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“Online Advertising To Start Picking Up In A Year”: Ajit Balakrishnan

09 June, 2009

Rediff.com, arguably India’s first and largest horizontal portal, recently announced its results and reported a net loss of $8.86 million in Q4 FY08-09. The company attributes the losses to the slowdown in the online advertising sector. Ajit Balakrishnan, Rediff.com’s Founder, Chairman and CEO, expects the online advertising world to revive in about two to three quarters. He also expects online advertising to match up with TV advertsing in about two years from now. VCCircle.com spoke to Ajit Balakrishnan on the current situation in the online advertising market, and also on Rediff’s investment strategy. Excerpts:

How is the online advertising market doing right now?

Revenues are derived from two sources One comes from the other online companies and the second from offline advertisers. The offline side is doing fine but more than half of the revenues of the Indian online industry come from the other online advertisers such as job sites, matrimonial sites, consumer finance sites and travel sites. These and a few more normally account for more than half the revenue of the Indian online industry. Those have been severely crunched downwards.

All these industries are facing significant problems, for example, the airline industry itself is going through deep losses so the online travel agents arealso having a rub-off and are cutting budgets. Since the IT industry has stopped recruiting in significant numbers that has restricted the ad spend of the online recruitment sites. For all these reasons, the online industry has probably cut their budgets by half.

So to that extent online advertising has contracted since last quarter. It’ll last as long as the recession lasts. I think once the new government puts things together, situation may change in the next 2-3 quarters.

By when do you think the online advertising markets will start picking up?

Probably in a year’s time.

In a country like India, where there is still a lot of dependence on the traditional forms of media like print and TV for advertising, how do you see online advertisement sector coping with the competition?

I think it’s a kind of glass half full and half empty situation right now. Looked at one way, the reach of online, which used to be relatively small, today, is quite significant compared to TV. For example, we have a site called Moneywiz whose unique users arestarting to be comparable to that of TV channels such as CNBC-TV18. They are comparable – they are not exactly the same, say about 40% less. So in another year or two, these kind of sites will match TV channels and that’s when something interesting will happen.

What kind of innovations you think are required in the online advertisement industry for it to improve?

The general view that all of us are taking, all over the world, not just in India, is that the online companies will have to come up with metrics which the big ad agencies understand. So it’s the metrics like GRPs and TRPs that need to be produced and not CTRs (Click Through Rates) percentages and or such things.

So there is a big movement within the online community to come up with these kind of measures and these are the measures on which 90% of the advertising is bought or sold. The big ad agencies and the media planning houses understand those metrics far better than the numbers than the people in the online world are used to producing. So I think that’s the movement that’s underway everywhere and it will apply to India as well.

What are the trends that you are viewing currently in the online advertising space?

One is the big trend towards mobile. More and more people are using the mobile phone as the primary medium for accessing or consuming internet. And this is in the most advanced form in the United States. With the advent of the iPhone, some degree of it is happening almost in every market. In India, the numbers are relatively small – may be 5-10% of all internet access is through the mobile phone now. With the advent of 3G, this will change dramatically. So that is one big trend – using mobile phone as a primary device for the access.

The second trend which is underway is languages. It is slow but we can see the trend. The third big thing that we can see is that the consumers are reacting to advertising. There is a move away from too many advertisements thrown at them – irrelevant ads.

If you see our new international site, which is at ia.rediff.com, you will see that there are no ads on the homepage. And the fourth big thing is to wrap a lot of social action around content- things like bookmarking, forwarding, looking at people who have bookmarked something.

Originally innovated by Digg and others in a standalone context is now being embraced in the mainline portal world.

When did you make your investment in examville.com?

About a year ago. We have invested in four firms – the second one is Eterno, which is a mobile service. They provide access to newspapers on mobiles. The third is tachyon, which has been around for a while. They basically provide language text entering systems. And then there is Vakow, which we wrote off. We invested in it but the things did not work out so we wrote it off. The other three, we think are doing quite well.

What kinds of stakes have you picked in these investments?

All are minority investments. We like to invest and then help them

in anyway we can.

What amounts did you invest in Examville.com?

Due to some reason we forgot to announce the investment amount during our conference so we cannot disclose it. But the stake that we have picked up is 26%.

What was so interesting about examville.com that made you invest in it?

There is a lot of interest and activity around the educational market, both in India and elsewhere. And people are playing at different ends of it – some people are providing educational content, some are providing equipments to schools.

We have kind of dipped our toes in this edge of water which is the test preparation market. People who want to take SAT, GMAT, CAT can practice in an environment where they can get help from others as well. So Examville is a very interesting experiment on the SAT and the GMAT preparation market. The company is based in New York and it aims at the worldwide, including the national US market where the young people want to take the SAT exam.

Would you be looking at making more acquisitions this year?

I don’t know. It is a good time to be investing. But we don’t generally view these as acquisitions. We basically see them as investments and it’s a good time to be doing that because it is recession when all these new ideas come to young people and we would like to support them.

Rediff is already listed in the US but do you plan to list in India as well in the near future?

We are an Indian company so someday we have to list (in India) but we don’t have any plans for that yet. This is the last season we would ever look at listing or talk of our stock market activities.

Rediff’s revenues have gone down by 50% this quarter as compared to the same quarter last year. What do you think are the reasons for this?

The reason is quite simple. The advertising revenue came down because of the online sector coming down but this certainly is not something that is keeping me awake at nights because this is the seventh recession in my work life.

So during the recession, things come down and during such times you have to be very careful to conserve your cash and spend all your time in product devising. You don’t try to do foolish things like expand sales during recessions. When the recession turns, all your product-line should be ready to go.That is what you learn during a recession.


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“Online Advertising To Start Picking Up In A Year”: Ajit Balakrishnan

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