Who Might Yahoo Acquire in India? (YHOO, REDF, SIFY)

Includes: REDF, SIFY, YHOO
by: Himanshu Pandya

Yahoo Inc. (NASDAQ: YHOO) made big news in India last week as CEO Terry Semel was in the country looking to make acquisitions. Yahoo is bullish on the Indian Internet sector and probably feels like this would be the right time to make an entry. In about five years, India will have the highest number of Internet users after China and the US.

Yahoo! India is already a popular portal in India and competes with MSN.com, Sify.com, Rediff.com and IndiaTimes.com. One thing to consider is that Indian Internet users almost all speak English -- unlike their Chinese counterparts -- and are more likely to visit Yahoo and Google for search and e-mail. Therefore, Indian portals benefit by providing news, sports scores, shopping, entertainment among other things. They can never compete with Google and Yahoo or MSN in search. Also, Yahoo has an established brand name in India that it can utilize and grow.

Let’s analyze the potential targets (not in any particluar order):

1. Rediff.com -- Rediff India Private Ltd. (NASDAQ:REDF): The number one portal in India and an established brand name. Rediff is a pure play portal and doesn’t bring anything new for Yahoo. I just don’t see any reason for Yahoo to go after Rediff.

2. Sify.com -- Sify Ltd. (NASDAQ:SIFY): Sify is a diversified internet company in India with a strong brand (although not as big as Rediff). They have a foothold in pretty much everything to do with Internet in India:

- Portals - The portal business is much like Rediff and Yahoo, but has beaten everyone in India with a broadband portal called Sifymax.com and by starting local portals for various Indian cities such as Bangalore (Bangalorelive.in). The broadband portal and local city portal could be appealing to Yahoo.

- ISPs - India’s largest private Internet service provider with over 183,000 broadband subscribers. Think about Yahoo using this just as they sell Yahoo! SBC DSL service in the US. Although Sify doesn’t own last mile connectivity, the coming of WiMax will help them. 183,000 broadband subscribers won’t sound like a lot to American readers, but consider that the broadband penetration in India is miniscule.

- Cybercafes- Probably the most enticing part of the business for someone like Yahoo. Sify has 3,300 internet cafes (34 owned and rest franchised) in 153 cities and towns throughout India. Two new cafes are added each day. Think about all these cafes having the Yahoo brand instead of Sify's. VOIP is also huge in these cybercafés and brings in a considerable amount of revenues for Sify. In India, the majority of the people access internet outside their home, usually via cybercafes, schools and offices.

- Gaming: Sify’s Iway cyber cafes are also used for gaming, but Sify has specialized gaming sites called Sify Gamedromes. Sify is also into MMORPG gaming. Yahoo still hasn’t entered into this arena and could benefit from this very popular form of gaming.

- Enterprise Services: Dominates the Indian VPN market, provides hosting services and remote infrastructure management, which is going to be huge (just like software outsourcing) and provides security services among a magnitude of Enterprise services. Not sure how this will benefit Yahoo, but this is one area that makes money for Sify.

Also, George Zacharias, former COO/CFO of Sify left Sify to join Yahoo! India recently. Yahoo obviously has more than enough information on Sify.

3. Indiatimes.com - Privately owned, but I have been hearing they will be going public soon. Don’t have much info on them but is a very popular portal in India. I don’t think they offer anything else except portal. Part of the strong Times of India group I believe. I don’t see any benefit to Yahoo.

4. Other Indian sites (Source: ContentSutra.com) – I could also see Yahoo going after a one of the sites listed below. However, these won’t be considered a major acquisition. In ecommerce, Ebay already bought Bazee.com and has a leadership position in that arena.

• Yatra Online - Travel bookings
• Cleartrip.com - Travel bookings
• Travelguru - Travel bookings
• Naukri.com - Job search site
• Shaadi - Matchmaking site
• Jobstreet- Job search site.
• Makemytrip - Travel bookings

Full disclosure: Author is long SIFY