Why The Internet Isnt Simple To Monetize!

14 Nov

So KK came up with this business plan (I feel bad for him, because he consults me on these multiple plans he has and I end up dismissing most of them! He must feel I am so full of myself!)

Lets buy bags from cheap production centers such as China and sell them in India

And how will we market them?

We will build a website!

The problem is that most people out there (and KK is surely far advanced than most already) feel that creating a website is equivalent to sales and recognition. Its like in BSchool, whenever the prof asked, “Ok, so how will the product sell?” the answer was invariably almost always “we will advertise”

Doesnt work! Well, mostly!

Most of Internet in India has been dominated by the business model of lead generation. Pick the bigger sites such as Justdial, Naukri, Shaadi, Way2SMS and all of them are making money from some form of lead generation. Shaadi is a cleaner model, because the lead generation is for the same audience that is on the website, so a simple subscription model will work. But for the others, it has to be actively going out and selling that will make the lead generation model work (similar to what Accentium does on Gaadi, StudyNation etc)

Now, taking the case of say the bag business case. Even if one operates at a 100% margin (buys for INR 200 and sells for INR 400), the Internet way of lead generation will not get anyone money.

Lets do the math

You create a website and start advertising on google (adwords) directing to the product page on your website.

Lets say you pay (a conservative) INR 10 per click for the keyword you bid on (more competitive the keyword, higher the bid. INR 10 will surely not get you the keyword “leather bags”)

If you have optimized your product page awesomely well from a purchase perspective, be happy if you get a conversion of 5% (from visit to final purchase, which includes droputs etc)


Conversion: 5%

Cost per sale: 10/5% = INR 200

Entire margin erased!

In reality, your conversion is likely to be lower than assumed and CPC to be higher. So most likely, you are loosing money on each sale!

One can argue though, that there is a long-term positive effect because of the remaining 95% visiting the website but not buying. They might come back again. Not denied, but in real life, people are more likely to either search again when they want to buy something or go to a site directly from where they have bought something before. This is where your differentiation comes in. Are you really getting the user to remember your brand and come back the next time. If you trying to buy bags from cheap locations and sell them at an arbitrage, probably not!

Same goes for websites that try and advertise on google and then make money off advertising on the site. Very rarely works. The arbitrage, if there existed any, will soon go away once people realize there exists one. Just like in perfect competition (Microeconomics 101). And trust the Internet to spread such ideas faster than you would them to!

So, what are the ways out?

1. Identify if there is anything viral about your product? Can you get people to share it, talk about it? That will lower your cost of acquisition.

2. Spend energies on SEO. Which is in 2 parts – invest in good quality content and invest in a good link building exercise (thankfully, if you do the first part right, chances are the second part is automatically taken care of, but it in the beginning nonetheless)

3. Try and up-sell/cross-sell/multi-sell to create an arbitrage. If you are spending INR 200 to generate a sale and your average ticket price is only marginally higher, is there a way to increase the ticket size? Or if you are generating your lead at INR 50 and selling it at INR 30, can you sell it to 3 players instead of 1 without diluting quality?

4. Spend your money and pray that the rest 95% come back for free!

The Internet looks simple because the entry barriers are virtually non-existant and one can setup a website for the same price that Reliance Industries pays as rent for its corporate office – per minute!! But that doesn mean that money making is easy online! Or let me rephrase

its not as obvious!

8 Responses to Why The Internet Isnt Simple To Monetize!



November 14th, 2010 at 12:07 pm

Hi Ankur,

Very nice post. But I have this niggling doubt. Whether a certain kind of advertising gives me returns or not, I have to be there.

For example : if everyone of my competitors say for eg. in this bag business, is using adwords, I will need to be there.

Let me put it in other words. A client of mine (am a lawyer, and this was a general disucssion) has a leather business. A few years ago, I advised him to start to use services such as Alibaba to generate business. he refused. Saying that such expenditure would not generate business. ok. I mean he is a seasoned guy. He would know better. A few months ago, during another such discussion, he regretted not using the internet advertising for business growth.(till date he does not have site) He said that some of is contemprories who did start using the internet now generate a good chunk of their revenue because of the net publicity. Internet helps in getting new customers. Maybe the returns are not good as of today in India, but if you don’t start today, tomorrow it would be late.

