Update: a serious over estimation from us of how much this will cost Google. Their site states that Google is only paying for the cost of the .in domain name.

Earlier: A couple of years ago, a senior (now former) Rediff executive explained to me how they initially got advertisers on board: Rediff not only had to give banner space to advertisers, but it also had to create websites for the advertisers because they just didn’t have an online presence. Instead of just waiting for businesses to come online, Rediff and other publishers, as well as IndiaMart (which still creates websites for businesses) had to help the advertisers come online. That role, probably to a greater extent, was probably taken up by the agencies and the kind of people who, even to this day, advertise on the back of auto rickshaws that they charge Rs 1000 per HTML page for creating a website. They play a very important role of bringing businesses and potential advertisers online, though efforts are needed to also take some of these SMBs beyond

To coincide with Google’s Chief Business Officer Nikesh Arora’s (typically) quarterly visit to the country (for the Bharti Airtel board meeting) Google today announced a ‘India Get Your Business Online‘ initiative, offering free websites, domain & hosting services to small medium businesses in India. Google is targeting 500,000 small medium businesses in India to get online in next three years through this program, in partnership with HostGator, which will offer free support in creating, hosting and managing the website for a period of one year without any cost through its toll free call centers 1800-266-3000. The .in domain name is free for 1 year.

How Much Does This Cost Google?

Update: We were WRONG. Google is paying only the cost of the .in domain name, which at Net4India is Rs 149 for the first year. That’s Rs 7.45 crore, or about $1.75  million.

Let’s do the math: the cheapest ‘Hatchling’ hosting on HostGator is $81.72 (approximately Rs 4026), and this includes a .com domain registration for a year. If Google has given HostGator a guarantee of 500,000 registrations over three years (they mention this as a target, but we’re assuming a minimum guarantee), you can expect that they would have gotten a significant discount, especially if the sites aren’t expected to either take up too much space on a shared hosting, or garner too much traffic. At full cost, this would be $40,860,000 – around Rs 201.32 crore. At a 50% discount (if you’re a hosting service provider, tell us how much discount you would charge for this opportunity), that’s roughly Rs 100 crore, spread over three years.  

Why Is Google Doing This?

Apart from growing the market, which we mentioned earlier, Google would probably have the following incentive to do this:

2. Advertiser database: Google will be able to create (hypothetically) a registered database of 500,000 potential advertisers, alongwith their address, who they can pitch advertising products to in the future.

3. Increasing Ad Rates: Google’s keyword auction based benefits from competition. The more the competition for a particular set of keywords, the higher the ad rates. Our assumption is that once these businesses come online, Google may eventually offer than $100 in free online advertising, to help them drive traffic to their sites. They’ve been doing this intermittently for a while. Their hope, and probably that of HostGator, is that some of these advertisers will renew their contract and remain online.

4. Increasing Advertiser Fragmentation: The online advertising market is India is significantly agency dependent, and Google’s business has largely been agency driven, for which Google does offer some of them credit. Globally, the agency dependency (we’ve heard) is much lower, and smaller advertisers offer a good buffer. Google wants more advertisers on board and wants them to spend more, as is evident from the boisterous sales-driven approach of its current India Country Manager Rajan Anandan, who, we’ve heard, was handpicked by Arora for the job.

5. Increasing Marketshare: Google dominates both the Indian advertising market and search, and bringing more advertisers into the search business will help the company gain marketshare

Now it has been suggested by CUTS that Google’s dominance borders on being unhealthy for competition in search in India. Google corners a majority of advertising as well, and we think this initiative by Google will only help increase its dominance. The question you have to ask yourself is – why isn’t anyone else doing it? When did you last hear of Microsoft’s Bing doing anything significant to push search or advertising in India?