Why the ibibo Group's online travel business will take time to show results

Ashish Kashyap, Group CEO of ibibo Group, has experienced a series of ups and downs in his career spanning 15 years, but nothing comes close to his encounter with Naspers in 2010. Board members of the South African digital media company, which holds over 90 per cent stake in ibibo Group, were unhappy when they found out that Kashyap was experimenting with new projects without their knowledge. However, he was quick to get them around the table with the promise of making the group a 'dominant' online player across verticals, such as travel, e-commerce, classifieds and payments solutions, in the next seven years.

"The idea was to quietly work and build scale, because the moment a business becomes formal, the scope of experimenting goes down," says Kashyap. However, things have not panned out the way he had envisaged. In the ensuing five years, ibibo Group was forced to get out of most of its online ventures, barring travel.

Kashyap's experiments with too many things at the same time have not got him too far. And today, despite a proven record of building businesses, his ability to kill businesses has done him in. ibibo Group's chequered journey over the past eight years stands testimony to this.

The company started as a social networking site in 2007 but failed to survive the onslaught of global brands such as Facebook and Twitter. It then turned its focus on online gaming which failed to take off as well. As his ventures began to flounder, Kashyap, who was left with some two million active users on the gaming database, decided to work on a few projects - online travel and payments - without informing Naspers. A few team members were isolated, and some $50,000 was brought in. By the time Naspers found out about these side projects in 2010, luckily for Kashyap, most of these businesses had started gaining traction. In 2011, ibibo formally launched PayU, a payment gateway solutions portal.

By 2013, the Group was present across four different high-growth sectors. But, despite its grand plans, ibibo could not become the poster boy of the Indian online revolution. Experts say the conglomerate-type approach, which had the support of the Naspers management, failed to deliver. "It wanted to do everything at the same time. The idea with many Internet companies is that if you can create customer base on one platform, other platforms can also benefit from it. This clearly did not work for ibibo," says Harish H.V., Partner at consulting firm Grant Thornton India.

Tradus scripts a sorry tale of what could exactly go wrong with an e-commerce business. In 2008, Naspers' acquisition of the UK-based Internet auction firm was touted as the next big thing in the Indian online space, but the initiative did not pay off. Naspers had given Kashyap, and his team, two to three years to weave a success story around Tradus. But, it soon seemed to give up on the products prospects and, instead, investing around $100 million Flipkart in 2012 for a 10 per cent stake. The initial failure led to Tradus constantly shifting its business model. It pivoted from online retail to marketplace followed by mobile commerce and proximity e-commerce. In the last two years, the model was changed four times with no success each time. Tradus changed its model to stay away from what Flipkart was doing. Finally, the promoters tacitly accepted defeat and quietly underwent a pivot to sell only groceries in 2014. "At every step Flipkart was beating Tradus hands down. The real churn came after Amazon's entry in 2013 when things began to move much faster and Tradus just lost the game," says a former Tradus employee. Online grocery store is a low-margin business that requires patience and time before it starts showing results. "The reason for getting into the grocery business was driven by the fact that Flipkart has a stated policy of never going into grocery," quips a former employee.

Behind Tradus' failure as an online retail portal was indecision and the inability to stick to its plans. "There was nothing wrong with its approach, especially in the early days. It was selling the same products as others - mobiles, electronics, apparel, books and home appliances - at deep discounts. But somehow they were always behind the curve," says an online retailer.

Meanwhile, both Snapdeal and Flipkart stuck to the marketplace model to make rapid progress. They attracted merchants across the country and invested heavily on the mobile platform and marketing. "Each customer acquisition is very costly. Logistics and brand building is also very expensive," says Harish, pointing to ibibo's inability to raise funds from different sources. "It looks like the parent company was dictating what they should do and what they shouldn't," he adds. Before accepting defeat, Kashyap did make a last-ditch effort to resist the onslaught from peers and resurrect Tradus by acquiring Hyderabad-based BuyThePrice to build a strong base in south India, but it proved to be too little, too late.

Realising that he has missed the early-bird advantage, Kashyap is now ready to move on. "We will be moving out of all businesses, including Tradus, which are not focused on travel, transportation and lodging," he says, announcing the death of yet another venture. While the group was struggling to carve out space in e-commerce, it made some smart moves. The investments in car classified company Gaadi.com, in particular, grew five times in the 44 months after it acquired Gaadi.com from Accentium Web in 2011 for about $2 million. "We were looking at opportunities in the classifieds space. Later, we realised that it was not fitting into our core business. It turned out to be a drain on our management bandwidth so we got out of it," says Kashyap. The subsidiary was sold to Cardekho.com for around $11 million.

'We have huge focus on mobile. The next rung of customers will come through mobile,' says PRAKASH SANGAM, CEO, REDBUS

Kashyap believes he can turn things around with Goibibo, the travel arm of the group. But, industry insiders feel, it will not be easy to compete with major players such as Makemytrip.com, Yatra.com and Cleartrip.com given the group's past record. A 2012 Phocuswright report on the online travel agents (OTA) market says that Makemytrip had 47 per cent share followed by Cleartrip and Yatra at 20 per cent each. Others, including Goibibo, shared the remaining market share. However, the market share has changed significantly since then.

While the group was struggling to carve out a space in e-commerce, and had barely started off dealing in air tickets under the Goibibo brand, it had made some smart acquisitions, including redBus.in, Travel Boutique Online and YourBus.in. It had also entered into the hotels segment. Kashyap said that the idea of getting into these businesses was driven by removing pain points for end consumers. For instance, in online travel, major issues are speed of transactions and refunds. He says that almost 30 per cent users, who book online, make changes to their travel schedules. "They would usually get their refunds in about four weeks. We were the first one to introduce instant and automated refund facility in 2010, where money was returned in three to four days," says Kashyap.

