In 2000-01, when most of the dotcoms were going bust, Rediff.com (Rediff) continued to tick. Rediff's business included a portal service covering all subjects related to India; content via news and features; free e-mail, chat sites, homepages; and on-line retailing of books, music, and travel services. Rediff was the first independent Indian dotcom to get listed on the National Association of Software Dealers Automated Quotation (NASDAQ).1 Ajit Balakrishnan, CEO of Rediff, was confident that Rediff?s e-commerce transactions would see an increase and would form the bulk of its revenues. Rediff was diversifying its revenue flow and had taken steps to increase its offline revenues. It had acquired Value Communications, and India Abroad, both US based companies. In years to come, Rediff's business was expected to evolve along four clear paths: media services (online and offline advertising), consumer subscription services (India Abroad), communication services (Value Communications) and merchandising services (e-commerce). However, its performance would depend a lot on its ability to integrate the newly acquired companies. Analysts felt that Rediff was one of the few dotcom companies that had all that it takes to make profits. However, in the fiscal 2000-01, Rediff recorded a net loss of $6.39 mn, which was marginally better than the $6.67 mn loss made in 1999-00. Though revenues went up from $1.91 mn (1999-00) to $5.60 mn (2000-01), the performance for the quarter ending March 2001 was disappointing. Revenue was down by 35% as compared to the corresponding period in 1999-00. Rediff's advertising revenues also fell from $1.59 million for the quarter ended December 31, 2000 to $1.33 mn for the quarter ended March 31, 2001.

Rediff was set up by the advertising agency, Rediffusion-Dentsu Young and Rubicam in 1995. With 5 journalists, 3 technologists, and 2 designers, Rediff set up India's first web-server from its 800 sq. ft office in Mumbai's Fort area. Initially Rediff posted a newsmagazine and the site reported 1 mn hits in the first month. Most of the hits were from the US, from the first-generation Non-Resident Indians (NRIs). Balakrishnan then re-positioned the site as an access-point for all India-related information. Chat services were introduced in early 1996. The early-mover advantage seemed to have worked in Rediff's favor. Apart from The Hindu's online services, Rediff was the only source of Indian news on the Net in 1996. Rediff then looked out for companies interested in advertising to an NRI audience. Hindustan Lever and Ranbaxy accepted the offer. Since these companies did not have websites to start with, Rediff got into site building. Once again, the first-mover advantage helped Rediff. By the late 1990s, Rediff had built about 70% of the Indian sites. Rediff unfolded its e-commerce strategy in early 1998, when it became clear that e-commerce would soon be available to Indian consumers. On August 15, 1998, Rediff launched a bookshop, music shop, and on-line hotel-reservations, backing it up with free e-mail and homepages. In May 2000, Rediff and Orange (Mumbai's leading cellular service provider) announced a strategic alliance to launch the wireless applications protocol (WAP) service. This enabled people to browse the Internet using mobile phones. Orange customers could access Rediff content on their mobile handsets. Rediff provided the latest news, calendar service, astrology, and Bombay Stock Exchange (BSE) and NASDAQ quotes. In July 2000, Rediff was listed on the NASDAQ. It offered 4.6 million American Depository Receipts (ADRs) at a price of $ 12 each. On the opening day, (July 3, 2000) Rediff gained 116% on its offer price. In July 2000, Rediff announced that it would give a major thrust to its e-commerce initiatives to increase earnings from transactions rather than from advertisements. Rediff also announced that it would make investments to increase consumer awareness of online shopping through marketing campaigns. Rediff accepted payments through credit card and entered into agreements with HSBC, Citibank and American Express for online payment processing. In the meantime, Rediff also planned to buy out portals in the US, UK, West Asia and Southeast Asian countries, specifically in Singapore and Malaysia. The company earmarked one third of the amount it had raised through the American Depository Share for acquisitions. Rediff was also planned alliances with cable operators as well as Internet service providers (ISP) all over the country for its portal. It started negotiations with the Hindujas-owned Incablenet, Zee's SitiCable and Rajan Raheja's Hathway, which ran cable networks. Rediff had already struck an alliance with Rolta Net, a Mumbai-based ISP. By June 2001, Rediff had acquired two US-based companies, Value Communications Corporation and India Abroad Publications. Value Communications had a web-based business model and focussed on Internet-based marketing of international phone services to Indians in the US. It had a user base of about 45,000, with revenues of over $13 million in the year ended December 2000. India Abroad was the most profitable weekly newspaper for Indians in the US with a circulation base of 65,000 and revenues of $ 7 million.

