Ver 1.0 failed to create the magic. Now Rediff.com CEO Ajit Balakrishnan unveils Ver 2.0 with, surprise, an all new business model. But the company may no longer be a dotcom.

By Vinod Mahanta

Ajit Balakrishnan is discovering the hard way just how much American law-firms love class action suits. First off the block, on April 10, were two firms, Lovell & Stewart and Sirota & Sirota, both representing a shareholder in Rediff, Suresh Khanna. Two were filed a week later by firms Charles J. Piven and Brodsky & Smith. And two more firms Kirby McInerney & Squire, and Savett Frutkin Podell & Ryan, jumped on to the bus on April 25. The essence of the complaints are the same: that 'misrepresentations and omissions' in Rediff's IPO prospectus 'artificially inflated' the value of Rediff's shares in the 'Class period', June 14, 2000 to April 4, 2001 (See What This Means).

AJIT BALAKRISHNAN has unveiled a radical new strategy for Rediff

In the flurry of class action suits, the American equivalent of Public Interest Litigations, Rediff's fourth quarter, and fiscal 2001 results, declared on April 19 went almost unnoticed. Not that there was much to notice: the net loss for the year was $6.39 million (Rs 27.5 crore), marginally better than the $6.67 million (Rs 28.7 crore) the portal lost last year. Revenues were up from $1.91 million (Rs 8.2 crore) to $5.60 million (Rs 26.2crore), but worryingly they were down 35 per cent in the last quarter (January-March 2001), as compared to the previous quarter (October-December 2000). That may have been the outcome of the termination of several advertising contracts, a fact, the law firms argue, that was not mentioned in the prospectus. For the record, Rediff's advertising revenues fell from $1.59 million for the quarter ended December 31, 2000 to $1.33 for the quarter ended March 31, 2001.

Still, law-suit or no law-suit, Balakrishnan unveiled on April 19 a radical business model that would, he claimed, increase revenues six-fold this year. The fulcrum of this strategy, explains Balakrishnan, is a new target audience, Non Resident Indians. ''Currently, we generate most of our revenues in India; by the next year, we will generate 75 per cent of our revenues from the US.'' And the bulk of this will come from offline and online media services, and communication services, apart from old faithfuls like consumer-subscription, and merchandising services.

"No single source of revenue can carry the business on" SUNIL LULLA, CEO, Indya.com

It won't take someone of Einstein's IQ to realise the new buzz word at Rediff is services. Shorn of strategy-speak, the company will, through India Abroad Publications (a recent acquisition) among others, produce and sell offline and online news products targeting the NRI community. It will also, through another acquisition, Value Communications, which is a dominant player in the pre-paid long distance telephony, and communications domain especially, as a company release puts it ''among the South Asian community in the US.'' Rajeev Gupta, a director with Goldman Sachs Asia believes Rediff's projected revenue-stream break-up-75 per cent from its acquisitions like India Abroad and Value Communications, 15 per cent from existing offerings, and 10 per cent from new services-looks plausible, but that didn't stop him from downgrading the scrip. ''Rediff's Version 2.0 is a much more mature model with tangible revenue streams.''

The Clickability Of Ver 2.0

That Rediff's Yahoo!-inspired pure play model wasn't working was evident long before the Oracle ran into trouble. Balakrishnan's new gameplan, believe analysts like Matt Adams, CSFB's Hong Kong-based media specialist, is a reflection of the times. ''It is a response to the change in market conditions; partly a function of the global trend of declining online advertising.'' And with an ad-dependent revenue model-88 per cent of its revenues come from advertising-Rediff was in big trouble. The dotcom bust saw sponsorship revenue from such companies decrease from 30 per cent of Rediff's third-quarter revenues to 19 per cent of its fourth. ''They had a short, sweet inning,'' sighs Balakrishnan. And with other advertisers, notably the local arms of transnationals, realising that banner ads weren't what the doctor ordered, the company saw its mother lode drying up.

It was evident that Rediff had to diversify. ''You have to layer revenue streams; no single source of revenue can carry the business in the current context,'' says Sunil Lulla, CEO, Indya.com, the Pradip Kar-promoted portal in which Rupert Murdoch has a stake.

"Rediff's version 2.0 is a much more mature model" RAJEEV GUPTA Director, Goldman Sachs Asia

Balakrishnan's NRI-focussed approach can't be faulted. Rediff maintains that while the size of the segment is a mere 1 million, NRIs are far more tech-savvy than resident Indians. The between-the-words implication: a tech savvy 1-million-and-not-growing market could be far more remunerative than a tech-newbie 7.2-million-and-growing one. Admits Vivek Bali, the COO of Sify.com: ''The NRI audience is definitely a lucrative target for a horizontal portal.''

Rediff's US-acquisitions fit neatly into this NRI-focus. Value Communications boasts revenues of $13 million and a customer-base of 45,000. But communication services, warns Adams of CSFB, is an area where margins are slim: ''This area will bring in significant revenues, but won't contribute much to profits.'' Eventually, Rediff plans to extend Value Communications' offerings to the domestic market.

If Value Communications provided Rediff with a ready-made platform for e-commerce-65 per cent of its revenues originated online-India Abroad offers it a strong off-line presence in the US. India Abroad Publications is the largest weekly newspaper (circulation: 65,000) targeting the South Asian community in the US and Canada and it earned revenues of $7 million in the preceding year. Rediff is hoping it can sell advertisers the twin-benefits of reaching the NRI-audience online through the portal and off-line through the publication. ''The off-line presence will help us penetrate the NRI-market,'' agrees Nitin Gupta, Rediff's COO.

The subscription and merchandising elements of the model are minor, but significant strands of an approach that is the antithesis of the free-play design Rediff favoured in the past. Its financial guidance for the next quarter (and year), estimates a subscription base of 10,000-20,000 by July 2001, and 75,000-100,000 by April next. Bali, who is considering a similar model for Sify believes this is the way to go: ''It will take time, but will happen.''

With cash of $45 million in its balance sheet-a number that will decrease to $30 million by the last quarter of this year, after the acquisitions have been paid for-and a burn rate of between $1.5 million and $2 million a quarter, Rediff is in reasonable financial shape, although its shares were trading at $2.28 as this article went to press, almost $25 dollars off its peak. Analysts like Gupta and Adams think Balakrishnan may be able to pull it off. If Rediff manages to succeed, it will only be because the company has moved from being an Indian dotcom to being a dotcom of Indian origin, targeting NRIs, and earning a significant portion of its revenues from selling pre-paid international call cards and ad-space in a weekly newspaper. Maybe this is what click and brick is all about.
  

Issue Contents  Write to us   Subscription   Syndication 

INDIA TODAY |  INDIA TODAY PLUS | COMPUTERS TODAY  |  TEENS TODAY  
THE NEWSPAPER TODAY | MUSIC TODAY | ART TODAY | CARE TODAY

© Living Media India Ltd