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US-based market research firm, recently predicted that 95 percent of ad-based
Internet ventures will fall short of their revenue targets. Respected industry analyst
Henry Blodget of Merill Lynch flatly stated that three out of four Internet companies
will never make money. A report in
Barron’s
magazine revealed that some of the
biggest names in dotcomdom are burning up their cash at an unsustainable rate.
All these developments had an impact on India, because India is perceived to emerge
as the front-runner in the new economy. Investors in India were quick to bring
down prices of tech stocks, not fully aware that these were the
software stocks at Indian stock exchanges, and not dotcom stocks.
And, when realization dawned, valuations started reversing for the
better for some of the software companies.
However, NASDAQ’s meltdown had a tremendous impact on the
Indian dotcom scene, which started changing. The market started differentiating
between the men and the boys. Over the last few months, the Indian dotcom
arena was getting crowded with the proliferation of net portals offering news, sports,
e-mail, chat rooms, coffee and tea, bakwaas and other free services. The NASDAQ
setback made people realize that most start-ups, which have no USP (unique selling
proposition) or proven revenue models, and are spending more than necessary, are
either destined for failure or at the most likely to get acquired by others.This led to “realism”
in valuations.
Meanwhile, what about the future? Let me try to answer that question through the
following possible scenarios:
Reality Check:
The Indian dotcom retail business will go through a phase of
reality checks. Here, venture capitalists, investors and entrepreneurs will go
through a self-assessment of the “real” worth of the portals, their
potential to earn and then fix realistic valuations.
Consolidation:
Some people call it a shake-out. I would call it
consolidation. There is a growing realization that many of the portals
are competing in a field which is grossly overpopulated with look
alike sites, all chasing an anemic advertising revenue stream.
Mergers and Acquisitions:
This will lead to mergers and acquisitions. The
stronger ones will survive. After all, it has always been said that in this business,
one out of 10 succeed, and the rest either get acquired, merged or simply go out
of business.
First of all, let me shout
from the rooftops
that the dotcom party is
far from over. On the contrary,
it has just begun!
