Jain Temple

Hot Spots

India Links
Call Home


Art & Culture
Book Shelf



About Us

Contact Us
About Us

Article by Mohan Babu

Revival of interest in Web portals

In the second part of his series on successful Web portals, MOHAN BABU  writes about the sources of revenue for small niche portals. He takes the example of—an informative portal for the Indian-American community

In the previous part of this column, we briefly looked at some of the trends shaping up in the dotcom world and the re-emergence of interest in portals, especially those with positive cash flow. We also looked at some of the popular revenue generation models adopted by online entities, including revenue from click-throughs, signing up for affiliate programmes and direct advertising by organisations and ad agencies. As I also indicated in the previous column, we will not look at the model of the big portals like Yahoo or Google, but at small niche portals. As a case in point, I will be using some of the insight gained while being associated with, an informational portal targeting the Indian-American community in the US.

The portal has several sections, including comprehensive listings of temples, mosques, gurudwaras and other places of worship, listings on shopping, bazaars, art and culture and other regular services and ethnic things that Indians and NRIs in the US would be interested in. Unlike other news or current affair portals, the information on this website is relatively static so the measures of ‘stickiness’ as applicable for a news portal, cannot be applied here.

People looking for information are either knowledgeable about or find it from links on other portals, or by searching on the Web. The portal ‘market’ is highly fragmented; and with low barriers to entry, anyone with access to the Web can easily plagiarise content, reshuffle it and present it as their ‘own.’ This being the case, it is not surprising to find dozens of small players offering a subset of what has to offer in different segments.

We looked at the sources of revenue earlier in this article. However, that is only half the picture: No business is complete without the income being balanced by expenses. Contrary to popular misconception, even pure online ventures can be expensive (remember the dotcoms burning out of cash?).

Expenses for developing, managing, hosting and advertising an online venture can be an expensive proposition. Even a small or mid-size portal requires at least a few full-time people on the rolls to handle the operational side of things, ranging from responding to requests and queries, to keeping the content fresh and refreshed. Given this income-expense equation, we come to the eternal question of how does one ‘value’ a purely online venture?

Traditional valuation techniques used for assessing the worth of conventional organisations cannot be used for online ventures. At the same time, online ventures, especially those with positive cash flow (where income is greater than the expenses), are beginning to fall into the same genre of high-tech companies. The caveat is that the ground in the e-commerce and online world is fast shifting; therefore the valuation techniques used in one scenario may not really be the right fit subsequently.

Getting back to the model as an example. has partnerships, alliances and click-through agreements with several portals, service providers and organisations. The source of revenue is varied. Similarly on the expense side, staffing, Web hosting, network access, bandwidth, etc, consume tremendous amount of resources.

A few months ago when there was some interest from an investor, the management of the company responded by attempting a valuation exercise. Though the management was guarded about the specifics, they were able to move ahead with the valuation using commonly accepted techniques. Needless to say, a valuation of 30 or 40 times the P/E was passé. A more modest 15 to 20 times the cash flow was the norm. What this means in layman’s terms is that if the earnings of the portal were about 10,000 dollars a year, the venture would be valued at about 150,000 or 200,000 instead of say half-million dollars or more as it would have been valued during the heady days of the dotcom boom. The caveat here is that the valuation assumes that a similar or better cash flow will ensue in the coming 15 or 20 years. Given the fact that the ‘Internet age’ is less than a decade old, it is hard to visualise the trends a decade or so from now, so such traditional valuation techniques may not really be apt. Such valuation therefore borders on futuristic predictions.

What does this discussion on dotcoms and valuations mean to start-ups and wannabe entrepreneurs interested in online ventures in 2004? Most entrepreneurs look towards an ‘exit strategy’ even while conceptualizing their business plans. Trends in valuation of online and dotcom enterprises is probably a good motivator or a trigger to rethink the strategies. Such an exercise can provide clarity to articulate the plans and to evaluate the directions moving forward. The months and years ahead are likely to see scores of new e-business ideas emerge. How many will really make the cut is anyone’s guess. What is certain is that the entrepreneurs who are able to take in the big picture of the changing landscape and work towards innovative solutions are going to retain an edge.





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.
  • Sponsored Advert

    Advert: Visitor's Travel Insurance

    Click for free online Quotes


    For FAQ, Trivia and Information on Life in America, visit the Ask-A-Desi section

    ©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


    GaramChai® 1999-2005