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NEW ECONOMY
Making Sify Stick

It has spent millions building India's largest private internet network. Now, Satyam Infoway's investors want to see if CEO R. Ramaraj can make their investment pay.

By R. Sridharan

It's a quarter past six in the morning and I am seated next to Rajashekhar Ramaraj in his wife's paprika-red 1.6-litre Ford Ikon. The sun isn't up yet, but we are headed for Chennai's Marina beach, where over the next hour we'll be putting Ramaraj through a gruelling photo shoot. Marina, which is the world's longest beach, isn't the best of places to go to early in the morning. But the athletic Ramaraj, an engineer from Madras University (he has an MBA from IIM-Calcutta), is game.

The Next Big Thing?

R.Ramaraj: 
"We want to be No. 1 or 2"

It's high tide and the waves come crashing to the shore, but the 51-year-old isn't about to chicken out. Swiftly, he jumps on to a small fishing boat, unmindful of the waves that buffet it. My photographer colleague is ecstatic as he clicks away. I thank Ramaraj for risking his neck, but he just shrugs his shoulders: ''Considering what the internet industry has been through in the recent past, this was nothing.''

Ramaraj is, of course, referring to the monstrous internet wave of the mid-nineties and its sudden ebb barely five years later that left dotcoms big and small gasping for breath. Satyam Infoway-founded by Ramalinga Raju of Satyam Computer Services-was itself a child of the Hype Age. Soon after it listed on the NASDAQ in October, 1999, investors bid its market value (NASDAQ: Sify) up to $360 million and four months later to a dizzying high of $8 billion dollars. Today, the price of its ADR (American Depository Receipts) is hovering around $5 (the marketcap is down to $461 million), and its investors now want Sify to make money for them. The good news? Most analysts expect the Chennai-based company-which has just moved into a mammoth $5-million (Rs 23 crore), 1 lakh sq. ft. office in Chennai's wired Tidel Park building-to become profitable by the end of this year. ''We need to be profitable in a hurry,'' admits Ramaraj as a matter of fact. The bad news: the surge economy has demonstrated yet again that "the best laid schemes o' mice an' men gang aft agley".

Critical Mass

George Zacharias, COO, SifyThe turn of events in the industry has been kind to Sify. When it first approached the NASDAQ, it was just an access company. Yet, its IPO managed to raise $74 million. And when it struck the Rs 499-crore Indiaworld Communications deal with Rajesh Jain, investors were delighted and shelled out $143 million for another 1 per cent of Sify's equity four months later.

Now that investors have fled the dotcom scene, Sify is sitting pretty on India's largest private internet network, covering 220 cities and more than 4 lakh subscribers. It is also the only Indian company of its kind with a presence spanning connectivity, e-commerce, and e-consultancy. In contrast, Rediff.com is a pure portal play (albeit the most popular one); Mantra Online's model is part access, part portal; and Dishnet and VSNL only provide access. ''The real effort now is to grow Sify's brand and functionalities in all our offerings,'' says George Zacharias, the company's chief operating officer.

That is understandable. For one, there's been a departure of key executives from Sify. Even as Ramaraj was meeting BT, his Vice-President (Web Services) N. Shekhar was putting in his papers; earlier, Padma Chandrasekaran, Vice-President of online business, and A. Srinivasagopalan, Senior Vice-President, quit to start e-ventures independent of Sify. In January, Ramaraj roped in Vivek Bali from Procter & Gamble to replace Chandrasekaran, and Shekhar's portfolio will now be looked after by head of B2B e-commerce, A.V. Ram Mohan.

For another, the third quarter ended December 31, 2000, saw Sify report a topline of $10.09 million (Rs 47.2 crore) all told. Sure, it was a colossal 155 per cent jump over the same period the previous year, but compared to the preceding quarter it was just an 8 per cent gain (in dollar terms): a sign that it is possible to quickly run out of steam in the internet market.

The culprit, apparently, is the Videsh Sanchar Nigam Ltd (VSNL), which cut access rates last year, dragging Sify's average revenue per user (ARPU) down to $1.63 from $2.47 in q2. (The access market, minus VSNL, is estimated at Rs 320 crore). In addition, VSNL's monopoly on bandwidth has meant for Sify a per hour cost of Rs 12, whereas the realisation from a customer is only between Rs 5 and Rs 8. Says Amitabh Singhal, Secretary General, Internet Services Providers Association of India: ''Theoretically, VSNL's monopoly has ended. Practically, it still controls bandwidth .''

That's something Sify and the other ISPs will have to live with until 2002, when VSNL's stranglehold on bandwidth will ease and its cost (typically, a third of operating expense) for Internet Service Providers will probably halve. Says a Singapore-based analyst: ''Had it not been for the bandwidth prices, Sify would have broken even by now.'' For its part, Sify reckons that cheaper access rates would have allowed it to cross the one-million subscriber mark by now. But that and the elusive topline growth remain in the realm of the hypothetical.

