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Diminishing Dots
Business India, A B Ravi, December 25, 2000

For just-married Ivor Vaz the honeymoon was literally over. On 27 November, Larry Ang, president of the Singapore-based flew to Mumbai and dropped the bombshell: Indian operations were being suspended with immediate effect. Vaz and his 12 other colleagues were aghast. All of them had quit secured jobs to join this MNC, four months ago and this was the least they expected. Collectively, several questions raced in their minds. How could a dotcom with a strong parentage like Pacific Internet, a Nasdaq-listed ISP with presence in six countries in Southeast Asia suddenly decide to call it a day? How could they shut a portal even before its launch? Didn't they have a vision statement before they entered the arena?

Ang in a way summed up the problems and said "The April crash of Nasdaq has put paid to their business plans." In the last quarter, nearly 130 Nasdaq listed dotcom firms have gone bust with more than 31,000 people in the US losing jobs. Nasdaq's downhill run saw market capitalisation shaved off by nearly $ 1 trillion.

Closer home there are no blood-baths at Dalal Street as none of the dot-coms save for, an e-commerce portal, are listed. However, there is a shakeout and amidst that, a lot of heartburn. In the last few months several dotcoms have gone bellyup; some are mercilessly axing staff while others are simply languishing for want of funds. It seems VCS like bankers have taken away the umbrella when it's needed the most-on a rainy day. Witness this: last month, the Delhi-based, run by Madhu Trehan in partnership with Spectranet of Punj fame, asked 30 people from its content team to go. Another community portal, which was building an online community catering to the Indian diaspora has closed down. The high-profile, US-based switched off its Indian operations. The Mumbai-based PR firm Adfactors promoted has suspended operations of, an agriculture vortal. Mark Masceranhas of WorldTel fame has logged off and is talking to for a possible sellout. Multi-lingual portal and has mandated Win Cyberlink to scout for buyers. A Chennai-based portal has advertised for a buyer who could pay Rs. 30 lakh to buy its 2,200-page literary website. Interestingly, even those who were gung ho about this business initially are now having serious second thoughts. A case in point is Vinay Maloo of HFCL who has now backing out of

Says Ajit Balakrishnan, chairman of, "The shakeout was bound to happen." Chips in Dewang Mehta of Nasscom, "It's not a crash. People who did not understand the business model entered this arena for simply to get a valuation and sellout. These opportunistic people have suffered as they are not getting their second round of funding." And according to Amar Sinha, chief technology officer of Design Expo Pvt Ltd which hosts, maintains and designs portals, "At least 140 dotcom firms have vanished from the scene after raising money." Not a good augury. Kanwal Rekhi, the Silicon Valley guru who spawned TIE was optimistic when he candidly told an Indian TV channel: "The shakeout may set things right." Hope he is right.

With dotcoms falling like ninepins it has given rise to a new crop of problems. Journalists, space marketers, web designers who earlier were comfortably ensconced in the print/ad agency jobs are now suddenly the newly unemployed. For many journos, space-sellers its back to print media albeit with a salary cut. Many are still hunting for jobs. Headhunters who earlier were on a frenzied recruitment drive for dotcoms now have the onus of relocating the same guys. Says a sensitive Mumbai-based headhunter who declined to be quoted, "We are foxed by this wild swins. Now, that some of my clients have gone bust, I am surprised to learn that most dotcoms did not have business plans in place; and yet they did not mind paying fat salaries and generous Esops without batting an eyelid."

Even as venture capitalist, dotcom promoters, employees are coming to terms with the ground reality. Its time to look back at what went wrong in the Indian dotcomscape.

The dotcom fever started in the US five years ago when Jeff Hezos floated In the last two years it was more pronounced. But, that mania did not percolate down to India. What triggered the mania was the sale of in November 1999 by Rajesh Jain, then relatively unknown, to Ramalinga Raju-controlled Satyam Infoway for a mindboggling figure for Rs 500 crore ($115 million). The cash ($88 million) and stock ($27 million) deal rocked the nation. Jain not only hit headlines but overnight became a poster boy, icon a la Sabeer Bhatia of Hotmail fame. This was the turning point in India's dotcom history. After that there was no looking back. It was the deal that launched thousands of desi dotcoms. Across the country ideas were running riot and so were venture capitalists.

Says Sanjay Jha, founder of "The reason for this mass hysteria was that, was a fairly average portal. Lots of bright guys felt they could do a better job and net better valuation than" Thus, started the great dotcom race. At the airport cocktail parties, in trains and buses the hot topic was dotcoms. People were talking B2B, B2C, P2P, HTML, eyeballs, page views, download, uplink, templating. The usual line was "Oh I just managed to get an angel investor and he has valued my portal at around Rs 5 crore.

