Caltiger's gamble to offer free Net access makes little business sense
Charles Assisi
MUMBAI, MARCH 20: About the most charitable thing that can be said about Caltiger.com's decision to offer free Internet access is that it is stupid.
This, for the simple reason that the numbers on which its business model is built don't quite add up. Reports indicate it intends to sustain itself on the back of advertising revenues. Unfortunately for Caltiger, the most obscenely optimistic scenario for ad revenues in India does not exceed Rs 15 crore.
Juxtapose this with the number of websites hawking their future on the hope that a large chunk of this business will accrue to them - and it becomes apparent why Caltiger is spreading itself too thin. And assuming for a moment that the quantum of Internet advertising in India will grow at 100 per cent each year for the next three years, Caltiger will still have a tough time on its hands trying to get a large chunk of that advertising to reflect on its balance sheet.
There are two benchmarks against which this business model can be measured. One, the immensely successful AOL which started off by offering free access and went on to charge for its services. But there was a caveat even when AOL was offering free access. It had content and commerce apart from connectivity (the 3C model), which AOL hoped, in the longer term would bring in tangible revenue streams. So far, the model has done reasonably well for itself and it is one of the more fancied stocks on Wall Street.
Closer home in India, Satyam has emulated the AOL model. While it did not offer free connectivity explicitly, it bundled free hours with computer purchases and bludgeoned its way into customer homes - the deals with Compaq and Datamini being cases in point. More pertinently, it has been pumping in tonnes of money into the content and commerce business. But it's still a long way off from making profits. Then there is VSNL. The stodgy public sector organisation has been cleaning up its act and of late has been offering reasonably good connectivity. And its tie-up with Indiainfo.com signals its intentions to get into the 3C model. Add to this the fact that VSNL's cost of providing an incremental connection is zero, it would not to unreasonable to expect some ruthless competition from India's largest ISP. Factor in MTNL's inherent advantages, and the market for connectivity looks almost impossible to compete in solely on the advertising revenues.
The other benchmark is the US-based Netzero, which is obviously what Caltiger is trying to emulate. Netzero, much like Caltiger, offers free Internet connectivity. In return for which, the subscriber has to download a piece of software that resides on his computer. The software throws up a bar which then inundates the surfer with advertising. Closing the bar translates into termination of the connection.
There is a very practical difficulty here. Every website carries some amount of advertising. Add to this the advertising from the ISP and it leaves very little room on ordinary 15-inch monitors. Which is why, most people would rather pay AOL $20 for unlimited access every month and Netzero's bottomline keeps looking a darker shade of red. Arguments that the Indian consumer has a different mindset and will respond favourably to anything free can at best be specious. Given existing realities, most PC manufacturers too acknowledge that Internet penetration through PCs is still a pipe dream away. The contention that penetration will come via cable TV is once again an argument fraught with too many ifs and buts.
This leaves one very obvious choice - handheld devices like cellphones and personal digital assistants (PDA). With technology driving prices down further, it is apparent that Internet penetration in India will happen on that medium.
For advertisers, there is a problem there. How in the world do you advertise on a screen as small as the one offered by any hand held device? How do you fight for mindshare when consumers demand tightly focussed information? What all of this means is very simple. ISPs like VSNL, MTNL, Satyam and the others can breathe easy. A competitor just shot itself in the foot.
-Indian Express Newspapers (Bombay) Ltd. |
