Rediff.com‘s annual revenues haven’t gone beyond the $30 million mark since the highs of 2007-08, and on its Q1-FY12 conference call, Chairman and CEO Ajit Balakrishnan once again pointed towards the opportunity in usage growth following the launch of 3G by telecom operators, and the promise of India’s National Broadband plan, adding that he believes India is 18-24 months away from “true broadband adoption”. Citing Comscore, company executives pointed out that Rediff’s active user base was 14.9 million users in India as of June 2011, a year on year growth of 41%, compared with a market growth of 14%.

However, there were worries during the quarter: Balakrishnan said that the online share trading community, mutual funds and the insurance sector, which accounted for 25-30% of Rediff’s revenue in the previous quarter, are going through a challenging phase, and have cut their online spends by 25%. Rediff’s pageviews were up 40%, and though Balakrishnan said that the company has not faced pricing pressure, he conceded that Rediff had some unsold inventory “which is unusual”.

Our Q&A with Balakrishnan on the conference call:

MediaNama: How has the rollout of Rediffmail NG been? Are you still only with MTNL?

Balakrishnan: We don’t break out users, and right now we’re with MTNL, and in active discussions with all of them. We can work without operator tie-ups but it drives tremendous value when data costs are bundled in. I’m optimistic that one of these days we will be able to announce a deal with at least one major operator. We’re making sure that we’re systematically marketing it to our user base.

MediaNama: What kind of an increase in costs can we expect with the Deal Ho Jaye ramp up, and how are you increasing merchant sign ups? how many merchants do you have on board?

Balakrishnan: We will not be able to tell you the number of merchants, and we don’t expect any serious increases in costs. The last quarter, we spent a big amount a SAP CRM to make sure our headcount doesn’t go out of control. The group-buying business requires tremendous discipline to execute. It’s so easy to spend money to drive up…if we were a startup we would have spent as much as we can, and sold as many coupons as we can, and drive up valuation. We’re making sure that only those consumers who will go and buy more things at the merchant and shop again at full price, these are the ones we are carefully guiding to merchants.

MediaNama: But you do need people to sign up merchants on ground, so an increase would lead to an increase in costs?

Balakrishnan: We have people on the ground – in 40 cities we have 40 people, and the costs are included in that for the past quarter.

MediaNama: But you aren’t yet taking any commission on the deals sold so far? (ED: Balakrishnan had said that no coupons revenue was included this quarter, despite two months since launch of the deals business)

Balakrishnan: We do, and I’d said on the last call that our goal is to have a 50% weighted average margin on these things, but we think we should recognize income only when coupons are redeemed.

MediaNama: If you’ve not recognized any income from coupons redeemed so far, then it means that no sale on the site?

Balakrishnan: That is the correct way to do it. Yes, absolutely.

MediaNama: When can we see the company becoming profitable, or is that not a consideration yet?

Balakrishnan: For the next one or two quarters, we are going to incur losses in the $2 million range, and the reason for that is that it is safe to incur that level of operating cost, and so long as we do that, our business risk is contained. To be successful in this business, we need to create a hit out of our editorial and social product. We need to make a success of our deals cum e-commerce business. We are also keen on ensuring that the poor mans Blackberry product (Rediffmail NG)…these are three very important pieces, and it is important for us to make a success of these things.

In the TV business, we’ve seen that our website videos are driving lots of usage. We believe that TV and the Internet will merge as soon as the government broadband networks come into play. We’re carrying four or five businesses which are in the startup stage. We need these in line when the Internet market explodes, and for the first time in 10 years, I am hopeful that all of this will happen here.

MediaNama: I was curious about that: Google has estimated that there are 100 million Internet users in India. Would you agree with that estimate, and wouldn’t that be a substantive enough base for Rediff to monetize? Do we still really need to wait for an explosion in the user base? And we haven’t really seen significant revenue growth for Rediff in the past few years. So has Rediff missed the bus?

Balakrishnan: You know, we follow these numbers closely. Comscore has an estimate of 40-43 million, and there are various estimates on the size of the Indian market, and the Google guys have not given me any number like 100 million. The key is that all the things we use to generate revenue, it is almost completely dependent on broadband access.

The broadband user base is very small. We probably have a large number of occasional users, young people who go to a cybercafe and check mail once or twice a month, and you really can’t build an industry out of that. You must also remember that in this early stage market, we have 10-12 million broadband users who are highly westernised, who live with their heads in America, playing around with Google and Facebook. All that will change once you move from 40 million to 150 million. I think we have to wait for that. It’s a small pond right now in which Google and Facebook fish.

MediaNama: Then do you have any plans for Indic languages, apart from your investment in Tachyon, which would be expected to come on board once there is any explosion in the Internet user base in India?

Balakrishnan: We have a lot of efforts going on internally, and you’ll see some of it soon.

MediaNama: How are your investments doing – Examville, Tachyon and Eterno?

Balakrishnan: We view them as option bets. Tachyon has a predictive text system working across languages, and our investment there is secure, for IP rights for use by us. We’re not there for revenue. Examville is an early stage startup in New York, and it gives us, for a very modest investment, a ringside seat to see how the educational technology sector is faring, but at a relatively low cost, we get a ringside seat to see what is going on in that field in the United States.

Eterno is making their own plans and we are supportive of them. We are not banking on any of these to give us a revenue upside, I want that to be clear.

MediaNama: Have you made any other investments?

Balakrishnan: No, and we’re not even looking at making any investments, because so much of our energy is going into making sure that we do one of these three or four business, to make a hit out of it. You asked the question – have we missed the bus? My belief is that the bus has been crawling at a very slow fashion so far, and if we don’t get the products and distribution right, we can miss the bus in the next 24 months.

MediaNama: What is the plan for Vubites? How’s the monetization on that? (Ed: Balakrishnan had said that VuBites has tied up with 9 cable operators in 6 cities – Bombay, Pune, Ahmedabad, Baroda, Surat and Bangalore, with an option to extend in 15 cities. VuBites is live in two cities – Bombay and Pune,)

Balakrishnan: I think it will start contributing significant with topline in one and a half quarters or so, and right now it is early stage. It’s a solid business, and that is one are where we hope to create a sizable…the addressable market is very large there. The TV channels are very responsive to a notion that they can add 15 or 20% to their revenue by partnering us to bring relatively small local advertisers to the TV market.

At the moment most channels are staggering under the negotiating power that big advertisers like Levers exert, and there are massive discounts for them. We’ve shown that we can bring small advertisers, city based advertisers who pay a full or a premium price for an ad, and they are very supportive of our effort.