The USP of Rediff seemed to be its 'Indianness.' However, it had to look beyond because the net user base in India was very low. Rediff always emphasised on news and information services as the main attraction for NRI visitors to the site. However analysts questioned Rediff?s capacity to provide continuous, up to date and original news from India particularly in the face of competition from newspapers and news agencies. The site was also not generating enough attention among the NRIs. Rediff claimed that on an average1.8 million netizens visited its site with 12-million page- views per month. In comparison, Star Media, a Latin American portal had 2.30 million visitors and 75 million page – views per month. To attract more visitors to the site, in May 1999, Rediff launched its US edition. It also hired a team of 18 reporters in the US to cover local Indian community news. Rediff also planned to launch similar services in London, Dubai and Singapore. To attract domestic users to the site, Rediff introduced books and music sections followed by a gift section. It was also the first site to offer Hotel and Airline reservations and online matchmaking. All these were backed by constant promotion and contests. There were special contests during World Cup Cricket, Father?s day and Valentine?s day. However, Rediff soon realized that only 1 out of 1000 visitors to its site made purchases. Low credit card usage was another problem Rediff had to grapple with and the users were reluctant to disclose credit card numbers on the Net. To tide over all this, Rediff first made the site easier to navigate and offered a cheque payment option for e-commerce transactions. In May 1999, it also launched a Value Payable Post option where customers could pay after they received the items ordered. In May 2001, Rediff announced that its search engine would be based on Inktomi technology which was also being used by Yahoo!, America Online and MSN. Under the Inktomi technology, a search engine would first yield the Rediff editor?s choice of the top 10 sites and then the next ten as per Inktomi's database. Rediff believed that this step would retain visitors apart from increasing the potential for advertising revenues. Rediff also took special care in selecting its partners. Rediff installed an intranet linking all its vendors such that an order is downloaded and routed to the vendor's site automatically and a bill is generated in a Fed Ex (logistics provider) supplied software. The packet is then picked up by Fed Ex. For Rediff, the key to success in e-commerce was customer service. In the first month of its e-commerce venture, Rediff used free chocolates to appease customers if orders were delayed or not executed flawlessly. In March 2000 when Rediff faced a peculiar problem in its e-mail service when the Inboxes of users disappeared, it sent out tens of thousands of chocolate boxes to its customers apologizing for the problem. Rediff also cut down the ordering process from 9 steps to 2 to make it simpler to execute. Said Balakrishnanan, “ The early users were sophisticated. With incremental users, the knowledge base about on-line shopping is far more basic and, therefore the shopping experience has to be simpler.” When a new product or service was launched, the feedback click was linked to Balakrishnan's email for 90 days so that he could personally check out consumer feedback. Rediff also allowed worldwide users to query the portal on any issue regarding its service including the status of an order placed. The site also encouraged visitors to fill in personal information about their interests. It was only in 1999 that Rediff started a media awareness campaign though the company was four years old by then. Commented Nitin Gupta, President, Rediff. Com, “ Over advertising is a very wrong thing to do. If you advertise too much, people feel that it?s not something that they really need. There are brands and products on the Internet that have become really successful without major advertising. Hotmail is a case in point. There are millions of Hotmail users around the world without much advertising. The same with Amazon. In 29 months they built up a consumer base of 10 million. They were not advertising at all. Spending money is not the way to build a brand. But it does help. Till October 1999, we too had done virtually no advertising. But we were already leaders by then. We do not believe in overpowering the media in order to build the brand. Advertising is required just to announce new services and technologies, just to keep people aware of it. If we force ourselves on consumers, they would rebel. A brand is a relationship, and cannot be built by just full page ads.” Analysts felt that the conservative approach to brand building was one of the main reasons for Rediff's success. By 2000, Rediff's email subscription had gone up by seven times, e-commerce transactions by 20 times, homepage traffic by six times, search engine usage by six times and chat usage by four times. By early 2001, dotcom companies that depended heavily on a single source of revenue like advertising or e-commerce alone were in deep trouble. Therefore, Rediff decided to diversify its revenue streams. In April 2001, Rediff announced a radical change in business model thereby having four clear revenue streams – media services, consumer subscription, communication services and merchandising services. Commented Balakrishnan, “Currently we generate most of our revenues in India, by the next year we will generate 75 % of our revenues from US. And the bulk of these will come from offline and online media services, and communication services, apart from old faithfuls like consumer subscription and merchandising services.” The plan was to produce and sell offline and online news products targeting the NRI community through India Abroad publications. Analysts felt that Rediff?s projected revenue stream breakup-75% from its acquisitions like India Abroad and Value Communications, 15% from existing offerings and 10% from new services seemed plausible. In the earlier ad dependent revenue model, 88% of Rediff's revenues came from advertising. But the dotcom bust saw its revenues from advertising decrease 19% in the fourth quarter from 30% in the third quarter of 2000-01. Thus, Rediff had to diversify as no single source of revenue could carry the business.

