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Web commerce ventures
The
era of dotcom demise is being followed by a slow rebirth.
Writing about the various sources of revenue for Web portals,
MOHAN BABU explains
why he continues to be surprised by the strength and resilience
of businesses on the Web.
The
dotcom revolution of the yore has all but vanished from our
collective memories, replaced by the reality of the protracted
tech slump and the ongoing slow revival. Though the e-commerce
hype that was predicted is not likely to materialise, business
magazines have been extremely gung-ho about the turning tide.
Google’s much awaited IPO is expected to be a turning point
though other Internet businesses, including Amazon.com and
eBay, have been posting steady profits. As an armchair observer
of the trends during the nineties, I continue to be surprised
by the strength and resilience of businesses on the Web. An
aspect of the heady days of the Internet that is yet to really
come to the fore is the atrocious valuation of online businesses,
though many listed companies continue to be traded for P/E
(Price/Earnings ratio) multiples of over twenty or thirty.
Is this a realistic valuation, if not how else can one go
about valuing online ventures is a question I have been deliberating.
To
set the stage for the debate, I will not take examples of
any of the ‘biggies’ like Yahoo or Google but a ‘small’ portal
I have been associated with. I wish to mention at the outset
my affiliation with Garam-Chai.com, the portal we will use
as
a case-in-point. I am using this more as a placeholder since
I do not wish to use a ‘dummy’ name. The ‘facts’ I am going
to present may pertain to small online ventures and are not
specific to GaramChai.com or its strategy.
What
are the sources of revenue? The sources of revenue for Web
portals are varied, depending on the reach and exposure and
include the following:
Ad
clicks: There is definitely money to be made online, as
readers have probably seen from articles on Google’s Adsense
or other advertisements and click-throughs on the Web. Google’s
Adsense advertisement programme pays website owners anywhere
between a few cents to about 20 or 30 cents for each click
from a unique visitor on the portal. While this may not be
much individually, even a few hundred clicks a day can amount
to a tidy pile if you do the math. Google is extremely wary
of the ‘creative’ folks who write scripts to crawl their own
portals and imitate a click. To bypass this, a recent article
in a newspaper talked about a few ‘entrepreneurs’ in India
who have apparently hired ‘clickers’ (people with access to
the Web, say from a cybercafe) who spend a few hours every
day crawling through the specified websites and clicking the
links. I’m sure that it is a matter of time before Google
and others plug this loophole too. Google is not the only
big context advertisement service on the Web though it continues
to be the most innovative and influential one.
Affiliate
programmes: Affiliate programmes are generally based on
the premise of profit-sharing, whereby the advertiser pays
a percentage commission on the total proceeds or sales instead
of giving a miniscule amount for a click alone. Businesses
signup with affiliate consolidators and offer their banners
and programmes. Websites can opt to host banners suitable
to the needs of their audiences and are paid a commission
or fee when the patrons click and either buy or opt to patronise
the services of the advertisers. Popular examples of such
models is that provided by vendors of phone cards, travel
agents, online matrimonial services, etc. There are scores
of consolidators including Commission Junction, Reporting.net,
etc, that merge the affiliate programmes from different businesses
and provide tracking and signup mechanisms.
Advertisers:
Several traditional organisations are also beginning to realise
the significance of advertising online and are beginning to
formulate their online strategies. Even if they do not expect
direct sales to accrue from such marketing initiatives, the
advertisers are willing to play along, realising that the
Web is yet another channel that can help them generate the
required buzz. Case in point include large financial institutions
and banks that are blanketing Indo-American portals with banners
advertising offerings (including sending money to India, NRI
accounts, etc) targeted at the influential non-resident community.
Advertisers also sometimes sponsor content on Web portals,
especially content targeted at the audience they are also
looking to attract.
Though
these are not the only sources of revenue for Web portals,
these continue to be the most popular ones. In this section
of the column, we looked at some of the major sources of revenue.
We will continue the same train of analysis to examine the
valuation of Web portals given a revenue model in the next
part of this column.
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