year. In contrast, India's mobile phone user base has crossed 170 million, with 6 million new connections getting added every month. Jaspreet Bindra of MSN India says that "the intersection between mobile and PC is the Holy Grail. World over nobody has been able to completely crack it". In India, it is even more of a challenge because mobile operators control the entry point for value-added services, and retain chunk of the revenues from such services. Says the head of another portal who did not wish to be identified: "Given the growth happening in voice, the operators are not too focussed on value-added data services. But once the ARPUs (average revenue per user) start declining, things will improve."

Meanwhile, the internet companies are taking baby steps towards mobile. AOL has engineered an e-mail application specifically for mobiles, Google has tied up with several mobile telecom firms for mobile search (and is reportedly considering offering its other services such as Google Talk, Maps and AdWords), while Yahoo has launched a complete package for GPRS-enabled handsets called Mobile Internet, which allows users to access its entire suite of applications on their smart phones. Local players such as travel portal Makemytrip.com and IRCTC have also tailored applications for the cell phone, while many industry watchers see hybrid companies such as JiGrahak that combine the internet and mobile phone as the next big wave in India. Others like Monster already offer SMS job alerts and may soon allow users to upload resumes via mobile phones.

Sure, there are just two million smart phones in India, and even fewer net-enabled, but that's not a big hurdle. If consumers find enough value in buying higher-end handsets, they will.

 

"We see ourselves as the only real portal from India and benchmark ourselves with global competition"
Ajit Balakrishnan
CEO/ Rediff.com

The Portals Hot up

Typically, a portal is the first stop for an internet user. According to some data, of the 40 minutes that the internet user in India spends online, 23 minutes are spent on portals, including e-mails. The advertising revenues for the internet portals come from three sources: Classifieds, display, and search. Most of the revenue from classifieds goes to domain-specific verticals such as travel, jobs, matrimony or real estate (see Vertical Limit, page 66), and what the general portals (Yahoo!, msn, Rediff, Sify or AOL) get are money from display and search ads. As can be expected, there is fierce competition for this ad spend. Google, Yahoo!, msn and AOL joust not just with each other, but also home-grown rivals Rediff and Sify. Each player, therefore, is drawing up its own strategy to get a leg-up in the online marketplace. Things like e-mail, instant messenger, and search are all passé. These are considered hygiene factors. Says George Zacharias, Managing Director, Yahoo! India: "If somebody announces unlimited mail storage, others will offer it too." So, each of them is plotting its own moves to attract eyeballs, as well as improve stickiness. The goal: make their own portal the entry point for your experience on the world wide web.

AOL, for instance, offers unlimited e-mail storage, but more importantly, has started a dedicated Bollywood channel, CityGuide, an education portal and offers videos of top global music hits to improve its stickiness. "The Indian market is in its infancy as yet and we don't think internet users have built up strong brand loyalty to any specific portals yet," reckons Manish Dhir, Executive vp and Country Head, India, AOL, who was responsible for setting up the portal's India operations. AOL is the first portal globally to have the head of its international operations in Bangalore. "India is among the top two or three growth drivers for AOL globally and the growth of the online ad market and the broader markets are positive signs for us," says Dhir.

The person entrusted with the portal's India operations P.G. Ponappa, Vice President and General Manager, AOL India, sees the burgeoning online ad market as an immediate target. "Today, less than 2 per cent of the ad spend is online, but even if that goes to 4 per cent, that's a significant opportunity for companies like us," he explains. Zacharias of Yahoo! points out that in developed markets online ad spends tend to be around 15 per cent of the total ad spend, and that it is 4-5 per cent even in China. "The moment we have 10 million broadband connections and at least 5-10 per cent of the ad spend coming online, we are talking serious numbers here," says Zacharias. It isn't as far fetched as it sounds. Next year, the online jobs (classifieds) market will become larger than its print counterpart with revenues of $120 million.

THE MSN-YAHOO! DEAL
The deal makes sense for both as they can take on Google together.

For more than a year now, there have been rumours of software giant Microsoft making a bid for Yahoo!. Over the last few weeks, the rumours have gained ground, and many expect Microsoft to make a $50-billion bid for Yahoo!. The deal makes sense. Both have a common enemy: Google, which started as a small search engine but has grown into a monstrously ambitious company that now wants to shake the foundations of Microsoft's lucrative office suite applications by offering competing but free open-source applications. Google, of course, is also the net's most valuable at $145 billion (as on May 11, 2007). With Yahoo! in its bag, Microsoft would get access to the former's much-touted search engine ad ranking platform codenamed Project Panama, and thus challenge Google's stronghold in the search-related advertising market. The hope in Redmond must be that such a move will distract Google enough to make it stay away from Microsoft's core business of software.

 
INDIA INTERNET LAB
Internet's cool apps, made in India.
Global Team: Amazon has three software centres in India that are part of global teams
Internet giants are leveraging India's software skills to come up with innovative and sticky offerings for global markets. Want proof? Here you go: Yahoo! Answers, Google's Mobile Search, Amazon A9 (a visual yellow pages directory), MSN's Desktop TV and AOL's instant messenger… all are examples of products and applications with a strong India scent. Says George Zacharias, MD, Yahoo! India: "We will leverage the talent base available here in India not only to meet the requirements of our Indian operations but also our global user base."

