The Age of e-Alliances

Desperate for reach, richness and riches, dotcoms are striking alliances to stay and swim.

By R.Sridharan

By now, it is clear that a dotcom that does not generate page-views quickly enough is like space junk: drifting in cyberspace and awaiting death as it re-enters the terra firma of reality, sucked in by losses. In wee years of the Internet era, dotcoms could afford to snicker at the old economy concepts of revenue and profitability. These days, however, before a VC will even seat you in his office, he wants to know if your start-up has a P2P. Wall Street, too, has overcome its irrational exuberance and is now finicky about its dotcom bets.

The result? With less and less cash to burn, dotcoms are wisening up to the need to ally both online and offline. Consider: Rediff, India's biggest horizontal portal, has at least seven channel partners to provide services ranging from e-commerce to job listings to information on automobiles and technology. Its competitor SatyamOnline, has similar tie-ups to broaden its services to include healthcare info, news, B2B search, and services exchange.

Even the newcomer indya.com is rapidly partnering with complementary e-service providers to expand its on-line universe. Says Neeti Chopra, 33, Vice-President (Alliances), indya.com: ''We see alliances as a way of enhancing our product offering.'' Indeed, among indya.com's 30-and-growing alliances are apnaloan.com--provides online personal loans--and contests2win.com, a contests site that extends indya.com's core promise of ''mirch, masala, melodrama and masti''.

In the unstructured Internet industry, alliances are happening in different shapes and sizes. However, there are a few broad characteristics that seem common. First, a vertical ties up with a horizontal portal more for traffic. But an alliance with another vertical helps deepen and broadbase the content offering. The alliance could be in the form of a co-branded page (like rediff.com's tie-up with bidorbuy.com for e-auctions) or merely a sponsored link (like ICICIdirect.com on Satyamonline).

Alliances, however, aren't merely a means of covering flank. In the time- and revenue-scarce world of dotcoms, alliances have come to mean life and death. Agrees Divya Sehgal, 28, Director, emedlife.com: "Alliance add value in one way or another, and that's why they are so important." But just what are the payoffs that dotcoms are reaping from e-alliances?

Alliance for eyeballs

Internet sites, as much as products offline, are about brand recalls. Even before a surfer gets to experience a site, he must get to it. With some one billion pages floating around in cyberspace, the odds of a site getting a random hit are long. There are a few horizontal portals and search engines that surfers frequently use. Specialised portals love being on them, for the simple reason that those sites generate heavy traffic and chances of getting a stray or curious hit there are higher. That explains why zdnet.com (a technology site) and footforward.com (a women's portal, where rediff has an equity stake) are in partnership with rediff.

Tie-ups help horizontals like rediff too. For one, a portal cannot on its own be everything its customers want it to be. For another, alliances increase the richness of its content. Notes Kumud Goel, 41, Promoter, Jaldi.com: ''Customers want a one-stop shopping experience.'' That means apart from, say, news, the site must have a corner for e-commerce and another one for entertainment. The site's ability to link up with as many complementary sites as possible, then, determines the completeness of user experience.

Alliance for revenues

Let's settle this rightaway: Portals aren't making any money from online advertisements. And asking customers to pay for content is a dream that won't come true for a long time. Before the dotcom party ended on Wall Street early this year, aggressive websites were paying upfront, one-time or annual, fee to the partners they piggybacked on. The current trend, however, is to go for revenue-sharing. ''Dotcoms have learnt that it makes more sense to pay against actual transactions, rather than mere referrals,'' says Sehgal. Buyasone.com (a collective buying site), for instance, pays the referring site only when a sale is made. Jaldi.com, an etailer, shares a percentage of its gross profit with the referring site.

Sites where ecommerce transactions do not take place pay a click-through rate, either on an annual basis or per page view. elabh.com, a "make-referral-make-money" site, has a tie-up with iNiku.com (a portal that provides support to virtual workplace) and gets paid in dollars every time a member from elabh.com ends up at iNiku.com. Similarly, elabh.com sources its stockmarket ticker from indiainfo.com. Says Nick Tyagi, 29,Vice- Chairman, elabh.com: ''Although revenue-sharing needs to be transparent, it is rarely straightforward.''

The cost of a tie-up for a 'needy' portal could range from a few lakh to a few crore of rupees. In the first-quarter ended June 10, 2000, Rediff earned $821,880 (Rs 3.74 crore) from advertising and service. It's not a big amount, but it is probably more than what its competitors made. But the revenue-sharing arrangements are often complicated. Consider: emedlife.com not only sells its healthcare services and over-the-counter drugs at Jaldi.com, but also depends on Jaldi.com for managing its logistics. indya.com has offline tie-ups with books retailer Crossword and Madhavi Desai Consulting, an education counselling outfit. Says Hema Parameswaran, 27, CEO, buyasone.com: ''Different online brands are at different stages of evolution. Therefore, the nature of alliances varies from one deal to another.''

Alliance for valuations

At the end of the day, every website wants to be the only one of its kind. However, to survive it must build its group of loyal customers. It must be one of the big sites where people come to blow their rupees up. It must also have traffic large enough to be cost-effective to an advertiser. How does a dotcom achieve all this: via acquisitions or alliances. Given the cash-burn rates of dotcoms and the poor revenue inflow, few of them have any hard cash with which to buy other portals. But if investors feel that a (listed) dotcom is making all the right moves and because of that could become the leader in its e-space, then, they are willing to bid its stock price up. That, then, becomes a currency with which make acquisitions. Says Parameswaran: ''Right now, it is a valuations game. Having virtual clout allows companies negotiate their space better.''

Alliances, however, are not a panacea. Amazon.com's Amazon Commerce Network, for instance, has had to settle for lower fee last quarter from its struggling dotcom partners. And by no means are ACN's partners some hole-in-the-site outfits. They include names like Drugstore.com, HomeGrocer.com, and Pets.com

In the final analysis, the idea of a portal has to be viable, and customers must perceive value in what it does. Tie-ups are just a way of increasing viability and minimising risks. They do not guarantee survival. What can guarantee survival, though, are superior value offerings and constant growth in revenue and profitability. That's the reality the virtual world must face up to.

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