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Mohan has a Masters in Computer Applications . He is also a graduate of the University of Colorado, where he did his MBA in Technology Management. Mohan is a regular columnist for Express Computers and Biz India. Mohan has also written articles for a number of international technical and non-technical publications including IEEE, Research Technology Journal, Silicon India, Business Integration Journal and Deccan Herald.
A link to his profile and works can be found at http://www.GaramChai.com/mohan.
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The dotcom revolution of the yore has all but vanished from our collective memories, replaced by the reality of the protracted tech slump and the ongoing slow revival. Though the e-commerce hype that was predicted is not likely to materialize, business magazines have been extremely gung-ho about the turning tide. Google’s much-awaited IPO is expected to be a turning point though other Internet businesses, including Amazon.com and eBay, have been posting steady profits. As an armchair observer of the trends during the nineties, I continue to be surprised by the strength and resilience of businesses on the Web. An aspect of the heady days of the Internet that is yet to really come to the fore is the atrocious valuation of online businesses, though many listed companies continue to be traded for P/E (Price/Earnings ratio) multiples of over twenty or thirty. Is this a realistic valuation, if not how else can one go about valuing online ventures is a question I have been deliberating.
To set the stage for the debate, I will not take examples of any of the ‘biggies’ like Yahoo or Google but a ‘small’ portal I have been associated with. I wish to mention at the outset my affiliation with Garam-Chai.com, the portal we will use as a case-in-point. I am using this more as a placeholder since I do not wish to use a ‘dummy’ name. The ‘facts’ I am going to present may pertain to small online ventures and are not specific to GaramChai.com or its strategy.
What are the sources of revenue? The sources of revenue for Web portals are varied, depending on the reach and exposure and include the following:
Ad clicks: There is definitely money to be made online, as readers have probably seen from articles on Google’s Adsense or other advertisements and click-throughs on the Web. Google’s Adsense advertisement program pays website owners anywhere between a few cents to about 20 or 30 cents for each click from a unique visitor on the portal. While this may not be much individually, even a few hundred clicks a day can amount to a tidy pile if you do the math. Google is extremely wary of the ‘creative’ folks who write scripts to crawl their own portals and imitate a click. To bypass this, a recent article in a newspaper talked about a few ‘entrepreneurs’ in India who have apparently hired ‘clickers’ (people with access to the Web, say from a cybercafe) who spend a few hours every day crawling through the specified websites and clicking the links. I’m sure that it is a matter of time before Google and others plug this loophole too. Google is not the only big context advertisement service on the Web though it continues to be the most innovative and influential one.
Affiliate programs: Affiliate programs are generally based on the premise of profit-sharing, whereby the advertiser pays a percentage commission on the total proceeds or sales instead of giving a miniscule amount for a click alone. Businesses signup with affiliate consolidators and offer their banners and programs. Websites can opt to host banners suitable to the needs of their audiences and are paid a commission or fee when the patrons click and either buy or opt to patronize the services of the advertisers. Popular examples of such models is that provided by vendors of phone cards, travel agents, online matrimonial services, etc. There are scores of consolidators including Commission Junction, Reporting.net, etc, that merge the affiliate programs from different businesses and provide tracking and signup mechanisms.
Advertisers: Several traditional organizations are also beginning to realize the significance of advertising online and are beginning to formulate their online strategies. Even if they do not expect direct sales to accrue from such marketing initiatives, the advertisers are willing to play along, realizing that the Web is yet another channel that can help them generate the required buzz. Case in point include large financial institutions and banks that are blanketing Indo-American portals with banners advertising offerings (including sending money to India, NRI accounts, etc) targeted at the influential non-resident community. Advertisers also sometimes sponsor content on Web portals, especially content targeted at the audience they are also looking to attract.
Though these are not the only sources of revenue for Web portals, these continue to be the most popular ones. In this section of the column, we looked at some of the major sources of revenue. We will continue the same train of analysis to examine the valuation of Web portals given a revenue model in the next part of this column.
Mohan can be reached at mohan@garamchai.com.
(The article originally appeared in Express IT People.)
Revenue Sources for Web Portals-Part
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