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Home > Business > Special


Make millions, be a Net entrepreneur

Surajeet Das Gupta & Priyanka Joshi | December 11, 2006

Unlike his contemporaries who cashed in on the Internet boom, Sanjeev Bikhchandani, the young management graduate who runs job site Naukri.com, decided against chasing only eyeballs in the hope that ad revenues would follow.

He had a compelling reason to do so. Venture capital funds weren't ready to put their money into an unknown area in the late nineties.

Says the affable Bikhchandani, "With no venture capital ready to fund us, we realised from the beginning that we had to earn revenue from day one to stay afloat and cover our costs."

The outcome was that Naukri.com charged fees from companies that wanted to list their job ads on the site, or use its database of resumes.

It's a simple model and has worked like magic. Naukri has offered attractive margins of over 25 per cent year after year and, despite revenues of a modest Rs 84 crore (Rs 840 million), has been able to make Rs 14 crore (Rs 140 million) in net profits.

It also was able to successfully tide over the Internet meltdown in early 2000 when hundreds of portal sites with no revenue model were forced to shut down.

A fortnight ago, when Info Edge -- the company that has promoted the Naukri site -- listed its maiden IPO, Bikhchandani set the stock market on fire. His shares listed at over 50 per cent premium over the issue price. And the 42-year-old St Stephen's College graduate and his wife have overnight become among India's richest young entrepreneurs worth over Rs 700 crore (Rs 7 billion).

It might seem like a dream come true for Bikhchandani who started out hawking salary surveys for MBAs, but for a growing tribe of Internet entrepreneurs, the big bucks are pouring in. Inevitably, they are catching the eye of investors who, for years, had been sceptical about their business models.

Names like Shaadi.com, Naukri.com, Makemytrip.com and Contest2Win are riding on the first-mover advantage in their areas of operation, backed by a dominant market share, recognisable brand equity and healthy bottomlines.

Meet Deep Kalra, promoter of the two-year-old Makemytrip.com, who has changed the way Indians buy their travel services. Kalra is set to take his company to the IPO route by 2008.

"This will bring liquidity to our business," he points out. With an enterprise value of $130 million, Kalra, who controls a bulk of the equity, might be right. And it could turn him into yet another crorepati (millionaire).

Then there is Anupam Mittal, who, inspired by the wealth a pundit commanded by way of his matchmaking services, decided to push ahead with matrimonial portal Shaadi.com that had 8 million registered users at last count.

The numbers have been strong enough to attract venture capital funds WestBridge Capital Partners, Sequoia and Intel Capital to take a minority $18 million stake in the company. With 100 per cent year-on-year growth in revenues, Mittal has crafted an enterprise worth $20 million in revenues today.

Also part of the club is 37-year-old Marwari lad Alok Kejriwal who refused to stagnate in his family's sock-making business and hit upon the innovative Contest2Win, a site that aggregates contests and trivia for corporations.

With 1.3 million registered users (and adding 3,000 users every day), Kejriwal has just launched Games2Win for which he is on the verge of obtaining a large tranche of funding. Will he go the IPO route? "Maybe,  but the market where you list yourself is very important in raising capital. An IPO on the Korean exchange or Nasdaq can get you higher capital values than in India," he says.

Are Internet companies back in favour? The success of the Naukri.com issue certainly seems to point in that direction. The post-2000 years may have been bad for most Internet-driven operations -- big boys Rediff.com and Sify.com went public in India primarily to list on the US markets -- but Bala Deshpande, director in ICICI Venture, one of the first equity funds to bet on the Net, is optimistic.

"Today investors are ready to give high valuations to Net companies and want to grab companies that have a first-mover advantage in their space. Or those that have a dominant market share, a good brand and, of course, if they already are profitable," he says. Deshpande says this is in keeping with international trends -- 10 per cent of the top 500 Internet stocks command over 80 per cent of the total market cap.

