Five companies are weaving together a large portfolio of portals to build a web of dominance in India’s fledgling Internet business space
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Using a spider for an analogy in a story on Web businesses might be a stale cliché. But in this case, the arachnid’s technique in building its habitat is simply the best way to illustrate the distinctive business model of five of India’s largest online companies. A spider takes three or four separate points in any given space to spin its web, and be in business: gathering food. Connecting the first thread between two ends is arduous, and the spider repeatedly strengthens this primary thread. This done, the rest of the connections will fall in place. And soon enough, the arachnid has a web spun out across different corners with a strong net in between. The five online companies in question —Info Edge India, People Group, Consim Group, Times Business Solutions and Web18—are at a stage where their primary threads are almost in place. They have each established at least one strong online property (largely recruitment or matrimonial websites), and this has generated enough cash to spawn a strong second business, which is now on the cusp of profitability. The links are already beginning to form. Now, with combined revenues of Rs 750 crore, each of the five is on track to build a large portfolio of profitable Internet businesses. You could call them India’s Internet conglomerates.
Coming of age
Like the spider swinging from point to point, thread in tow, these groups are now rapidly diversifying, setting up more and more new Internet businesses in diverse and uncommon verticals, ranging from real estate to auto, cricket to commodities trading, and more. In the next three years, these firms could boast of combined revenues of over Rs 2,000 crore. A few could individually cross Rs 500 crore in revenues.
By 2003, we had cash, and were wondering what to do with it — Sanjeev Bikhchandani, Chief Executive Officer
We pondered a bit over the choice of words used to describe these companies. ‘Internet Conglomerates’ gives the impression of gargantuan businesses. But Info Edge, the biggest of the lot, has annual revenues of only Rs 240 crore, while Web18, the smallest, has only Rs 57.3 crore. Two of the other three have gone past the Rs 100 crore mark.
This size might be minuscule relative to conglomerates like the Tatas, Ambanis and Birlas. But in the Indian Internet landscape, these five groups wield no less clout than the other groups exert in the brick-and-mortar world. Together, India’s five Internet conglomerates control 8% of the Rs 9,200 crore business-to-consumer (B2C) market. If one excludes company-owned transactions like an airline selling its tickets online, the share of these companies in B2C ecommerce in India increases to 12.5%.
Still, to earn the right to be known as conglomerates, a group has to demonstrate
several domineering traits. It must be large. It must consistently demonstrate the ability to successfully diversify into new businesses, using cash from existing enterprises to fuel this insatiable desire for new opportunities. Much like an octopus grabbing at all that comes by or like a spider spinning its web. It must have the ability to distribute resources and cross-deploy learning across a portfolio of businesses. It must de-risk itself from economic cycles and exert sizeable influence in its environment. Finally, the very mention of its name must send a shiver down the spines of competitors. Without doubt, all these traits are becoming evident in these five Internet conglomerates.
INFO EDGE (INDIA)
Year of inception: 1990 (Naukri in 1997)
Promoters: Sanjeev Bikhchandani, Hitesh Oberoi,
Investors: Publicly listed Headcount: 1,650
Revenues: Rs 239.7 cr (FY 2008) Net profit: Rs 55.5 cr (FY 2008)
Revenue estimate (2011): Rs 700 cr Flagship website: Naukri
Other websites: Jeevansathi, 99acres, Asknaukri, Brijj, Naukrigulf
Take Naukri, a jobs website owned by Info Edge that accounts for Rs 190 crore of the company’s Rs 240 crore revenues. Naukri is growing 60% a year; it earns a high profit margin and generates a lot of cash year after year. This has helped Info Edge invest Rs 25 crore over two years to develop and expand its next online venture, a realty portal called 99acres.
Now, with 99acres gaining traction, Info Edge will shift some attention and resources to an education portal, Shiksha, which will be launched in the coming months. The company also owns a matrimonial site (JeevanSaathi), a career guidance site (AskNaukri) and professional-networking site (Brijj). With the cash it is generating, primarily from Naukri, Info Edge is confident of investing $1 million in its new businesses every quarter. "If players are dominant in one category, they want to go and expand in other categories because there is synergy on the customer acquisition side," observes Alok Mittal, Managing Director of venture capital firm Canaan Partners India.
