Rediff Communications Ltd, which incorporated Rediff.com in 1996 had filed with the US Securities and Exchange Commission in January 2000 for an ADR offering. The Foreign Investment Promotion Board (FIPB) had approved a proposal by Rediff to raise $74 million through ADRs or American Depositary Receipts. Through the current issue, Rediff.com has raised $55.2 million by selling 4.6 million shares at a price of $12 per share through Goldman Sachs, Credit Suisse First Boston and Robert Fleming.

The ADRs, priced $12, opened on June 14th at Nasdaq up 75% at $21 and hit an intra-day high of $23.50 in midday trading before closing at $19.31, an effective 61 percent gain for the day.

More importantly from the point of view of the portal business the question is how are these funds going to be deployed to enhance the revenue streams of the company? The company plans to use the proceeds for portal development, advertising and promotion of its brand and general corporate purposes, including strategic investments, partnerships and acquisitions. It also plans to open offices at Singapore and New York. In the direction of acquisitions, Rediff had already acquired many sites. Rediff has picked up 26 per cent in FootForward.com, a portal for women promoted by Ms. Santoshi Nadkarni and Ms. Puja Gupta, former employees of McKinsey & Company and Discovery Channel, respectively. FootForward will be Rediff's channel partner for its `Woman's Channel'.

Rediff.com along with Edelweiss Capital, and jumpstartup.net have picked up a 30 per cent stake in apnaloan.com. The portal offers advice to the retail customer looking for a loan. The vertical portal plans to offer a wide variety of personal financial products including auto loans, personal loans, credit cards, consumer durable loans, home loans, education loans, balance transfer products and loan consolidation.

Rediff has also announced that it would buy internet companies in the US, which includes firms offering tele-shopping services as well. Rediff is targeting tie-ups with 100 stores in a year to push a variety of products on the Net and some of the raised money has been set aside for this.

Rediff.com, which started primarily as a news and information site has become akin to yahoo in providing users with everything from online shopping to travel planning to news and chat sites over and above free email and search engines. It has about $2 million in revenues in 1999 and around 70 million page views in March 2000.

Rediff.com has the support of major companies like Intel Corp, venture capital firm Draper International and investment firm Warburg Pincus who together  hold 40% equity stake and after the ADR issue, the foreign stake in Rediff would go up to 49%. Recently, Federal Express has joined hands with Rediff on-the-Net for providing logistics support to Rediff in its e-business. Rediff has also tied up with MasterCard International and Citibank for enabling payments for Net transactions.

What are the implication of this ADR on the market? There are plenty of websites coming every day and these portals which require huge upfront investments are just closing down after a period of time due to lack of funds. And some others fall prey to the larger merger ambitions of other sites. The success of Rediff.com's IPO would allow many more Indian portals to adopt the public route to raise funds.

Indiainfo.com, one of the Rediff.com's main competitor in the horizontal internet space, with more than 850 employees, compared to the roughly 200 employed by Rediff.com. Indiainfo.com is the largest Internet employer in India and is looking to become the dominant player for Indian users at home and abroad. Indiainfo.com already has established five divisions to fully tap into the Indian Internet market. In addition to its seven portals, the site has the largest online advertising network in India, Indiaimpressions.com apart from business-to-business, business-to-consumer, and Web-hosting divisions.

With $12 million revenue last year, Indiainfo.com is larger than Rediff.com, although its growth mainly came from the eight companies it acquired during the last year, while Rediff.com has been for the most part growing internally. Indiainfo.com expects revenues to increase even more this year when it becomes the home page for all VSNL users, the largest ISP in India with more than 400,000 subscribers.

Now, there's more competition expected: every Tom, Dick and Harry is setting up a horizontal portal. As of now some really solid companies are waiting at the entry gates: Indiatimes, Indianexpress.com, Nimbus, Star TV, Zee, Sony, ETH, MSN.co.in, and every single ISP looking at offering access. The playing field is suddenly beginning to look too crowded. However, the question is, will standalone horizontals survive?

In this context, Rediff is beginning to look weak. It will have to work out a deal with an access provider or possibly continue spending to generate stickiness. So Rediff will have to spend heavily to survive like Yahoo does. However, money is bound to dry up sometime and investors are going to start asking questions if targets are not met.

Recently, the Internet service provider (ISP) business in India was opened to private business. With more private participation, 1.5 million people are expected to come this year. Also International Data Corporation expects 17 million users by 2004 thus showing the opportunity for growth in the market.

In the first six months, revenue from online trade climbed to 40 percent of total revenue of Rediff, with the rest generated through banner ads. Of the approximately two million credit card holders in India, 30,000 are already customers of Rediff.com.

With the expected huge potential of the net consumers, though rediff is expected to have good demand, the entry of media companies with deep pockets and enormous war chests into the portal business could be a potent threat to Rediff. But the progress of Rediff will be watched keenly by internet analysts in India and abroad. Traditionally the accepted route on the net has been web enabling a brick and mortar structure into a click and mortar structure. Companies like Yahoo and Amazon have proved that this need not necessarily be the logic. The success or otherwise of Rediff in India will largely depend on how well it is able to operate as a stand alone website without a corresponding brick and mortar infrastructure. And that will determine the real fund raising potential of Indian portals.