September 1999, a lifetime away by dot.com standards. New Delhi's Pragati Maidan is playing host to India Internet World (IIW), a seminar-exhibition-trade show on (what else, silly?) the Net. Bo Peabody, the sub-30s founder of community site Tripod-acquired by Lycos in 1998, which could explain why his card reads Vice-President, something or the other, Lycos-bounds into the room, dressed in blue jeans and a green shirt. This is his first visit to India, and he cannot stop speaking about where he has been (Jaipur and Agra), and what he has done (a suicidal bicycle tour of the capital). Then, he stops, points to a Rediff publicity poster tacked to the wall of the media room: "What's Rediff?"

"It's India's premier portal; something like Yahoo!," offers a scribe.

"Is it in Sankskrit?"

Chances of something like that happening at the next edition of the IIW are remote. Rediff is listed on the NASDAQ (REDF), and counts GE, Intel, Morgan Stanley, and Hong Kong tycoon Richard Li among its shareholders. And Lycos' Indian version is far behind big-daddy Rediff in terms of intagibles like recall and tangibles like pageviews. So much for visibility; is the portal profitable?

Well, do (Indian) dot.coms dream of path to profitability (P2P) heaven? With less than 4 million Net-users in the country, they sure do. Only Rediff.com's Ajit Balakrishnan canot make "forward-looking" statements; as the chairman and CEO of India's first company to go for a NASDAQ IPO, he can only react to them. Why, the REDF quote served up by the horizontal portal has a statutory warning: "The stock price performance on the quote above is not necessarily indicative of future price performance." Rediff is trading below par a little under three months after a spectacular listing.

Balakrishnan, 52, delivers, deadpan, backward-looking statement that says it all. "If we had not gone out then, we would have never gone out. That is the sobering truth." A fraction before the US equity markets shifted their focus to P2P, Rediff raised approximately $63 million (Rs 288.41 crore) in cash. Cut to the present: the market will now react, quarter by quarter to rediff' performance, until the middle of 2001, when the company says it will finally become profitable.

It's obvious that India's dot.com gold standard is at the threshold. Rediff has to translate five years of work, the first-mover advantage, a great brand, 100 million page views, and 1 million registered users into real profits. For a site that serves up a web of communication, community, and commerce, Rediff is the sine qua non of domestic offerings. Says Neeraj Roy, 31, CEO, Hungama.com: "The advantage that Rediff has is impregnable." However, at a strategic inflexion point, there's another thought if Rediff can slip up, it is now.

The disadvanges of being pure-play

Rediff doesn't hide the fact that its business model is borrowed from the Yahoo!, the fiercely-independent pure play dot.com. In an age of media and infrastructure alliances, the Yahoo! servimodel -fed by sticky services and content, advertising and on-line store rentals, and co-branding alliances-looks increasingly isolated. But it's working. Even in these bad times, Yahoo! is the darling of the stockmarkets. Besides, it makes profits ($142.8 million for the year ended December 31, 1999; and $128.8 million for the six-months ended June 30, 2000). "This model is believed to be the only successful way to do it," avers Balakrishnan.

The numbers don't quite back Balakrishnan. True, Rediff's revenues from advertising and services had moved up to $821,880 (Rs.3.76 crore) for the quarter ended June 30, 2000 (ad-and-service revenues for FY 2000: $1.46 million, or Rs. 6.70 crore). And revenues from e-Commerce to $183,781 (Rs. 0.84 crore) for Q1 2001 (FY 2000: $441,452 or Rs. 2.02 core). Expectedly, the company's gross profit for Q1 2001 was, at $528,732 (Rs. 2.42 crore), almost thrice the corresponding figure for 1999. But if gross profit tripled, total operating expenses quadrupled, to $3.6 million (Rs. 16.55 crore). The net loss for the quarter? $2.8 million (Rs 13.14 crore). The net loss for FY 2000: $6.7 million, or Rs 30.51 crore.

That's grist for the mill for skeptics who believe a pure play dot.com sans access and proprietary content is heading for trouble. Fact is, access, or rather the lack of it, is an issue. Apart from default-site arrangemetns with Compaq and Microsoft's Internet Explorer in India, Rediff has made no progress in the access game. Sticking to its Yahoo! route, Balakrishnan is clear that he will not acquire an ISP- From a pure portal's point of view, it is suicide"-but claims he is looking to strike alliances with ISPS to make Rediff the default page (at last count there were 12 such alliances Rediff had lined up, including ones with BSES Telecom and Roltanet). Adds Dhruv Sharma, 40, CEO, 123 India, a portal that, like Rediff, doesn't have an access peg: "We may consider an affiliation or a joint venture with an ISP."