A lot of work has also gone into speeding up the transaction time. "People should be able to check out in two to three clicks and cancel with just one," he says. Vikalp Sahni, Chief Technology Officer of Goibibo.com, says that the core proposition was to build a travel product which would provide users with a differentiated experience. "At that time, other OTAs used to make users wait to fetch fares from airlines. Now, the whole paradigm has changed. I have a philosophy that technology is ever changing and we want to be ahead of others in terms of speed and customer experience," says Sahni.

Kashyap is now single-mindedly focused on the online travel market. "He is doing the right thing by chasing the biggest segment," says an industry expert. According to a 2013 PricewaterhouseCoopers-Assocham report, Evolution of E-commerce in India, online travel dominates the e-commerce industry with an estimated 70 per cent market share. A Morgan Stanley report values Naspers' travel business in India at just under $1 billion at the end of October 2014.

Of Travel and Travails

It is ironic that the business that started off as a side project has today become the mainstay for the group. Kashyap is putting all his energies to make it bigger through organic and inorganic routes.

Broadly, online travel has five components: rail, bus, air, hotels and car rentals. OTAs, such as Makemytrip and Yatra, operate both online and offline channels. ibibo Group claims to have an air market share of 35 per cent, but analysts argue the high market share is driven by Goibibo's business-to-business (B2B) segment where profit margins are much lower at 1.5-2 per cent. Margins in the business-to-consumer (B2C) segment, on the other hand, are at 4-6 per cent. "B2B helps in generating large volumes but there's no real value in that business," says an industry expert. Kashyap, however, says that B2B air transaction is around 30 per cent of the Groups overall air ticket transactions.

Since the growth of the highly-penetrated online air ticket market in India has started to slow down, OTAs, including Goibibo.com, are shifting to non-air revenue streams, such as hotels and online holiday packages. And a highly-fragmented hotel industry poses a huge opportunity. According to consultancy firm Phocuswright, online hotel penetration stood at just 17 per cent in 2013.

'Technology is ever changing and we want to be ahead of others in terms of speed and customer experience,' says Vikalp Sahni, CTO, Goibibo.com (Photo: Nilotpal Baruah)

Within a year of the launch of its hotels booking business in 2013, Goibibo has a listing of over 16,000 branded and unbranded hotels, and has some 200 dedicated executives on-ground adding more hotels to the portfolio on a regular basis. "We are making big investments in the hotels segment," says Kashyap. Ensuring quality of service through partner hotels has, however, been a challenge for most OTAs.

Bus bookings have been another under-penetrated online market. According to some estimates, there are 7.5 lakh luxury and semi-luxury seats available per day. Of this, only 15 per cent are booked online. Goibibo launched its bus ticketing service in 2012 and tied up with redBus to populate listings on its site. The following year, it bought redBus for $138 million to further cement its place. Like many other mergers and acquisitions, acquiring redBus was not easy. Within a year of the buyout, most of the senior management team at redBus, including founder Phanindra Sama, quit. A new management team has been put in place with the appointment of Prakash Sangam as CEO in June 2014.

Sangam says online bookings are largely taking place for luxury buses but a huge part of the non-luxury segment is yet to be fully tapped. "We have huge focus on mobile. The next rung of customers will come through mobile," says Sangam, adding that since the integration, there's lot of cross-selling happening across the redBus and Goibibo platforms. "From a consumer's point of view, these are two independent brands. We collaborate in the back-end, but we are competing on the front-end side," he adds. RedBus sells tickets through its own web site, 'mom and pop' shops and agents, who are e-enabled by the company.

A relatively new player in the OTA market, ibibo Group has taken lead in several areas. Take the bus segment, for instance. With nearly 70 per cent share, redBus is almost 15 times bigger than its nearest competitor. With a customer-centric approach, the group has also acquired bus tracking and analytics firm YourBus.in last year and has installed GPS in some 2,000 buses, which give real-time information on their movement to consumers and operators on mobiles and online.

While most other OTAs have developed an inventory management system for their hotel partners, ibibo has gone a step ahead on this front. For instance, Goibibo provides a comprehensive analysis to hoteliers, include reviews, rankings (among hotels in the same location) and suggestions to improve on their rankings, among others. "We deliver very deep analysis when others are focussing on just prices and inventory," says Kashyap. But, how does it help? A greater analysis and a feedback loop between buyers and owners help hoteliers in improving their quality of services and perception which, in the long term, enable them to command premium over competitors, benefiting the industry as a whole.

Above all, despite temptations, Kashyap has stayed away from the offline holidays and rail booking businesses. Rail booking generates a lot of traffic for OTAs, but the margins are narrow as the commissions are regulated by the state-run Indian Railway Catering and Tourism Corporation. "Customer satisfaction and reliable checkouts are very important for us. The problem with rail booking is more of a technical integration issue," he says.

Going ahead, the key focus area for the Group will be to increase the hotel inventory from 16,000 to over 50,000 in one year. According to estimates there are 1.5 lakh hotels, guest houses, bread and breakfast, homestays and lodges in India. With Goibibo, Kashyap plans to tap into markets such as Southeast Asia and West Asia, where the company will put its own resources on ground to register hotels. Besides hotels, the group plans to invest in mobile technology to scale up the small-screen share to 80 per cent of all transactions over the next four years, and take redBus international. Naspers too shares the excitement with Kashyap and has backed his decisions to the tee.

Now it's for Kashyap to show the world what he stands for. He has a long and challenging journey ahead and lessons from the past will stand him in good stead.