India: Surviving the dotcom bust by consolidation

Doomsdayers predict that in the next few years 90 percent of the dotcoms will close down and most of the rest will be sold off. But companies in the business are realising new realities -- one that dotcoms are not a business in itself.

Dotcom companies are closing down or are being sold off a dime a dozen.

In the last few months, abcmatrimonial.com has closed its shutters. And after a major splurge, net2travel.com was finally sold off to indya.com. Doomsdayers predict that in the next few years 90 percent of the dotcoms will close down and most of the rest will be sold off.

But hang on, this does not mean the end of the Internet and it is not as if revenues from advertising and e-commerce are going down. Nasscom estimates reveal that revenue from e-commerce transactions has gone up by about 36 percent in the last 12 months.

During the period April to September 2000, the revenue from e-commerce transactions stood at Rs 610 crore, marking an increase from Rs 450 crore reported for the period November to April 1999-2000. (A crore comes up to about 10 million rupees).

Says executive director Amul Gogna of Investment and Credit Rating Agency (ICRA): "The slowing down of the growth rate of a number of dotcoms should not be confused with the accelerated growth in the business from the dotcoms."

The phase of consolidation is already on its way and as Rohit Bhasin, executive director of PricewaterhouseCoopers points out, 90 percent will die a natural death while nine percent of the rest will be sold out to brick and mortar companies. Only one percent of the existing dotcoms will be able to sail through as a stand alone business.

Companies in the business are realising new realities -- one that dotcoms are not a business in itself. Explains Gaurav Dalmia of Infinity Ventures: "Slowly, the people are realising that the Internet is just another medium to do business and is not a business in itself."

"Rough estimates tell us that in the period from November 1999 to June 2000, there was a growth rate of 100 per cent in the number of dotcoms, which fell significantly to about 40 per cent, showing a considerable decline in the number of dotcoms," Gogan adds.

This is reflected in the fact that fewer and fewer start-ups are approaching venture capitalists for funds. Six months back, Infinity used to receive 200 proposals per month but now with the start-ups realising the seriousness in the market, proposals have trickled down to around 100 per month. One such company which is going in for consolidation is indya.com.

"What we see today is a corrective phase in the dotcom industry that will see an end of players who did not build their businesses with a long-term vision. Having made significant advancements in content and revenue-based partnerships, we are now ruthlessly focused on consolidating, our acquisition of net2travel.com signifies the first step in that direction," Sunil Lulla, CEO of indya.com explains.

He points out that with the madness over, there will be larger players who will grow through consolidation. Ajit Balakrishnan, CEO of rediff.com says: "I feel that the meltdown in the dotcom industry has made evaluations reasonable as well as realistic. The big players will be able to survive through consolidation."

And that will be the future of the Internet business.