Clearly the first-mover advantage works well. That is why Makemytrip.com is hot property. Though only a couple of years old, the travel site has a 70 per cent market share in the online ticketing and travel space.

More importantly, as many as 25 per cent of its users are repeat customers, which means they are loyal to the site. Says Kalra, "If you can't deliver the service at the most efficient price, at the right time, and map all the customer queries effectively, users are not going to come back to you."

The key problem in the travel business is that margins are not more than 8-9 per cent, far lower than what you could make on matrimonial or job sites at 20-25 per cent.

Like all other online travel agents, Kalra has a 5 per cent margin from tickets booked online, which at 80 per cent is his primary business. Hotels are more lucrative at 10-20 per cent, and package tours score highest at 25 per cent, and so Kalra is hoping "to tilt the ratio towards hotel bookings and travel packages, since these are high margin areas".

Where he scores over offline agents is in his ability to offer huge volumes to airlines and hotels, which allows him to negotiate lower prices that he then passes on to customers. But Kalra is aware that he needs to pull up his margins to improve his bottomline. Makemytrip.com is well on its way to achieving $130 million (in revenues) by 2007, from a modest $42 million in March 2006.

There are others who have realised that brand building is the key to higher values. Alok Kejriwal of Contest2Win hit upon it back in 1998. He didn't have the cash to prime up his site, so armed with a borrowed laptop he knocked at the offices of contest organisers and told them to consider online contests to reach out to younger audiences.

"I told them that we would host the contests online for free, all they had to do was to promote my Website's name along with their contest promos," says Kejriwal.

In the first year, Contest2Win hosted advertisements and contests worth Rs 30 crore (Rs 300 million), though Kejriwal made no money. "It was a typical barter model. All that mattered to me was that people recognise my Website as a place where they could play contests, win some great prizes and come back for more," says the entrepreneur.

Money began to trickle in when Kejriwal reinvented his business model to include developing content like advergaming and interactive contest formats for companies.

"I was asked by a Liril brand manager to create online content since they had no expertise in that area," says Kejriwal. Convincing people to pay money was tougher.

Kejriwal calculates that a four-minute online game or contest played by 10,000 people would mean 40,000 minutes of interacting with a brand. "I asked the advertisers to pay me one-hundredth of the money they spent on conventional advertising, but got paid one thousandth. . . and yet I made money."

The site now has over 600 companies promoting everything from hair oil to shoe polish, from beverages to airline services, in the form of an interactive contest, trivia or puzzles.

For this, companies shell out between Rs 3-10 lakh (Rs 300,000-1 million). Besides, the online contest's portal also makes Rs 300 every time a contest or promotional advert is loaded on a user's desktop.

Kejriwal has expanded his group of companies, which include Media2Win and Games2Win, to a Rs 135-crore (Rs 1.35 billion) entity. He holds 45 per cent stake in his group, having distributed 15 per cent among his employees.

He hived off his Mobile2Win in China in a "profitable deal" to Disney, and the money thus raised was directed to grow his Indian companies. That Mobile2Win sold at a price "seven times more than its establishment cost" is an indicator of how an innovative online business can turn into sweet cash.

It is this clarity about a revenue model together with domination in its space that has ensured Anupam Mittal's seat in the matrimony business. Having worked for a decade in the US, Mittal came to India in 1997 with a single idea -- to build a business in the consumer space.

Mittal's Shaadi.com makes money from two revenue streams. Those who register and use the site to look for matches pay between $42-110. The site has roped in over 120 companies that advertise their products depending on an individual's profile, creating a targetted marketing effort. It's an inexpensive way to reach a target audience; you pay Rs 400 for 1,000 such ad bites and get a rich customer profile to support a company's marketing practices.

As much as 60 per cent of the site's revenue comes from advertisers. Little wonder that Shaadi.com dominates the virtual matrimony business with a lion's share of 55 per cent of the market.

The major challenge is that Shaadi.com's customers are not long-term users, since they will walk out once they find a suitable match.