The general thinking was if you were blessed by goddess Saraswathi (Peter Drucker calls them knowledge worker) then goddess Lakshmi came to your doorstep. She did as a matter of fact in the form of venture capitalists.

VCS in India suddenly found they were being wooed by VCS and high networth investors from the US, who in turn were flush with funds thanks to a zooming Nasdaq. The American venture capitalists were looking for new avenues to park funds. And India was the flavour of the month as Bill Clinton looked towards us favourably. Riding the greenback chariot Indian VCS distributed their largesse without carefully looking at business plans. If you had the idea, they had oodles of funds. Ironically, both netpreneurs and VCS were in the same boat; nobody knew the dotcom business well. It was the classic case of the blindmen financing the visually disadvantaged. Netpreneurs who needed Rs 1 crore were given Rs 5 crore. In a way, VCS instead of leading were led by the mob psychology.

All this saw dotcoms mushrooming. Portals, vortals, by all names, subjects and themes were mindlessly launched. In each category, be it financial, cricket, entertainment, women there were more than 30-40 players jostling for a piece of action.

Pallavi Jha of has an interesting story to tell of how a VC went overboard. When she approached them for funding they were disappointed with her profit projections and low adspend rate. If you show early profits means you have not invested (read burn money) enough in your brand. You should spend at least Rs 40 crore in advertising.' She was shocked; no way she could justify this kind of spending. "So we declined the VCs offer," says Pallavi Jha. Echoing a similar sentiment is Anil Wanvari of, a niche portal, " VCS drove me to spend big money. They were willing to fund Rs 5 crore when all I needed was Rs 1 crore.

The same is the case with Baroda-based portal with 300 unique visitors catering to relatives of NRIS. A venture capitalist flew into Baroda and promised to give Rs 3 crore when all the entrepreneur needed was Rs 90 lakh. That's a ridiculous figure the VC said. Laments Wanvari,"VCS have spoilt the dotcom industry; they are not willing to fund anybody below $1 million."

VC bashing apart, the dotcom world was oozing with liquidity. There was an urge to splurge perhaps at the VC's behest. The dotcom industry went berserk throwing easy money on building brands. For the advertising industry which was seeing flat growth it was a Manna from Heaven. Agencies like R K Swamy, Chaitra Leo Burnett, Enterprise, HTA all set up a separate dotcom division to rake in the moolah. In the first two quarter of this year more than Rs l50 crore were spent by a dozen dotcoms by way of print ads and hoardings. Witness this: Raj Koneru promoted Indiainfo blew Rs 28 crore in a short-span while Pradip Kar promoted hearalded its arrival by booking the front page of The Times of India forking out Rs 2.5 crore for a day. The same is true of Kabir Mulchandani promoted which splashed out on four full page ads in The Times of India and other dailies for just one day. The reason behind the huge adblitzkrieg was to attract eyeballs so that their valuations would go up. Everybody had this grandiose dream of listing on Nasdaq or to launch a domestic IPO. For instance, Raj Koneru, seemed the new dotcom hero, when he pulled a coup of sorts by agreeing to pay VSNL, Rs 200 crore in three years so that Indiainfo would become the default page for VSNL'S 3 lakh subscribers. Analysts say this deal would have enabled Indiainfo to easily raise $200 million at Nasdaq and pay VSNL Rs 200 crore.

Cash registers were also ringing for web designing/hosting firms, domain registration outfits like As there was no entry barriers, any mom-n-pop shop could launch a website by registering the domain name for as low as Rs 399 and uplinking the site for less than Rs 2 lakh. There are more than six lakh websites in the country. Says Dewang Mehta of Nasscom, "Unlike cement, automobiles, or steel industry there are no entry barriers." In fact, at the height of the dotcom boom net4domain had said that they were confident of registering 2.5 lakh domain names by December 2000. But, now that the boom has petered out this figure may indeed need a revision. Today, there are 20 million domain names registered globally of which Alexaresearch closely monitors one lakh site.

Riding on the dotcom wave, even the print-media tried to partake a piece of action by launching supplements and sections devoted to the New Economy. The Financial Express was first to launch 'efe' followed by Business Standard's ICE. Business World repositioned itself as 'the magazine of the new economy' while business Today devoted a section Even satellite TV channels CNBC, Star News were seen giving more TMT news. With so many wannabes one bright guy set up e-Tuesday Club to help dot-commers network among themselves.