Balakrishnan is dismissive of the ISP-portal model: "The moment an ISP sets himself up to compete with the world wide web in terms of content, he's gone." Others disagree. Says Satyam Infoway's COO George Zacharias, 40: "We have been able to leverage our access part as many synergies exist between the two. People who buy access from us also go to our portal." Indeed, Satyam claims the four-fold rise in its revenues to $7.l million (Rs. 32.94 crore) in Q1 2001 (against the corresponding period last year) was due to the increase in its subscriber-base. Adds Bharti -- Atul Kunwar: "We have put our eggs in different baskets (read access and content)."

Rediff believes that access will not be issue once ISPs realise it is difficultto replicate sticky features that draw surfers to its site. The only access area where Rediff has been taking the lead is in wireless. It has initiated agreements with Hutchison Max's Orange service in Mumbai and Spice Cell in Calcutta to provide WAP-enabled services to cell phone users. This niche strategy could enable rich rewards if and when Net-through wireless devices take off in India.

making the communication-driven model pay

Content-driven, we've heard of, but communication-driven? Still, ask Balakrishnan if Rediff is a media company, and he scoffs: "People don't go to the Net for conent; they go for communication. Net portals are communication hubs." Rediff generates its content in-house, but would need to worry about its news content, given Indiatimes. com's showing.

As the market matures, segmentation will become important. Sub-branded offerings-a la Yahoo!'s Finance vision-will become important. Rediff is placing great faith on auctions, but there are big question marks on their viability. The company is also working to offer a bouquet of retail-trade offerings; due-diligence is being conducted on several personal finance portals. Finally, it is developing vernacular content, though a city-specific strategy is not in evidence.

So, if content isn't doing the job, how can Rediff extend its stickiness quotient to generate higher revenues? One area where Rediff's performance has been exemplary has been cost management. The site spent $5 million (Rs 22.89 crore) on marketing in the year ended March 31, 2000. Its gross profit margins for the three months ending June, 2000, stood at 61 per cent. Says Rajeev Gupta, 28, Executive Director and Asia Internet Analyst, Goldman Sachs Asia: "Rediff.com has the highest gross margin at 60 per cent among Asian dot.coms because its cost structure is low. Therefore, it should be able to turn profitable by September, 2001, if prudent cost management continues." Rajiv Warrier, Rediff's CFO, is even more bulish: "Gross margins will climb even higher. As revenues increase, the cost of getting those revenues won't rise as much."

If Rediff is extra-diligent in cutting costs, that's because it knows well enough the limitations of revenue sources in the country's Net space, The Net advertising pie, for instance, is estimated at Rs 35 crore this year. There are various hypotheses on what happens next, with Goldman Sachs even predicting a figure of $211 million (Rs 965 crore) by 2003. The only thing going for Rediff's that when larger advertisers do make the shift, the top three surviving portals will grab a two-thirds share of the advertising. The share of this pie is crucial to Rediff as it has exited the business of developing web-sites for other companies.

Today, Rediff commands a hefty cost per thousand imprints (CPM) of $14, against $18 for Hotmail.com and $17 for Yahoo.com. As the usage of the Net increases, co-branding-and shared transaction revenues-are expected to be a major revenue stream for Rediff. But till broad-band kicks off-Rediff has a channel, but Balakrishnan doesn't think the broadband-bash will start any time soon-ad revenues are certain to be skimpy. Agrees T.S. Krishna Mohan, 31, Research Director, IMRB, eTechnology Group: "Direct marketing and database-related marketing are better revenue-spinners in a narrow-band situation." Counters Warrier: "Advertising means more than banner ads and buttons. It also includes sponsored channels and co-branded sites."

B2C e-Commerce, Rediff's other revenue stream, is a non-starter. Rediff's Market Place hosts 150 merchants; but B2C e-Commerce accounted for just 7 per cent of Rediff's revenue in the latest quarter, Eventually, the company wants 30 per cent of its revenues to come from e-Commerce: 70 per cent of this will stem from slotting fees (an one-time fee for allowing a retailer space on the portal's virtual mall); 30 per cent from commission on products it sells.

However, a variety of factors outside Rediff's control-the touchfeel factor, low credit card penetration, and logistics-are slowing down B2C e-Commerce. Says Kumud Goel, 41, Promoter, Jaldi.com: "I think e-tailing in India will take some time to catch on. If we cross the Rs 50 crore figure in e-Commerce revenues this year, we'll be lucky."

Some horizontals-like Sify-are betting on B2B commerce. Says Balakrishnan: "I think they are seeing something we are not." Rediff argues that a B2B model will work only in fragmented industries, and that it requires extensive domain expertise. But Zacharias of Satyam Infoway believes B2B is a good way to hedge bets: "We have sify.com, which is our B2C portal, and seekandssource.com, our B2B exchange. Our strategy is to have multiple revenue streams."

