Is search hurting Rediff?

Ad money is moving to search from display, say analysts.

It has 59.8 million registered users, it leads in page views, and its revenues grew 18 per cent last quarter. Not the sort of statistics one needs to worry about, but some analysts say all may not be well at India’s best-known internet company, Rediff.com. For example, a recent research report by Discovery Research, a Mumbai-based equity research firm, says that risks such as competition, pricing pressure, client concentration, and a slowdown in online advertising mean Rediff’s own ad revenue share will come down. “Search is eating into the overall pie and reducing Rediff’s addressable market,” says the report.

According to data compiled by ComScore Media Metrix, Rediff.com’s unique users grew by 9 per cent during the July-September quarter over the previous quarter while the market grew 6 per cent. But the Metrix also points out that over the same period, Google, MSN and Yahoo grew unique users by 9 per cent, 2 per cent and 6 per cent respectively.

According to Discovery Research, while online advertising accounts for 1.8 per cent of total advertising spend and is expected to increase to 3.1 per cent in 2008-09 and 7.1 per cent in 2010-11, “the overall share of display advertising is not going to expand in the same manner”.

Search advertising as a category was virtually non-existent in India until 2004. Google launched its India sales team in March 2004, and its search advertising now contributes to 42 per cent of online advertising. “We estimate that nearly 90 per cent of search revenue in India goes to Google. The market share of search and, hence, Google will continue to grow as advertisers realise its effectiveness over display and as Google aggressively targets the opportunity offered by small businesses,” writes analyst Vijay Sarathi in the report.

So, is Rediff losing sleep over Google’s money-spinning advertising model? Manish Agarwal, VPMarketing, Rediff.com, says every group has a different strategy and offer for advertisers. “While some do it by page-view, there are others who do it either by keywords or by content. So, to say that search-led advertising is going to kill display is incorrect,” he says. “All the remuneration models like display, search or content-based advertising have to co-exist as they offer different strategies to marketers,” he adds.

For now, the rising internet tide is carrying everyone—Rediff included— along. Rediff reported revenues of $7.9 million for the July-September quarter (an increase of 18 per cent), with India Online (which includes online ad revenues and fee-based services) revenues jumping 22 per cent to $5.73 million and US publishing (comprising the India Abroad website and newspaper, and India in New York newspaper) rising 9 per cent to $2.13 million. However, Rediff.com’s fee-based income grew faster at 35 per cent ($1.47 million) than online advertising, which rose 18 per cent at $4.26 million.

Can Rediff come up with a fitting reply to Google’s search-based advertising? It won’t be easy—like the folks at Yahoo have already discovered.