Why The Net Is A Big Deal

In the biggest-ever Internet deal in India, Rajesh Jain’s portal site IndiaWorld was bought by Satyam Infoway (SIFY) for a few lakhs short of Rs 500 crore on November 22. To start with, Jain got Rs 122.2 crore cash for a 24.5 per cent stake in SIFY and Rs 51.3 crore as non-refundable deposit. By September 2000, a deadline extendable by three months, SIFY has to pay up another Rs 325.2 crore for the balance 75.5 per cent stake. If it can’t, Jain keeps the deposit with an option to sell the 75.5 per cent to the next bidder at probably an even higher price.

Says George Thomas, chairman of Omega Interactive Technologies: "Most Net deals-Sabeer Bhatia’s Hotmail or Junglee.com-involved equity swaps and stock options. A cash deal like this is a first." Adds Rajiv Arora, chairman of the Internet Services Providers Association of India (ISPAI): "The valuation of a Net enterprise is not just a question of the PE (price-to-earning) ratio but of the synergy that a website has with a buyer."

Quite. Because Indiaworld has a net profit of Rs 25 lakh on a turnover of Rs 1.3 crore and a staff strength of 20 people! What clinched the valuation was the 13 million-page views per month for the portal-a page at $225. Says Gurunath Mudlapur of Khandwala Securities: "This will give Satyam access to a vast pool of Net users."

What does Jain himself think of the deal? "I think it’s a fair price," he quips. "It’s not a get-rich-quick thing. This has taken five years, a lot of sweat and a whole lot of mistakes." And a humble investment of about Rs 20 lakh and lot of entrepreneurial zeal.

Jain-rather Ravi Database, his first enterprise-shot into prominence in 1993 with the securities scam. In July, big bull Harshad Mehta claimed that he had bribed Prime Minister Narasimha Rao with a briefcase full of cash. The government claimed Rao was in a meeting with a Pakistani delegation at that time. Jain, back from his two-and-a-half year stint with Nynex in the US, helped to unsettle the claim. Although the computer-enhanced analysis of the watch worn by Agha Shahi (heading the Pakistani delegation) couldn’t be admitted in a court of law, doubts about Rao’s claim remain.

Jain, armed with a degree from IIT (electronics engineering) and a Masters in Computers and Communication from Columbia University, had developed an image processing software which could enhance images digitally. Says he: "We had developed some very high-end algorithms to be used mainly for medical sciences and metallurgy industry. Although we sold our product to ICI’s Alchemy Research Centre, I think we were ahead of our time."

The project bombed and Jain was back in the US in September 1994. "Sitting at a friend’s place in Sunnyvale, California," he recalls, "Sanjay, a friend, and I decided to start a news and information service, primarily for NRIS whose only source of news was India Abroad." And IndiaWorld, the first website from the country, was born.

Initially, they started with Laxman cartoons and stories from India Today. "For two-and-a-half months, we upgraded our site each day on ISD calls at the cost of Rs 1,500 to Rs 2,000 per day, but not a single day was missed," Jain beams. Then, VSNL started Internet connectivity. And IndiaWorld was formally launched from a US server on March 13, 1995. Recalls Jain: "As E-mails poured in, we knew we were on our way to victory. One smart thing we had done was to ensure a lot of archived content. Imagine suddenly having 30 Laxman cartoons to browse through!"

Meanwhile, the US company started demanding half-a-million dollars to host their server. "There was no way we could pay that kind of an amount," says Jain. "I remember, on a Sunday evening I called up Amitabh Kumar, then director (operations) of VSNL and explained the problem. It was the Diwali weekend. Kumar not only agreed to put up our server, he ensured that everything was up and running before Diwali." Thus Indiaworld.com became Indiaworld.co.in.

IndiaWorld concentrated heavily on content aggregation rather than creation. Confesses Jain: "It’s difficult to compete with print-medium brand names on content without large investments. Also, considering that all the content providers would soon have a web presence we created an all-in-one service on the Net."

For the first two years of its service, IndiaWorld generated almost 95 per cent of its traffic from outside India. Early 1997, with India users rising, the content and strategies underwent a change. As a result, starting with the search engine, Khoj, the IndiaWorld family now encompasses a total of nine sites-Khel (Cricket), Man Pasand (favourites), IndiaLine (Internet), Samachar (customised news), Dhan (personal finance), Bawarchi (food), Itihaas (history) and NewsAsia, a Samachar cousin, targeted at the Asian region.

For the next year, Jain has his work cut out. Says he: "I don’t want to talk about yesterday. Now, I want to go ahead with the work." Future plans include expanding the family of sites. "We have also developed an advertising management system to allow for easy control and placement of ads across all the sites. Code-named khojnet, this would be deployed early next year and will offer advertisers a plethora of real-time data on advertisements and click-throughs."

Is it any wonder then that SIFY, which has used the accretions from its $85 million ADR to pay the first tranche for the deal, is sitting pretty. The day after the announcement, the SIFY stock on Nasdaq shot up by almost $40 per share, to a new record of $151. As they’re saying in Mumbai, "First there is envy. And then there is Sify".