Everything seemed hunky - dory. PC manufacturers found sales zooming with PC population touching 5 million mark. Internet service providers were busy expanding their user base offering freebies. Some like Caltiger and Cheeco gave free Internet connections. Thus, the user base zoomed from 2 to 10 million in a year. "The rate at which it has grown is faster than China and Korea," says Balakrishnan of It will touch 25 million next year he feels. Over 12,000 cybercafes have sprung up and consequently surfing rates have crashed from Rs 90-100 per hour to Rs 20-25 per hour today. Even courier companies have set up a separate logistics division to cater to B2C sites.

India was the happening place, the convergence point for international players. Big daddies like Vint Cerf, father of Internet, Yahoo's Jerry Yang, Jack Ma of came calling. Not to miss the likes of Bill Gates, Craig Barrett of Intel, Charles Wang of Computer Associates and of course, who can forget Bill Clinton's five-day whistlestop tour. India was the most favoured destination after China. IT melas, seminars, workshops were organised by the likes of Forrester, Gartener, with IT minister Pramod Mahajan playing the perfect host.


Then all hell broke lose. After the feast comes the tragedy they say. The second and third round of funding was not coming. VCS became wise after the event and tightened their purse strings. "It was a party that was too good to last," says Kiran Nadkarni director of Jumpstartup Venture Fund. The first trouble manifested at Indiainfo. Its architect Raj Koneru had acquired five portals in three-four months, spent Rs 28 crore on advertising. Koneru seemed the smartest guy on the block. But Indiainfo's bloated workforce of over 900 people dented its cash flow. Its burn rate was Rs 4 crore per month while revenues by way of ads was a measly Rs 22 lakh per month. Cracks appeared within the organisation when he hired senior professionals at fancy salaries. But what soured his dream was the Nasdaq crash. His $200-million ADR was postponed and finally the deal with VSNL called off.

For which had a headstart over others, the high decibel advertising by new players and the entry of made people think it was losing the race as it was a pure dotcom company. But, Balakrishnan kept his cool, kept overheads low and swam against the tide to get listed at Nasdaq. Now, with $65 million in his kitty, looks comfortable - for the next 18 months. Though its accumulated losses is in the region of $8 million Goldman Sachs is confident that the company will breakeven by 2001.

The problems with most portals were that they were trying to reinvent the wheel. It's here Yahoo scored over everybody. It took a different approach to becoming an aggregator of news, outsourced everything while keeping its team lean. The average workforce in most portals was around 30 while in Yahoo's case it was a lean and mean 12.

The other problems that stunted the dotcom industry's growth was low PC penetration, high telephony cost for accessing, low internet user base, inadequate bandwidth and inhibitions to use credit card online. The current bandwidth available is around 500 Mbps and even after ramping up it will touch I GU now and 13 GB by 2005. Says Mehta of Nasscom "India will require 300 GB by 2005." This shortage of bandwidth results in jerkiness in dial-up connection. No video-streaming is possible. Also, a survey shows that the clicktime of 25 Indian websites was dismal 44 seconds compared to 8 seconds abroad. The only answer to bandwidth and increasing user-base is to tap 3.5 crore cable homes through cable modem.

Another reason for dotcom doddering was abysmal ad revenues. With a plethora of players ad rates plummetted from Rs600 CPM (cost per thousand impression) to Rs 150-200 CPM. This squeezed the margins. Also, there was general impression that advertising on the net did not yield results. On the e-commerce front, the initial novelty wore off. Unlike the Westerners, Indians love shopping; it is treated like an outing with the family, so no way would people give up that pleasure for cybershopping. How can a man who has never sold vegetables all his life set up B2C sites for selling vegetable asks Mehta of Nasscom. In Hong Kong Admart, an online shopping mall belonging to publishing tycoon Jimmy Lai folded up because they could not change the old economy shopping habits. Gurus like Mohanbir Sawhaney are on the opinion that B2C sites will die. In America 3.5 per cent of retailing is web-based and 50 per cent of equity trading is on the net. Online trading in India is at nascent stage and Jain of is optimistic of its growth rate and attaining critical mass.

Ironically, Nasdaq applauded the company which made loss. This is why more and more 130 weblets went for listing. Dotcoms like Yahoo, AOL, Amazon have seen sharp fall in their market caps. When Nasdaq was at its zenith Yahoo's market cap was $140 billion, AOL'S 224 billion, Internet Capital Group $59 billion, and Amazon $40 billion. Today Yahoo is around $29 billion, AOL $ 116 billion, ICG $2 billion, and Amazon $10 billion. For instance, after five years of operations Amazon is yet to break even.

