of interest in Web portals
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
GaramChai.com—an informative portal for the Indian-American
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 GaramChai.com, an informational
portal targeting the Indian-American community in the US.
portal GaramChai.com 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.
looking for information are either knowledgeable about GaramChai.com
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 GaramChai.com has
to offer in different segments.
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?).
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
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.
back to the GaramChai.com model as an example. GaramChai.com
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.
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.
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.