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Article by Mohan Babu

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 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, 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 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,, 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.





About the Author

  • A Bio and profile of the author, Mohan Babu, can be found at his homepage
  • Mohan has authored a book on Offshoring and Outsourcing (Publisher McGraw Hill, India), a link to which can be found here
  • Mohan has also authored an Online book on "Life in the US," available for free download.
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    ©Mohan Babu: All Rights Reserved 2005

    Mohan Babu is an international consultant trying to find the ‘sweet spot’ where IT meets business. E-mail: mohan He is also the author of a recent book on "Offshoring IT Services"

    All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

    Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. This Article was originally published in Express Computers


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