Even as more and more dotcoms are becoming stretcher cases, there are lessons to be learnt. Don't jump onto the bandwagon if you don't have a business plan. Says Nadkarni of Jumpstartup. "In short, the lesson was that the net was not a business it was an enabler. Thereby the fundamentals of business building don't go out of the window. So revenues, margins, head-counts, breakeven points have all come back into the lexicon." As Subroto Bagchi, vice-chairman, CEO, Mindtree Consulting told a national daily: "You cannot make banyan out of a bonsai. The net does not forgive lack of focus. The customer does not forgive non-sustainable value proposition." Eyeballs does not matter; what matter is converting eyeballs into revenue." It may be pertinent to note that in Silicon Valley failures are not disrespected. But the Indian psyche is different. It becomes a stigma.

How much can people byte? Mushrooming dotcom has had its share of woes. Most of the horizontals, verticals had a similar feature: e-mail, chat, greetings, careers, shopping mall, news, online trading, bill junction, astrology, weather so on. It was a metoo product. "Formula films do not work always," says Mehta of Nasscom. With more than thousands sites to choose from surfers were in a quandary. Internet had to compete with TV and newspapers. Generally people used net to mine information and send e-mail or chat.

Its clear as daylight that more than a great idea what you need is sustaining power (read deep pockets) to keep your business going and growing. The early mover advantage is passe. It has to be the best mover advantage. With such stiff competition and Internet ad rates plummeting, only big portals like rediff, ICICI, MNCs like Yahoo, Lycos will survive. As Latika Gupta vice-president of Citibank Private Equity says "see a scenario where some will get acquired, and some will change their business model drastically. They will have to; the whole business has turned on its head" It is a period of consolidation. Jha of says he gets one or two buy offers from small portals everyday.

Says Pradip Shah, chairman Ind-Asia Fund Advisors, "Internet has a natural advantage. It is here to stay." It is a year of great learning says Jha. I see reversal taking place in the next six months. Given this situation, the old economy guard will strike back. Brick-and-mortar has turned brick-and-click. For instance, has gone online. Content is self-generated, It has physical presence in most cities in India and has deep pocket. Its portal appeals to the great Indian diaspora as the only source of authentic information. Already it has firmed up plans for IPO next year. ICICI which has used net effectively to grow business is trying to get out of non-core portals. It has sold its stake in traveljini and billjunction to some time back. Abroad Barnes & Nobles has gone online to take on

Even the VC party has slowed down. Latika Ahuja of Citibank says "The number of proposals has definitely come down. Now we see lot of people coming to us, testing water before taking the plunge. There is definitely less bravodo now than there was in the beginning of the year. Today people are more conscious of business models, VCS, in turn have become more circumspect. Some feel VCS have become unrealistic and extreme. Some have gone to the US to get next round of funding. But its clear that funding for dotcom is out. This time round VCS will be focusing on export-oriented IT enabled businesses. According e-Ventures spokeperson, "Our clients are on the path to profitability. We have not turned any proposal however the pace has slackened."

The bad phase has not deterred people with clear focus. Even as maimed players are coming to terms, a new set of players are entering the turf. Tinseltown heroes have entered the scene. Shah Rukh Khan has launched while Ajay Devgan has Big business houses like Tatas are getting ready to launch their bouquet of portals., part of the group, has gone in for a softlaunch, given the current market situation. Commodity portals, B2B exchanges are also being launched.

There are diehard optimists who feel the road ahead is bright. The medium is too potent to fail says V Ramani, CEO of, a media aggregator for over 76 portals. By March 2001 advertising on net should rake in Rs 72 crore; Rs l70 crore by 2002 and Rs360 crore by 2003, according to Ramani's estimates. That indeed is music to the ears of existing players. "Insurance, music store, book store, newspaper stand, will go the way of the horse drawn carriage," said George Colony, CEO of Forrester Research sometime back.

Everybody is hazarding a guess but nobody clearly knows where dotcom is headed Jha candidly admits. Without doubt, Internet has impacted our life. And Internet, extranet, intranet will be the way of life. Everyday 3 billion e-mails are being sent. Yahoo has 6 million registered users, Hotmail 2.5 million, 4 million. In the next four years, mobile phone will be the most pervasive method of accessing the Internet and doing business. As Jack Ma of Alibaba told the Indian audience before the Internet only bigger companies could hope to be global players; now even smaller companies have the same opportunity. Dotcom for now may have lost their lustre but Internet is here to stay and will be the backbone for all businesses. As Ahuja of Citibank says "the Internet evolution has just began."


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