This strategy isn’t very different from how companies operate in the ‘real’ world. The Tatas used money from textiles early last century to get into steel and power. Today, the Aditya Birla Group is using established businesses like metals, carbon black and cement to invest in new ones like telecom, retail and BPO.
This is happening across all five major online B2C companies in India. Shaadi of People Interactive is the largest contributor to its overall online revenues, expected to touch Rs 120 crore by the end of this fiscal. The success of this portal has seen People Interactive move into real estate (Makaan), social networking (Fropper) and astrology services (Astrolife). Similarly, Consim Info’s Bharatmatrimony has spawned vertical portals like Indiaproperty (real estate), Clickjobs (recruitment) and Indiaautomobile (auto). Consim, another private company, is estimated to have annual revenues of Rs 175 crore, more than 75% of which comes from Bharatmatrimony.
A unique phenomenon
"This (Internet conglomerates) is more common in India than it is elsewhere in the world," says Mittal. The world’s largest online portals have for many years stayed focused on only one business proposition: for instance, Google (search), Amazon (online shopping) and eBay (auction). The Indian model is, however, turning out to be different.
In the US, diversified online businesses are rare for two reasons. First, it has the largest number of Internet users (215 million), whose reliance on the medium is far more evolved than in India, which has only 32 million Net users. Second, and more critically, the size and depth of the Internet market in the US has attracted large capital. "Companies like Amazon had $100 million of venture money in them. Once you have that, you are pretty much committed to one large category," notes Mittal of Canaan Partners.
There are Internet conglomerates in mature markets, with the biggest being IAC (InterActiveCorp), with annual revenues of $6.4 billion. It has diversified businesses in about 60 brands operated by 20,000 employees in 28 countries. Its online brands like dating portal Match and ticketing site Ticketmaster are today classified under broader verticals such as retailing, transactions, media and advertising, and emerging businesses.
The five Indian Internet conglomerates are nowhere near the size of an IAC. But they are growing fast. "In five years, you can achieve a certain scale in India," says Anupam Mittal, Chairman and Managing Director of People Interactive. "That is achieved through diversification."
Behind the diversity
There wasn’t really a master plan behind the diversification of India’s Internet conglomerates. Rather, it was a function of the market. For much of the period between 1999 and 2003, investor mood toward Indian online properties was low, especially through the dotcom bust. By the time investors returned in 2004, many of the companies that survived the difficult years were ripe for investment.
The inflection point in India came that year with Monster’s acquisition of Jobsahead, followed by eBay’s buyout of Baazee. At this point, first-generation portals in India like Naukri, Shaadi and Bharatmatrimony were the first players able to access capital more easily than they had over the previous five years. "When investors looked here, there were only two or three assets they found," says People Interactive’s Mittal, referring to Naukri, Rediff, Indiatimes, and his own primary portal.
In time, online retail, ticketing and travel will make up half our revenue pie — Surya Mantha, Chief Executive Officer
"We first took venture capital in 2000," recalls Sanjeev Bikhchandani, CEO of Info Edge. "By 2003, we were profitable because of Naukri. We had cash, and were wondering what to do with it." First up, Info Edge, which owned 35% of Jeevansathi, picked up the remaining stake in September 2004. Its next stop was in the real-estate space. "We thought it is fragmented, there is no real strong player here, and it had the obvious potential of becoming a big market," says Hitesh Oberoi, Chief Operating Officer of Info Edge, referring to 99acres.
Elsewhere, Consim Info began operations in 1997 with a matrimonial website, Bharatmatrimony. In 2006, venture funding of $8.7 million from Yahoo! and Canaan Partners triggered its foray into real estate and auto listings. Bharatmatrimony’s early-mover advantage in the online matrimonial space helped, and it started making profits early on. "The profits have gone back into the new businesses along with the fresh round of funds," says its Founder & CEO, Murugavel Janakiraman. In January this year, the Consim Group received an additional $11.8 million worth of funding.