A difficult market, and competition's touch

What should worry Rediff, starting at a market very different from the one it practically founded, is competition. Not only is Yahoo!, with five million Indian registered users as opposed to Rediff's one million, in town with an India site, Lycos has followed suit. Other biggies like Microsoft's MSN.com and AOL are testing beta sites.

Then, there are the slew of Indian sites, aiming at the same marketplace: access-driven ones like Satyam Infoway's sift.com, Bharti BT Internet's mantraonline.com; content-driven ones like the Times Of India's indiatimes.com and India Today Group Online's india-today.com, and other horizontals like indiainfo.com and indya.com

Not all will survive. The Asian experience has shown that two, perhaps three horizontal portals will be left standing. Rediff is betting that it will be one of them. Says Balakrishnan: "Our competition is Yahoo!... and nobody else." Rediff's strategy will be to continue to build on its branding bandwagon by offering services that grab Indian consumers in different markets. To start with, it will soon announce the acquisition of a US pure-play web-site.

Given the problems of connectivity in the domestic market, Rediff's

Rediff may also go in for domestic acquisitions a la Satyam Infoway. This year, it quietly integrated women's portal footforward.com into itself. At the same time, it has initiated content relationships with partner sites, like zdnetindia.com for technology and bidorbuyindia.com for auctions. While Rediff did not divulage figures for strategic reasons, these co-branding arrangements are an important revenue stream. Goldman Sachs' report says Rediff receives $75,000 (Rs 0.34 crore) a quarter from its content partners.

Simultaneously, with technology costs not an issue, Rediff will continue to develop sticky services on the back of its instant messenger and calander launched this year. Says Nitin Gupta, 40, COO, Rediff: "We don't have to invest that much in building the portal today. And our subscriber base and page views are rising dramatically."

Where does that leave Rediff? With its main sources of revenue yet to reach anywhere near critical mass, Rediff is positioning itself to grab a substantial chunk of the revenues that do come its way. Says Sunil Lulla, CEO, Indya.com: "Eventually, advertising, e-Commerce, and co-branding will all co-exist, with different inflexion points. A crucial point of inflexion will be April 1,2001. If users do grow to 10 million, as predicted by some, Rediff will be among the sites left standing.

Balakrishnan says he's got the cash to keep going for a long, long while (at existing burn-rates, the money is expected to last at least around 60 months). Balakrishnan hasn't said anything about selling out yet, but this `serial entrepureneur' has got off the companies he's promoted: in 1992, he offloaded his controlling interest in PSI Data Systems to Groupe Bull, and he has also sold some of his stake in the ad agency Rediffusion to DY&R. The question is whether Rediff will tweak its model, and barter its independence, in that road forward.

"Yahoo! is our competition. there's no body else..."

Ajit Balakrishnan was in Delhi recently to break nine months of `strictly enforced solitude'. He spoke at length with BT's Sunit Arora and Pooja Garg. Excerpts: Rediff's current valuation: At $10 something we are doing very well by the standards of emerging market portals. Life after an IPO is quarter to quarter... questions are being raised about good and bad revenue streams. Some have questions about the size of the market. The other factor is the Indian currency price.

Rediff's pure-play model: Pure-play portals are not under a crystal dome. The market says if you are a leader, you are a winner. It's an old model, and is exactly that of Yahoo's.

The competition: Yahoo! has been around for five years. They are the competition... there's nobody else. In terms of horizontal portals, mabye three... mabye two will survive.

Access: I have people who say Ajit, we'll give you money, but you don't go and fund access companies. They are terrified of access. If MTNL did not have access, it would die. But from a pure portal's point of view, it's suicide. The economies are against you. Sure, the bigger guys think that they can create their own portals. The moment ISPs set themselves up to compete with the world wide web in terms of content, they are gone.

e-Commerce: E-tailing sites will attract a horde of customers, and disintermediate all other middlemen and companies. e-tailers are not able to make more than 10-20 per cent gross margins, That's because they do not, yet, have the volumes that Walmart has. Consumer expectations of delivery are so high that unless you have your own logistical and warehousing system, you can't cope. So you have all the costs and then some more!

B2B exchanges: I think Satyam is seeing something we are not seeing. Their eyeglasses are different from ours. B2B exchanges can work in fragmented industries. However, the players do not have the technological power to put these things together. To succeed in an exchange, you need extensive domain expertise, you need to have relationships.

On future India IPOs: No company now goint in for an IPO will get admitted unless it is a leader of a large-enough market, its revenues are growing by 50 per cent in the last two-three quarters, gross margin must be at 60 per cent plus, and consumer acquisition cost must be on the decline. Now, this is a big change.

Cash burn: We are spending up to $900,000 per month. Having cash in bank is absolutely necessary. If you look at dot.coms trying to get second and third rounds of funding, then... we are extremely careful about cash, Cash is gold.