Pushing Connectivity

The slow growth and negative realisation in the retail business have been partly offset by Sify's quick ramp up of its corporate business, including data/network services and e-consulting. In fact, nearly three-fourths of its q3 topline came from corporate services. Its list of 500-odd corporate customers includes bigwigs such as Procter & Gamble, Lucent, Gillette India, HDFC Bank, UTI Bank, and Maruti. Says R. Shiv Kumar, Vice-President, Cybernet Software Systems, an it consulting services company headquartered in the US: ''Sify's private network connectivity capabilities are exceptional.'' However, competition looms in the VPN business in the form of dot, which already has an Intelligent Network in place in Mumbai and Madhya Pradesh, and other basic telephony companies. And unlike Sify which can offer only data services through its VPN, these companies can offer voice and data services. At this point in time, though, these are just plans.

Despite its thriving corporate business, Sify can ill-afford not to push the retail business hard. For one, doing so will help optimise the $58 million it has invested in its internet network. Reason? Corporate users hog the bandwidth typically between nine and five in the day, whereas home users log on after five in the evening. Also, the retail model (whenever it clicks) will lead to an exponential growth in revenue. For instance, if internet telephony is allowed after March, 2002, as many expect, there could be a boom in net users. And more users could see more advertisers move online. Explains T.R. Santhanakrishnan, CFO, Sify: ''Unlike print or television, the internet offers deeper advertising space. A successful portal can add pages at incremental costs, and quickly scale up its revenue.'' The catch? That will benefit all portals and pureplays like Rediff could benefit the most courtesy their focus.

The challenge today is to move more and more people on to the net. At present, India has an internet user base of 5 million. And even at its annual growth rate of 40 per cent, the pc market is not growing fast enough to realise Ramaraj's dream of making Sify the dominant internet company. Ergo, the company has set about finding a solution to the problem. For instance, in Jamshedpur, it offers internet over cable in association with CatVision. Sify claims that there are about 2,000 subscribers, but given the huge habit change that internet surfing over television involves, the numbers will likely be limited.

In a similar experiment, it launched set-top boxes in Gujarat just two weeks before the Bhuj earthquake. For obvious reasons, the project has not made much progress. But the company-which gets the Rs 11,000-odd boxes manufactured abroad and distributed by Kabir Mulchandani's Baron International-plans to test waters in Hyderabad later this month.

A critical part of Sify's retail strategy, however, is the iway-internet surfing centres. Already there are 239 iways in operation, with 200 more slated to come up by the end of March. All the iways are franchisee owned, and Sify's role is limited to promoting the brand, standardising user experience, and-in some cases-providing the last mile connection. For instance, iway members have a 'global' membership that allows them to log on from any iway in the country. Sometime soon, Sify also plans to launch customised universal user screens, and a debit card that would allow a customer to pay for actual internet usage instead of a block of time.

Making 'em Stick

T.R.Santhanakrishnan, CFO, SifyThe idea, obviously, is to make Sify a habit with surfers. In August last year, the company's portal Satyam Online was relaunched as Sify.com. Simultaneously, the company launched an aggressive campaign to build the Sify image. Although its portal has more features compared to Rediff, its top-of-mind recall is much lower, partly because of Sify being headquartered in the South. Sify, though, claims the rejig is working. In January, Sify.com registered 130 million page views versus Rediff.com's 258 million in December; WalletWatch.com, an online portfolio tracker, alone, the company says, saw a 35 per cent growth in page views. Says Vivek Bali, an ex-P&Gite, who now heads Sify.com: ''In terms of page views we are still behind Rediff, but our advertising revenue (except in December) is almost equal to or marginally more than Rediff's.''

There are no independent audits available of either Sify.com or Rediff.com, but the former claims to have more high networth visitors. The IndiaWorld deal brought with it a clutch of dotcom properties, which Sify consolidated by making further acquisitions like Cricinfo.com and Indiaplaza.com (See Deals In The Bag). With the portal becoming an entry point for a range of other services (e-shopping at Sifymall; cooking at bawarchi.com, among others), Bali hopes to jack up revenue from advertising. ''We want to consolidate the properties we have and provide value to advertisers through innovative solutions,'' says he.

At last count, Sify.com had about 150 advertisers and $0.67 million (Rs 3.13 crore) in revenue. That's a slight fall over the previous quarter ($0.86 million), but Sify cites its switchover of Sify.com to a more robust platform as a reason for the shortfall. Sify says that its advertising results in higher cash flows because it does not do barter deals-something that is supposed to account for a significant part of Rediff's revenue, 90 per cent of which is ad driven. (The current system of financial reporting by Sify and Rediff does not reveal any data on barter deals, if any.)

Instead of providing mere space on the net to advertisers, Sify wants to create ''online synergies with their offline marketing efforts''. For instance, last year, when Bacardi ran its scratch-n-win contest, Sify.com came up with an electronic version of it. Says Bali: ''Given the wide variety of content on Sify.com, it is relatively easy for us to customise communication and the target group for the advertiser's benefit.''

Continuing 

 

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