Half of its 850-strong workforce is still devoted to Bharatmatrimony, but the spurt in
investments toward Indiaproperty since its launch in July 2006 is evident: in more than a year, its contribution to revenues has risen to about 15%. "It’s about how we can apply the learnings of one successful vertical in another," says Janakiraman. That is a skill that conglomerates must master. The Tatas, for example, put into use the early learning of Tata Tea and Tata Motors in going global, and have now deployed it across the group.
Year of inception: 2006 Promoters: TV18
Investors: NA Headcount: 400
Revenues: Rs 57.3 crore Net profit: Rs 34.3 crore
Revenue estimate (2011): Rs 175 crore
Flagship website: Moneycontrol
Other websites: Poweryourtrade, Indiaearnings, IBNlive, Cricketnext, Tech2, Biztech2.0, Compareindia, Buzz18, Indiwo, Josh18, Bookmyshow, Storeguru, Mobile18
Online classifieds today account for a large chunk of the B2C market in India, and is the mainstay for four of the five online conglomerates. And because of the demand for such information, these properties have been able to report profits faster. In 2005, this was vindicated when Rs 3,228 crore Bennett, Coleman & Company set up independent operations to focus on online classifieds with a recruitment portal, Timesjobs. This would be the engine of its online classifieds portfolio—Timesjobs accounts for 60% of Times Business Solutions’ estimated Rs 150 crore revenues.
"At first, we created an online presence with a view to ensure that we mitigate any risk of losing out our print classifieds to the Internet players," recalls R Sundar, CEO of Times Business. "But it didn’t take us long to realise that offline and online classifieds are like chalk and cheese." The online company would have to start creating a huge database, and continually keep interacting one-on-one with those users, he adds.
Similarly, Info Edge, Consim and People Group have come to dominate the online classifieds space by carving out their own areas of dominance, be it in matrimony, jobs or real estate. Now, established in their domains, they enjoy the advantages of big entry barriers. "Players should be prepared to lose Rs 25-30 crore in the first two or three years if they want to launch a serious website in the classifieds space now," says Bikhchandani. In effect, playing in a saturated vertical can cost a new player three times what it costs the leaders of the space, and the incumbents also benefit every time a new entrant advertises. But the entrenched players can now milk their respective properties in the cash-rich classifieds space to wager bigger bets in other online business segments.
Managing the spread
The only exception to the classified theme is Web18. Promoted by Network 18, it has already built or bought a bouquet of 14 portals. Although Moneycontrol spearheads its Internet businesses, it also has vertical properties ranging from retail (Storeguru) to ticketing (Bookmyshow) and cricket (Cricketnext). "It’s a portfolio where each brand is at a different point in its evolution," says Surya Mantha, CEO of Web18. That’s a common strategy traditional conglomerates use to fray out business-cycle risk. That’s how the Tatas used TCS to make up for businesses like publishing and consumer products that they exited.
Mantha’s investment strategy on these vastly contrasting brands will be driven by their ability to generate cash. Currently, Moneycontrol (it accounts for two-thirds of Web18’s overall traffic), IBNlive and Cricketnext have maximum appeal. At the same time, more than 75% of Web18’s revenue comes from advertising. In time, as overall revenues rise, Mantha believes Web18’s transaction portals for retail, ticketing and travel will make up half the pie. "As the macro environment also improves, we will have the ability to monetise," he says. "Users will change, usage patterns will change, as will their relationship with the Internet, be it on landline or mobile. With that, we will have to innovate as well."
It didn’t take us long to realise that offline and online classifieds are like chalk and cheese — R Sundar, Chief Executive Officer |
Broadly, the Web18 portfolio of 14 online brands is classified under those that can be driven by advertising revenues (for banner, displays and cost-per-action), subscription services (Commoditiescontrol) and transaction services. If the task of managing such a spread sounds challenging, Mantha’s solution echoes the buzzword of all the other online conglomerates: decentralise.
At Web18, this translates to a team of about 400 people, with independent business heads and teams. For example, it has even retained the original team of Bookmyshow, a portal it acquired. Every portal has its own editorial team for information and general content. Some of these also derive content from the relevant TV channels in the Network18 fold—MoneyControl from CNBC, for instance.
