Tuesday, July 01, 2008

Rumour - Expedia buys into India with $17million investment in TravelGuru - is there a scary eLong parallel here

contentSutra has a story (in conjunction with VCCircle) that Expedia has spent $17mm to gain a stake in the number four indian player TravelGuru. Intial reports put the valuation at around $30 million giving Expedia a majority stake. An update in contentSutra puts the valuation at closer to $75mm - though the headline still claims that Expedia has a majority stake.

UPDATE - CEO Ashwin Dameria has written to Medianama.com with the following comment

I’m disappointed that mere speculation is being published in the form of a “story”. Many people have called me based on this hearsay and what they have read online.

There are many inaccuracies in these reports – the biggest being – there has been no deal signed! (my emphasis)

What more is there to deny?

Warm regards,

He does not say "no negotiations are under way" or "no chance". Rather says "no deal signed". Assuming there is a deal - here is my analysis.

I did a background piece on the India market a few months ago. In researching that piece it became clear that TravelGuru was very well funded - having raised as much as $25mm from Sequoia and Battery. First round was $10mm with just Sequoia and then a combined Sequoia and Battery second round of $15mm. TravelGuru has used some of this to do acquisitions of their own picking up Desiya for around $25 mm (Rs. 100 crores). While well funded and used to acquisitions, the research put TravelGuru in fourth place in the market with around $80mm in TTV planned for 2008 (up from $42 in 2007). This puts them behind Makemytrip on around $280 TTV, Yatra on $210 and Cleartrip (>$100). More in this post here.

I am trying to understand this play by Expedia. Using acquisition as an market entry technique is not typical Expedia behaviour (on the leisure side). Of course in France there was the original joint venture with SNCF and there have been a string of investments by TripAdvisor. But the entry of the Expedia brand into a market has usual followed a organic path of launch hotel/destination services while the air engine is localised. Then a year or so after brand launch they bring on the air engine and ramp up the marketing. In the case of India with have the hotel only launch of Expedia.co.in and then four months later the investment - but not full buyout - of a local player. The obvious and scary parallel for Expedia is their entry into the Chinese market through a majority investment in eLong (August 2004). This has proven to be a disaster for Expedia. eLong is onto its third CEO since the investment (fourth if you include the interim work of Expedia Asia Pacific President Henrik Kjellberg) and the stock is near a two year low of around $7 only just above the investment price of $6.21 (though it would be fair to say that I should keep comments about poorly performing online travel stocks to a minimum). Much like eLong and its market standing compared to ctrip, TravelGuru currently lives in the shadow of larger rivals.

It has taken Expedia 4 years to ready themselves for another part investment in an emerging market. I am sure they are hoping that they have learnt a lot from the lessons of eLong.

Just a rumour at present as the CEO TravelGuru Ashwin Dameria has (sort of) issued a denial. Either way - the Indian market is continuing to heat up.


Anonymous said...

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Anonymous said...

You can't just base your comment based on total turnover.

Travelguru primarily deals with Hotels and not flights, where the commissions are much higher and revenues lower, simply because there aren't too many people booking hotels online.But the scope for growth is that much immense as opposed to the other players who're stuck with dwindling flight margins.

Expedia (even if the deal's happening) aren't fools to overlook an obvious fact like that and you can be rest assured that they've learnt their marketing from their mistakes and vast experience rather than relying on rookie analysis in Blog posts.

So the way to profitability is the future which shall reveal itself very soon as to who'se around to pull our bluff.


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