The turnover of these dotcom companies is estimated at Rs 100-120 million. A comprehensive "Indian Internet Business Report" compiled by Icra (credit rating agency), on the structural front, expects a spate of mergers, acquisitions and alliance in the Indian Internet business in the medium to long term, paving the way for greater consolidation. Most large companies are expected to follow the merger and acquisition route to widen the portfolio of products and services, increase geographical coverage, andreduce the marketing costs and gestation period. Internet enablers, such as security solution and authentication providers, delivery and courier service companies and hardware providers, would see their market share rise significantly. Moreover, convergence of media and emergence of broadband are expected to influence the industry dynamics not just for Internet business alone but also for telephone companies and cable television operators.

Similarly, the market size of all categories of players in the Internet business though would increase, its growth and effects would not be uniform across categories or even across companies within the same Internet business category. A combination of various factors such as customer service (quality and timeliness), technology (adaptability, scalability, usage and competence), product and service portfolio, marketing efficiency and network and low costs would determine the growth rates and margins and prospects of various Internet ventures in India. Infrastructure providers are expected to witness a significant decline in margins from Internet service provider (ISP) services. Consequently, it would become imperative for pure ISP to generate other revenue streams (which they may do by turning themselves into application service providers (ASPs)).

According to the 315-page report, India would reach an Internet subscriber base of around 8.3 million by the fiscal 2005 from the present level of 8,50,000. It estimates the total number of Internet users to go up to 21.52 million from the present level of 3.97 million in the same period. Icra forsees a 15 per cent share for mobile connection during the same period.

According to Icra's estimates, the total e-commerce turnover would increase from the level of Rs 4.7 billion to Rs 252 billion. The B2B turnover of e-commerce activities would account for the largest share of the total e-commerce turnover. Icra estimates that the B2B e-commerce turnover would increase at Rs 232.8 billion from the current level of Rs 4.1 billion.

Furthermore, the B2C e-commerce turnover is expected to increase from Rs 0.5 billion to Rs 18.8 billion. It is estimated that e-commerce would take a larger hold of service-oriented Indian industries such as banking, leisure and travel, education.

Icra expects the total e-commerce revenue in the fiscal 2005 to be around Rs 253 billion. "Taking a net margin ratio of 15 per cent, the aggregate net profit for the industry is expected to be around Rs 38 billion." Assuming the return on equity in fiscal 2005 to be around 20 per cent, a capital base of around Rs 190-200 billion may be expected. However, the current actual capital investment in dotcoms is considerably low (estimated at Rs 20 billion), implying that large fresh investments would be made in ventures with strong fundamentals and good revenue models.

The ad-spend on online advertising is expected to increase from Rs 70 million to Rs 860 million. "The figure is likely to record the maximum growth between the fiscals 2001 and 2003 due to the substantial addition to user base expected in this period." It is estimated that the total advertisement expenditure incurred by online companies has been Rs 1,500 million in the first half of the current fiscal. The extent of online advertisement expenditure largely depends upon the profile of users and the number of users for a medium.

The emergence of broadband and the convergence of media are likely to provide the thrust to the online ad-spend budgets of companies. However, even a cumulative online adspend figure of Rs 860 million in the fiscal 2005 would fall far short of the expectations of Internet ventures. The security solutions and applications market in India is expected to witness high growth rates in the long term. Indian companies are likely to get more export opportunities because of their low-cost advantage. In the long term, the market is expected to witness a consolidation, leading to the weeding out of "inefficient" players.