However, there is a talent crunch among Internet businesses. "The issue is of finding the right leaders in the company across all levels," says Bikhchandani. Being a conglomerate with 1,650 people certainly helps. When Info Edge floated 99acres, it could move about 35 employees of Naukri into its real estate portal’s sales force. This played a huge part in setting up 99acres within four months of the decision to foray into real estate. Simultaneously, Info Edge rolled out a big marketing campaign to promote the new portal, which was essential to bring in traffic. In hindsight, the quick foray gave Info Edge a first-mover advantage of two months over nearest competitor Consim Info, which was gearing up to launch Indiaproperty.
Engine of expansion
If online jobs and matrimony were the first strands in the web of businesses these Internet conglomerates are building, then real estate could be the second. This space has the highest potential for growth and high retention rates—among builders, developers and brokers. With a low base, these portals are currently clocking growth in excess of 100% a year. The competition is intense, with revenues estimated at Rs 30 crore in 2007-08 and expected to triple this fiscal. But the conglomerates now need this second pillar of high growth—and, more importantly, one that can generate cash because that will determine future expansion.
For People Interactive, Makaan is literally and figuratively the opportunity to build an online property that can clock profits faster than what Shaadi did. "We are looking at the Indian consumer, both in the context of the Internet and beyond," says People Interactive’s Mittal. Mobile is a huge part of People’s strategy for Makaan because though only 25% of brokers have Internet access, they all have two phones each, he says. "The key is: can you make it easy for brokers and users to do what they have been doing with a newspaper more effectively?"
Info Edge has a team of 150 dedicated to 99acres. The headcount has doubled in a
year. It has 200,000 listings and more than 5,000 unique customers, though group COO Hitesh Oberoi points to the ground to be covered. "There is potential for 5,000-6,000 builders and about 100,000 brokers. We still have a long way to go."
TIMES BUSINESS SOLUTIONS
Year of inception: 2004 Promoters: Bennett, Coleman & Co.
Investors: NA Headcount: 1,000
Revenues (est.): Rs 160 cr Net profit: NA
Revenue estimate (2011): Rs 480 cr Flagship website: Timesjobs
Other websites: Magicbricks, Simplymarry, Ads2book, Yolist
Times Business’ Magicbricks is particularly aggressive. With an eye on the next generation of builders and the greater bulk who are offline, it has been organising property fairs to consolidate potential listing customers, agents and builders. It is even conducting such fairs for Indians living abroad.
The leaders at these conglomerates are betting that real estate will pay off this year. Once the spider has built the second strand, the third and the fourth and, finally, the web itself can fall into place even quicker.
Synergies and derisking
For market leader Info Edge, new businesses like an online brokerage for residential real estate (Allcheckdeals), professional networking (Brijj) and education (Shiksha) demand huge marketing expenditures upfront. "We cannot wait for revenues to justify marketing spending simply because we have to use other media to get traffic onto new websites in India," Oberoi points out. Fortunately, it can fund much of this expenditure from existing accruals rather than raising fresh capital.
Still, online conglomerates must utilise capital prudently by tapping into synergies and a derisking strategy. Info Edge synergises at the back-end, on the technology side, by using a network of common offices for sales forces of different online brands. "While the sales teams are unique, they all use the same offices," says Oberoi. Similarly, being a diversified company helps an Info Edge and Consim buy media at better rates because they can buy space and airtime for all their brands at once.
Web18 has, in fact, true to the spirit of the media conglomerate that Network18 is, applied synergies in content—the news and information delivery—across TV and websites. It plans to extend this to its soon-to-be-launched print publications. "There is editorial integration where it makes sense," says Mantha, citing how user comments on IBNlive are read out on CNN-IBN shows. Similarly, there are synergies between CNBC and Moneycontrol. On the operations side, Web18 has common design and technology-development teams, apart from a common mobile and marketing team. The latter two account for 40% of its workforce.
These are still early days in the lives of India’s Internet conglomerates. But they already have an edge in India’s online business sweepstakes. "There are lots of opportunities (in B2C)," says Bikhchandani. "But there aren’t so many players outside the current lot to grab them." His words amplify the quiet confidence and ambition of this bunch of rising Internet conglomerates.