Despite being a successful brand, Rediff was not making any profits. Analysts felt that Rediff would have to translate its five years of work, the first mover advantage and the brand into real profits. Rediff's business model was borrowed from Yahoo! which was a pure play dotcom. Analysts felt that in an age of media and infrastructure alliances, Rediff's pure play model could lead to trouble. Balakrishnan did not seem to be interested in acquiring an ISP. “The moment an ISP sets himself up to compete with the World Wide Web in terms of content, he's gone,” he said. However others like Satyam Infoway's George Zacharias disagreed saying, “We have been able to leverage our access part as many synergies exist between the two. People who buy access from us also go to our portal.” Rediff was not doing well in B2C9 e-commerce. B2C e-commerce accounted for just 7% of its revenues in the second quarter of 2000-01. A variety of factors like low credit card penetration and bottlenecks in logistics slowed down B2C e-commerce. Perhaps, the greatest worry for Rediff was competition. Balakrishnan agreed that real competition for Rediff would come from global players. He said, “We are way ahead of the Indian sites. The real worry lies elsewhere. No other business in India has to face this kind of global competition. We just have to be internationally competitive.”10 Yahoo! with five million registered Indian users had already launched its Indian portal in June 2000. Rediff also faced competition from the access-driven Indian sites like Satyam Infoway's sify.com, Bharti BTInternets, MantraOnline.com and content driven sites like The Times of India's Indiatimes.com and horizontal portals like Indiainfo.com. However, analysts felt that not all the portals would survive given the Asian experience, which had shown that two or maximum three horizontal portals would be left standing. Rediff hoped to be one of them. In August 2000, Satyam's portal Satyamonline was relaunched as Sify.com. The company launched an aggressive campaign to build the image of Sify.com. In February 2001, Sify registered 130 million page views against Rediff's 258 million. Infact, Sify.com was perceived to be one of the survivors and therefore a competitor to Rediff. Said Vivek Bali, Head, Sify.com, “In terms of page-views we are still behind Rediff, but our advertisement revenue is almost equal to or marginally more than Rediff.” E-business solutions was another area where Sify seemed to have an edge over Rediff. It had about 300 customers, to whom it provided a range of services, including banking and financial solutions, customer relationship management and brand building. When it was listed on the NASDAQ, it was just an access company. Yet, its IPO managed to raise US$74 million12. In early 2001, Sify had the largest private Internet network covering 220 cities and more than 0.4 mn subscribers. It was the only Indian company with a presence in connectivity, e-commerce and e-consultancy. In contrast, Rediff was only a pure play portal.

One area where Rediff's performance had been exemplary was cost management. Rediff had the highest gross margin at 60% among the Asian dotcoms because of its low cost structure. Analysts felt that if Rediff continued with its prudent cost management, it should be able to turn profitable by September 2001. With cash of $32 million in its balance sheet in August 2001, Rediff seemed to be in reasonable financial shape although its shares were trading at US$1 in August 2001. From the Q1, results in 2001, it was obvious that Rediff had successfully integrated its online and offline businesses. 87% of the first quarter revenues ($5.75 mn) up from $ 1.5 mn in Q1 2000, came from the newly acquired offline businesses, India Abroad and Value Communications. Analysts felt that Rediff would be able to survive the dotcom bust and if it did, it would be because the company had moved from being an Indian dotcom to being a dotcom of Indian origin targeting the NRIs.

1. In 2001, Rediff unveiled a new business model under which it planned to increase revenues six fold and generate 75% of its revenues from the NRIs in US. Explain the strategy behind Rediff's NRI-centric model. 2. Rediff was one of the few companies that survived the dotcom bust. However it was still making loses. Which are the areas where Rediff need to focus now to be a profitable company? 3. In the late 1990s, scores of companies jumped onto the dotcom bandwagon. However by early 2001, only a handful survived. Why? Give reasons.