MakeMyTrip in India - US$5mm in profit off $500mm in gross bookings

Came across an post today called "MakeMyTrip.com: The Story of Online Travel Booking Startup" on the WorkHomeMoney blog. Is an interview with MakeMyTrip founder Deep Kalra. MMT is the biggest of the four local OTAs (other three are Yatra, Cleartrip and the now Travelocity owned Travelguru).

Assuming the quotes are correct there are some interesting size and performance metrics in the post.

"1. Makemytrip.com is now making $5 million in US dollars of profit this year.
2. The gross booking reached about $500 million.
3. Revenues are up 88% during the recession.
4. One-out-of-every-twelve domestic flights in India is booked via MakeMyTrip.com.
5. It sells 2,500 of railways tickets (the second largest category in travel) every day."

Other facts from the post I did not know is that MMT have 20 physical stores

For more background info on Indian market see my post from last year here.

Also Interview with Travelocity/Zuji regional boss Roshan Mendis on Travelguru acquisition here.

Rang7 - the Opodo and Orbitz launch model comes to India or is it a fake marketing trick

One of the disadvantages of being a blogger is that I do not have the time to call around to confirm a story. This is one where I would love to have the time to do some Kevin May style investigative work. But I am a working blogger so it is time to pass on a rumour that it interesting either way

Two versions of this story floating around.

Version 1 - Airlines are coming together in India to fight back against makemytrip, yatra, cleartrip and travelguru.

Intial report from Pluggd.in that Indian carriers Spicejet, IndiGo and Kingfisher were to combine with $3mm in funding to launch a full online travel agent (OTA) called Rang7. The source was a press release picked up on IndiaPRwire. I saw it on twitter via a RT from @santoshmaharshi. Was a great story because it immediately brought to mind more parallels between the emerging online travel market in India and the history of the industry's development in the US and Europe. It mirrored the launch of Orbitz in 1999 in the US (backed by American, Continental, Delta, Northwest and United) and Opodo's launch in 2000 in Europe (backed by Aer Lingus, Air France, Alitalia, Austrian Airlines, British Airways, Finnair, Iberia, KLM, Lufthansa and Amadeus). Orbtiz has since shed it's ties to the airlines (NYSE:OWW) and Amadeus has taken majority control of Opodo.

The Economic Times of India has picked up this version of the story.

Version 2 - Whole thing is a possible PR scam

Pluggd.in then did an update to the story and quote "industry sources" as saying that the the airlines have not participated and they can't get an independent verification of the business being owned by the airlines. The About Us section of their Rang7 site is not very helpful (or maybe it is) as the founders link points to a completely blank page.

If this version is true then an OTA has kicked off its business by misusing the names of three key suppliers - not a great launch strategy despite the buzz it might generate. That said, nothing has been heard directly from the founders (though they do have a blog other here).

My guess the airline JV spin is a fake (or has gotten ahead of the deals being signed). Anyone out there heard anything?

note - Orbitz disclosure in the form of my linkedin profile.
General disclaimer and disclosure

WebInTravel: Makemytrip and Yatra talk India online travel with PhoCusWright – very dismissive of Expedia and Travelocity

Ram Badrinathan of PhoCusWright hosted a panel at WIT this year with Yatra CEO Dhruv Shringi, Makemytrip CEO Keyur Joshi and Phanindra S the CEO of online bus ticketer RedBus.

As Ram described it, India is just entering Web version 1.0. This is characterised by similar concepts we saw in the late nineties in the US and Europe:

• lots of start up and entrepreneurial activity;
• focus on flights; and
• commission driven business (rather than media or merchant model).

However, there are a couple of big differences in the Indian version of Web 1.0. A couple of highlights:

• Air is not the only transport game: While flights are the high profile business to look at, there is enormous activity in ground transport – rail and road. RedBus claim 20% of the bus market is now booked online. Indian Railways in the largest online travel business in Asia (according to Ram) measured by transaction numbers. However in both cases the average booking value is very low – measured in the tens of cents;
• The OTAs and LCCs play nice: Unlike the battles in Europe and the US between low cost carriers and the online travel agents, in India OTAs such as Makemytrip and Yatra are critical to the distribution of LCC inventory. According to Ram’s research, 10-15% of the low cost carrier volume in India is coming through OTAs.
• Localised but English: When western companies expanded across Europe the key guideline was to localise as much as possible – language, look’n’feel and product. In the case of the Indian OTAs the best way to reach the target market of middle class Indians is to keep the product in English, not in one of the many local languages. This is not true for the lower booking value RedBus but very true for the full service providers; and
• Hotels need dramatically more technology support: It took a long time and arguably the economic after effects of the 9/11 attacks for hoteliers in the US and Europe to be convinced of the need for online distribution. The barrier was to convince them to join the channel, the barrier was not technology. In the case of the Indian market technology is an issue. Indian hotels tend not to have the CRS, PMS and Internet connected architecture that you expect to see in a US/Euro hotel. Yatra are approaching this problem by building a property management software suite and giving it away to hotels. Naturally it comes with means to connect to Yatra but the suite also stands alone as a property management system (according to Yatra’s Shringi). Nice idea.

The local players are not alone in exploring Web 1.0 in India. I asked from the audience what impression Expedia and Travelocity where making in the market. Both recently launched in India with localised approaches (in English) that match the expansion approach each has adopted in Europe.

Yatra’s Shringi and Makemytrip’s Joshi were dismissive of these efforts by Expedia and Travelocity in India. They very confidently claimed victory for the big local players (I presume including Cleartrip and Travelguru) over the global giants. When I put this to Jens Uwe Parkitny of Expedia later in the day (new Managing Director-Distribution, Asia Pacific), his quick reply with a smile was “that is exactly what they [competitors] said when we entered Germany and France”.

What’s next? If the trends of Europe and America apply then we should see the large local Indian players move into hotels and cross sell, frenetic consolidation and investment activity, PPC cost inflation and the arrival of the of the media model. Fun times ahead.

FYI - Ram has just published a very good report on the Indian market for PhoCusWright (costs money).

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,

Ashwin

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.

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:

• COD bookings to combat low credit card penetration;
• marketing campaigns around rebating customers if flights are delayed; and
• trying again and again to find a way for mobile bookings to work.

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?