Yahoo's India Internet Intentions

Back in May, a private jet ferried the top honchos of Yahoo! (YHOO) from Sunnyvale, Calif., to Bangalore. On board were company co-founder Jerry Yang, CEO Terry Semel, CFO Susan Decker, and corporate development head Toby Coppel on a whirlwind four-day, three-city Indian tour.

In Bombay, they threw a party for the top brass of India's top 12 advertising and media houses at the harbor-facing Taj Palace Hotel. The objective: to get some on-the-ground intelligence about the potential for India's small but rapidly expanding Internet market.

It looks as if they picked up a very welcoming message. "It is a superb time for Yahoo to be a significant player in India," Semel told his staff. In late September, Yahoo announced it was expanding its second biggest development center outside the U.S. in Bangalore from 800 engineers to 1,000. India already accounts for 10% of the company's global workforce. It is launching regional channels in Hindi, Tamil, Telegu, Kannada, and Malayalam.

"EXPANSION MODE." All this comes after Yahoo invested $8.65 million, together with private equity firm Canaan Partners, in an Indian matrimonial portal called Bharatmatrimony.com. And the U.S. mega-portal is hungry for more acquisitions and tie-ups. The company has introduced Yahoo Search marketing to place ads with searches and Yahoo Go!, a tie-up with Nokia (NOK) and Motorola (MOT) aimed at providing mobile phone users access to many of Yahoo's services, including messenger, e-mail, and search.

Other products are expected to be rolled out in coming months. Says George Zacharias, managing director of Yahoo India, "We are in expansion mode to provide a good experience with our range of Yahoo products and services customized for India."

If Yahoo is busy, so are the others, such as Microsoft's (MSFT) MSN, Google (GOOG), and Indian portals such as Rediff, Sify, and Indiatimes. MSN recently launched five regional channels with Messenger compatibility, and now wants to take its search and mail regional and look for opportunities in mobile telephony.

FRACTION OF ADS. Google is said to be in talks with many startups for voice and short message service, or SMS-based advertising. Rediff, launched more than a decade ago, was one of the first to go regional—just a couple of years ago. With 45 million global Indian users as of July, it launched a service called "lightning fast Rediffmail" in 11 languages and its Rediff Bol chat in Hindi recently. Indiatimes, the portal owned by publishing house Bennett & Coleman, is looking for acquisitions but will wait and watch before going regional.

With a PC penetration rate of 2%, vs. 60% in developed economies, India's Internet market is miniscule. According to the Internet and Mobile Association of India, there are 37 million Internet users, likely to go up to more than 54 million in 2008. And online advertising is a mere $25 million, just a fraction of India's total $2.5 billion advertising industry. In comparison, China's online market is said to be around $600 million.

Mobile-based services, however, are a huge opportunity with more than 200 million cell phone users in India. As Internet connectivity and broadband usage improves, Net advertising on mobiles could be big, say players. "With Indian consumers beginning to treat the Internet as a friend, reaching out to them becomes imperative," says Yahoo's Zacharias.

MULTIPLE LANGUAGES. "For us, it is both strategic and opportunity driven," says Jaspreet Bindra, country manager at MSN India. With more than 75 million Indians who speak English, the market has room to grow. Yet local language content is key, too. "We have to prepare for this and then go where our advertisers go," he adds.

Two-thirds of India's population live in villages, and today the five most-read publications are still regional. Regional television channels have higher viewership than their English counterparts. "That India is rich in language content anyway, makes it easier," says Mohit Hira, director of content and marketing at Indiatimes.

So portals are also beefing up their offerings. Having begun with pure content, they now have a range of services and are looking for more. Big on the popularity chart are airline and hotel bookings, astrology, matrimony, and e-commerce sites, which bring in cash. The players are not revealing their India revenues, but say that even as they want to grow organically, they have a war chest and M&A teams in place to grab any good buy.

Yahoo plans to bring in its Yahoo Finance and other services to reach India's huge market of youthful online readers. From all indications, it seems India is shaping up to be an interesting playground for global Net companies.