Tuesday, May 06, 2008

In India the $2billion online market is creating an industry: discussing India online with Ram Badrinathan of PhoCusWright

I have been meaning to write for a while of my experiences in India. Readers will know that I traveled to Bangalore for work last month. My work visit there was around operational activities but I took it as a chance to think about the state of the online travel market in India.

I went there knowing that money was flowing and entrepreneurial spirit was flying around online travel. You only need to look at the last few months of deal announcements to get a feel for the level of activity.

Makemytrip (the number one player) has a new engine and claims to be hitting break even at the end of this year. This is off the back of some $40mm in funds raised, US$280mm in gross bookings and a claimed 45% share of the OTA part of the market according to CEO Deep Kalra (who is already talking up IPO plans);

Yatra (founded by ex-Ebookers Dhruv Shringi (CEO) and Manish Ami) raised money from Reliance Capital, Promod Haque’s Norwest Venture Partners (NVP), and the Television 18 Group (story here). Now there are stories of them combining with the Indian unit of Carlson Wagonlit Travel to try and acquire its Kuoni’s Indian business travel arm, Hogg Robinson Sita. They are claiming US$210mm in gross bookings;

Not to be left out of the PR war – Cleartrip CEO Sandeep Murthy is claiming that Cleartip is the “leading OTA in India” on the back of a usability and user friendliness survey from a research organization. They also recently raised more money ($18.5mm) from big names Draper Fisher Jurvetson and Mahindra Group. Makes a total of $30.2mm raised to date; and

Travelguru went on the acquisition trail – picking up Desiya for around $25 mm (Rs. 100 crores). Is aiming for break even in 2008 also on the back of $80mm in TTV ($42mm last year)

Additionally these companies are trying many creative and different things to the established “old world” online travel companies. Ideas like:

I often think you can also tell a lot about travel by simply looking at the media (newspapers, television, outdoor) and looking for agents in the street. Other than one outdoor advertisement for a tourism college and the appearance of a travel agent and tour operator in a five star hotel in my first four days in India I did not see a single mention of the travel industry. Not an ad for an online or offline player or supplier. Not a single agency. Not a hint of travel experience and or a drive by the population to look for ways to spend their travel Dollars/Rupees. It was only on my final day that I came across three separate travel ads in the one edition of the newspaper (presumably the weekly travel edition). All three were online players including a wrap around from MakeMyTrip. Here is a market with a billion plus people, fast growing economy, faster growing middle class and more low cost carriers that anywhere else in and yet I can only find the barest hint of a travel industry.

I discussed with this Ram Badrinathan of PhoCusWright before I left. He has been working on a special report. Badrinathan put this phenomenon in the simplest of terms. “This,” he says “is because travel as a category simply did not exist in India.” He goes on “the reason the online travel category is exploding is because the whole category did not exist before”. There are no nation-wide offline agents for the online industry to compete with (like the big four have taken on Amex in the US, or Webjet has taken on Flight Centre in Australia, or Expedia Lastminute and Ebookers have battled TUI in Europe). The online travel players are the first national travel industry players. What a fascinating and unique phenomenon – well at least I think it is unique to India.

If Badrinathan and PhoCusWright are right then the market has grown quickly to $2billion – he expects $6 billion in 2010. If Kalra of Makemytrip and the above numbers are right then the OTA industry is just north of US$500mm. The balance (assuming we can match the numbers) is therefore spread mainly between the 7 low cost carriers.

The online hotel market is not of significance according to Badrinathan. A lot of this is cultural. Domestic leisure travel happens in larger family groups and tends to be VFR related. Chain penetration is low and hotel quality is varied. This makes it hard for travelers to book domestic hotel inventory sight unseen. Trust and knowledge is limited. This is the space that HolidayIQ is trying to fill. Pitching themselves as Indian TripAdvisor, HolidayIQ is sitting on 8,500 reviews of domestic properties. Currently this is on the fringe (TripAdvisor is closing on 20 million). With English language being common among the Indian online travel customer HolidayIQ finds itself competing directly with TripAdvisor as well as needing to build the content/advertising model in a market that has not yet established a merchant/retail model. But it is clear that trusted hotel information is a necessary part of helping the online hotel business to catch up to the growing air business.

I found it fascinating to see the contrasts of India. Not just the typical contrasts of wealth, dynamism and poverty (which are mind boggling) but also the contrasts of what I read and see of the potential for online travel in India and the difference in the marketing and monetization approaches compared to other emerging markets.

Do you have any online travel experiences in India you would like to share?


Anonymous said...

Was an advisor to one of the companies you mentioned above and for what it is worth the level of excitement and enthusiasm was great but the translation of Indians making $$ from travel in the world largest middle class population just didn't make the numbers work on any level.

My prediction is that Telephony & travel will be the way of the future in India.


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