Zillions of Indian portals came alive in the last 12 months, and a few continue to do so. The news for almost all of them is not good. I think very very few will actually survive. This is not to say that all hope is lost: it is just that the kind of services being offered by most portals is not what the market wants, and hence they will die a natural death. It is easy to say that if Yahoo cannot make money in the US market, how can anyone do so in the Indian market. But that is too simplistic an explanation. The point to remember is that the Internet is not a bubble – companies with flawed business models are.
Indian Portals can be divided into two categories: the top 4 portals, comprising the two international ones – Yahoo and MSN/Hotmail, and the two Indian ones, coincidentally, both listed on Nasdaq — Sify (from Satyam Infoway) and Rediff, and then there is everyone else. Even among the top 4 portals, I do not expect more than two to survive – that is, be profitable. The rest, if they stay independent, will be among the living dead: they will exist, but will only burn up cash and will have little or no future.
For a peep into the future, look at what has happened in China. Its top 3 portals – Sina, Netease and Sohu – which are all listed on Nasdaq are now trading at discounts to their cash positions (that is, their market capitalization is less than the money they have in the bank). The fourth listed Chinese Internet company, Chinadotcom, is also in the same boat, even though it has a significant web solutions business. The fundamental problem, according to a recent Merrill Lynch report, is the viability of their business model.
So, what should Indian portals do? Where are the profits?
I think the answer lies in looking at an integrated access/portal/ecommerce business. As independent silos, it is going to be well-nigh impossible for the companies to make money from the consumer market. But as an aggregate, they can look at a more deeper consumer relationship. What the access business offers is a way to get detailed customer profiles, a billing relationship (to collect payments) and the ability to create a unique browser skin (on or around Explorer/Netscape) which can provide faster and more customized access to what the user wants, which would include not just information but also services. It is what AOL has done very well in the US. Alliances with the offline world can also be advantageous in that it can help broaden and strengthen the customer relationship.
The pure Internet play is going to find it very difficult to survive on a sustainable and scaleable basis. Consolidation in this business is very critical if a few companies have to achieve scale which is large enough to provide real and valuable services to users. Many will need to die so that a few can live healthily.
We also need more services which can make the Internet a utility in people’s lives. To make this happen, we need a combination of low-cost Internet access devices and Internet community centres, along with services which can add value and make a difference. The Net in India still remains quite elitist and that is not a business model which will generate long-term profits.