Admits Mittal, "The matrimonial business model cannot claim to leverage from a repeat customer base, thus the effort is to monetise the existing customer by offering services like astrology, shopping, wedding planning, and online networking through our sister companies and services."

That is why Mittal's company, People Interactive, has introduced other sites to leverage its existing businesses, like the social networking site Fropper.com or the astrology site Astrolife.com.

As much as 15 per cent of Shaadi.com's users log in on to these sites. On Astrolife, he has roped in retailers and advertisers to sell wares (such as a rudraksha mala or a janampatri) on which he picks up a 10 per cent commission.

But are these Internet companies scaleable? Info Edge has revenues totalling Rs 84 crore in 2005-06 -- not exactly something that would set the world on fire but worth a dekko. Or Shaadi.com, which has already pinched 50 per cent of the total matrimony classifieds ad market -- but can it grow beyond these numbers?

"Yes, and that's why we have affiliate businesses to monetise an individual customer further," argues Mittal. Most Interneters are quick to point out that they may only have scratched the surface of a burgeoning marketplace.

For instance, in the classified job space, Bikhchandani's focus is three-fold. Ten per cent of its high-value customers constitute over 50 per cent of Naukri.com's revenues.

The aim is to increase the share of the pie even further by offering more customised, value-added services at a premium. One such service approaches prospective job-seekers via SMS. Then, there is scope to push up the spends of mid-level companies and rope in new customers and irregular customers for a longer period of time.

More importantly, only 35 per cent of the recruitment ad space is with Net companies -- surely it can grab a larger share of that market! Bikhchandani is also hedging his bets by getting into other sectors of the portal business where growth could, of course, be faster than in Naukri.com.

Which is why he has picked up matrimonial site Jeevansathi.com, and has kick-started 99acres.com for buying and selling properties online. He might not have a first-mover advantage with either but is confident of grabbing market share from others.

Says Bikhchandani, "Obviously we will grow much faster in revenues on these sites as compared to Naukri.com." That confidence may not be misplaced. Already, Naukri's share of the overall business within the group has come down to 88 per cent, from 92 per cent last year.

If anything, these Internet crorepatis seem to suggest that investors are keen to partner with them, now that they have built upon their revenue models. What could be interesting is where the next batch of wannabe crorepatis look for their business on the Net.

Here's your opportunity

Most common Web business models would fall into these categories:

  • Product sales: A Web business based on product sales is about selling a physical, shippable product online. The three main ways to sell products on the Web are by storefront, auction and online mall (which is a site that offers products from different vendors).
  • Service sales: Services as well as products can be sold via the Internet. Examples of a service sales business model for the Web are online brochures that describe your service and provide contact information, online malls that offer services from different vendors on one site, and service sites that bring an automated version of an offline service to the Web.
  • Information delivery: There are several Web models for making money by delivering information. The most common models are online publications and portals.
  • Of course, e-commerce possibilities are only as finite as your imagination. Entrepreneurs can also combine two or more of the models and build a Web business consisting of bricks from across different Net opportunities.


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Number of User Comments: 6




Sub: Plz giv needful info too

Hi! your message regarding net entrepreneurship is quite good and infomative. but what would i look into such articles is not the overview of the ...


Posted by Chinni





Sub: comment on the story

sir, your article net entrepreneus..is very interesting. it unbeliveable.but yet some people proved by their innovative thinking.i am interested in publication ir info model.pl advise ...


Posted by a.murali krishna





Sub: Net entrepreneurs making crores

Extremly good article. It is a very good example of Net Entrepreneurship. Anybody who wants to make money can start similar business. But like any ...


Posted by P.J.LAKHAPATE





Sub: kudos!!

Very nicely written Surajeet Das Gupta & Priyanka Joshi. So are you two net entrepreneur's already :):) V


Posted by Vikram





Sub: Product Sales

Hi, I believe product is tougher job online, since it includes packaging cost, operation cost, courier cost, finaly the product delivered or not. whereas in ...


Posted by Srinivas




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