The same guy, also told me of a luxury leather accessory company that goes by the name of an Italian city. He told me that when the retail was started, there were many in the business who were skeptical, pretty much for the same reasons one would (or should) be skeptical about netbased adverts or revenue generation from net, but the business is a success today.

The same goes for real-estate companies. If I need to purchase property say in NOIDA or Gurgaon, do I depend on the full page paper ads ? do I do site by site visits and then shortlistand decide?( site I mean, the place where the construction is going on) or do I depend on the friendly neighborhood property dealer, who perhaps has more interest in his commission than my benefits. Because of net ads, I can search the internet, look for the advertisers there and see where it goes. Now on the contrary, if the property developer decides not to advertise on the net, then he might be losing business.

Thirdly, we have a small business, Dad’s from the Air force, so after retirement started a Pilot training institute. We chose two modes of advertising. One was internet ( google ads) and the other print. (newspapers and education mags, and even India today and Readers Digest, when these mags run some educational features and give huge discounts in print ads). The amount of money we have spent on print ads is a few lakhs and the returns – zero. Forget conversion, not even a query. On the internet, we have had far better return on investment. there are at least 15-20 emails/ calls per day and out of this, we are able to make about 1-2 conversions a month. Not ideal but better than nothing. The maximum students that we get though are from references and word or mouth. (our monthly budget for adwords is 10,000)

My point is, you cannot completely ignore internet ads.
Also you might want to check


This company was once covered on BBC India Business report. They are a pure internet model.



November 14th, 2010 at 12:09 pm

too many grammar errors in the post.


Ankur Warikoo

November 14th, 2010 at 2:23 pm

@Saurabh: Thanks for the detailed comment.

There is a subtle difference between what you are suggesting and what I meant. My stand is that money making on the Internet is not always as obvious as advertising on google or sites relevant to you! It requires assessing and finding the right arbitrage, which can be a long (and possibly painful) process.

In my post, the audience was sites such as shaadi or justdial. For them, advertising on google or print or radio and trying to make an arbitrage from that will rarely work. They have to invest in brand building, customer retention etc for the cost of acquisition to come down drastically and the arbitrage to make sense. For instance, JustDial multi-sells its leads. So if they generate a lead for bags for INR 20, they will multisell it to 4 players who sell bags @ INR 15 each (hypothetical numbers).

What you are referring to are the buyers of these leads. For a leather company, a real estate business and a pilot training institute, it makes a lot of sense to spend not just on google but also on these sites such as alibaba and justdial. The quality is poor and its a pure volume game because of the low price. However, it is again not as straightforward. There are several people who spend monies on them and not benefit. I will attempt to explain why that happens, in my next post!

The idea always is to find the right arbitrage. Internet is a far cost-effective medium of lead generation that any other medium. But that doesnt make it obvious! :)



November 14th, 2010 at 2:56 pm

Please don’t take my posts otherwise. I am just a curious guy.

I read your posts with enthusiasm. and am waiting for the next post.

As an optimist entrepreneur, even if the returns are poor, I think I will take the risk. I mean the risks of some return are better than the safety of no returns. I say this in context that “several people who spend monies and not benefit”

will this stop me for going all out on the net ? ( If I have some money)

looking forward to your next post



Ankur Warikoo

November 14th, 2010 at 3:02 pm

@Saurabh: Oh no, I didnt take your comment otherwise at all. You raised quite pertinent questions and will surely address them in the next one!


Manish Singh

December 4th, 2010 at 7:54 pm

Excellent post. Especially the upsell/downsell/cross-sell point. This can be in itself the second most important criteria in making or breaking of an e-commerce website after usability. Also its important to capture leads and generate traffic through newsletters/email subscriptions. Starting an affiliate program could be useful as well (if you have margins to pay sales commissions). Places like clickbank, cj.com could be excellent places to start an affiliate program.



December 6th, 2010 at 4:40 pm

you use too many exclamation marks


Ravi Gan

November 8th, 2011 at 4:27 am

I think that internet isn’t simple to monitize if you’re a small player, with limited resources. That’s why start-ups usually go about create the initial idea, if at all any niche, and go about selling that idea to the investors – money flow which will greatly help in the different styles of marketing.

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