MSN India customised its desktop TV offering that runs advertisements continuously on the home page and its partners' pages to the needs of the Indian market. Jaspreet Bindra, MD, MSN India, says that this feature has been used by MSN elsewhere also. "The India centre is part of every major development initiative at Google and we're also working on a mobile search product for the global market from here," says Prasad Ram, R&D Head, Google India. Google India engineers have also recently devised a Hindi transliteration service for its Blogger product that could be expanded to reach the global market. At Yahoo!, the move to relocate Chief Product Officer Pete Deemer to the Indian R&D centre is perhaps a sign of how serious the company is about its local operations. Aside from Yahoo! Answers, this centre has been designated as the centre of excellence for the entire developing markets geography.

Advertisers, on their part, are coming up with unique ways with which to create buzz or online communities around their products. Hindustan Unilever launched a rather successful campaign around the Sunsilkgangofgirls community portal. Procter & Gamble has also created an online interactive community for teen girls between 14 and 19 years of age, www.beinggirl.co.in , around its Whisper feminine hygiene brand. In fact, Vyas of Interaction has proof of how effective online medium is for brands: "We have a very interesting case from Listerine where online medium was primarily used," he says. As the brand has overarching social proposition, the agency sought to place the message of oral hygiene in personal interactions on Yahoo! messenger that sought to weave in the "Listerine" lingo in everyday conversations. It has worked, claims Vyas: "The brand sales have gone up up three times post the communication." Validation has come in from other ends as well-purchase intent and brand awareness were measured in partnership with Yahoo! and Factortg (proprietary methodology to measure online response). The readymade online conversations, one-liners such as "boss really needs to use Listerine", etc., were downloaded and the viral environment saw it being propagated among a cool 300,000 users.

"Our understanding of the unique requirements of the Indian marketplace is unparalleled"
V. Sivaramakrishnan
President (Portals division), Sify

Local Relevance

All the portals, including the newcomer AOL, know that the key to long-term survival is in being locally relevant. Yahoo!, for example, says that it is localising its offerings with content in nine different Indian languages. "We have city specific pages that serve up information relevant to your city. We are already doing this for 20 cities across the country," points out Zacharias. Google, not exactly a portal but almost the default entry into the world wide web, admits that the key to cracking the local market lies in regional language offerings. "Our R&D team here has already worked on a Hindi transliteration product for our Blogger product, and we provide search in multiple Indian languages too," says Shailesh Rao, Managing Director (Sales & Marketing), Google India. "We don't see the Indian market as a far-flung outpost, and given that there could be 100 million consumers in the next three years, we expect to make significant investments here," he adds.

Google is a classic example of how new markets can be created within the internet space in India. Before the world's most feared internet company came to India, there was literally no market for search-based advertising. Google got in here and in just 36 months created a Rs 100-crore market out of search advertising. With its recent acquisition of DoubleClick and its AdWords initiative, Google says the market is accelerating. Travel portal MakeMyTrip.com already gets 15 per cent of its traffic from internet advertising alone by leveraging programmes such as Google's AdWords. MSN India, on the other hand, has innovated by putting a 'desktop TV' on its homepage and those of its partners. "Instead of the standard click-per-model, we sell airtime on these desktop TVs, which run ads. It has become a huge hit," says Bindra.

"Everybody wants to get in, hoping they can play a seminal role in influencing the shape of the market"
Jaspreet Bindra
MD, MSN India

How are the local portals, Rediff and Sify, coping with the onslaught of internet biggies? "We see ourselves as the only real portal from India and benchmark ourselves with global competition," says Ajit Balakrishnan, who took an early bet and launched Rediff.com in 1996, and today has Rs 160 crore in revenues. Sify, which also offers local content in regional languages, says that because of its access business (it is also an internet service provider, or ISP), it is uniquely placed to take advantage of the growth happening in the Indian market. It has 3,500 iWays, or branded cyber cafes, spread across 162 cities, with 8,000 people accessing the net from these locations at any given point in time. As an ISP, it has 10 per cent of the 2.2 million broadband connections. "As we scale up, we see significant traction in all our businesses," says V. Sivaramakrishnan, President (Portals division), Sify. "Our understanding of the unique requirements of the Indian marketplace is unparalleled."

According to Subho Ray, President, Internet and Mobile Association of India (IAMAI), the apex industry body, the focus on regional language content is inevitable. "Fifty per cent of the English-speaking market has already been tapped by these companies and now they need to target the latent audience," he contends. This latent market includes the 100-million plus mobile users in India, as well as a market that is offline currently, due to connectivity issues and the lack of regional language applications (see The Wireless Sweet Spot). "Markets such as e-commerce and internet advertising will only take off once this happens," he adds.

But as the VCs and internet companies seem to have sensed it, there's an inexorable shift happening towards the internet. And if not tomorrow, then someday soon, the internet will be the lingua franca of the most important consumers in a country of more than a billion people.

 

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