Internet segment getting overcrowded, ripe for consolidation

India’s low per capita income would not really affect these prospects, he said. "…India has one billion people. Even if you take a very small portion of people who have say income above $20,000 a year, you are still dealing with let’s say a 100 million people. That is a lot of people and they tend to be concentrated in commercial centres like Bombay," Mihalca said.

Since firms hoping to reap the benefits of E-commerce businesses in India would have to wait for a long time, companies that had spread into every segment of the market had the best chance of survival, he said.

"You want to have access to revenues today to keep you going… to do that for example you do more of the corporate services, you help companies devise their servers, host websites, provide financial payments gateways and so on."

TOO MANY PORTALS JOSTLING FOR SPACE: "India must rank as one of the most crowded and noisy Internet markets. The noise comes from two directions. New companies arising like mushrooms are rain (the rain being generous venture capital), and incumbents waking up to the Internet, trying hard to establish "new economy" credentials – and to support their share prices," a May 19 dated report by Mihalca said.

The report said the overcrowded scene had made the market ripe for consolidation. "But the potential consolidators – Satyam Infoway chief among them – are biding their time, assuming that valuations for some properties have nowhere to go but down."

The report said Merrill believed the equity markets would not come back for narrow content verticals from India. "We expect that venture capitalists active in India – mighty generous up to now – eventually would give up funding such projects. There are reports of Indian dotcoms already folding," the report said.

ANOTHER INTERNET FAILURE IN UK: Internet confidence took a fresh beating in Britain on Monday when a second start-up within a week said it was folding. Small but initially well-backed, Net Imperative called in the liquidators, shredding its dream of turning its Website into the top place where Internet professionals would congregate for jobs and insider information.

It said it had aimed too high too fast – a similar reason given by clothes seller boo.com when it collapsed last week. "The decision to seek to expand the company rapidly in the past few months has led to the current position," NI’s directors – who include the husband of Pearson Plc chief executive Marjorie Scardino – said in a statement.

The news was an after shock for Internet entrepreneurs still shaking from last week’s spectacular crash of boo.com, which spent its way to oblivion just six months after it was launched. Boo’s liquidators KPMG said on Monday they were sacking the bulk of the staff, some 220 people, and were talking to half a dozen potential buyers.

Chic and glamorous, boo swallowed up much of the $135 million raised from its backers in glitzy advertising, state-of-the-art Web design and a general lack of cost control. Net Imperative was frugal in comparison, raising only $1-2million, but lasted no longer. It employed 24 people but declined to say if its backers had turned off the cash tap.

"The company has appointed Kroll Buchler Phillips as provisional liquidators who will assess the situation, but for now it is work as usual as far as the Website is concerned," said Net Imperative investment editor Niki Panourgias.

Other E-entrepreneurs said failure was just a part of life. "Internet start-ups have failed all along. It’s like plane crashes — one goes down and it’s all over the news," Josh Hannah, founder of online gambling site Flutter.com, said at an international Internet conference in Barcelona, Spain.

Net Imperative’s backers included Durlacher Plc, a stockbroker turned Web investor which became a darling of the market during high-tech frenzy and is suffering now as a result.