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What is driving the sudden boom in travel startups in India?

Aparna Ghosh
27th Feb 2015
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When Deep Kalra, Keyur Joshi, Rajesh Magow and Sachin Bhatia founded MakeMyTrip in 2000, they knew they were going to be the pioneers of an era that was marked by travellers transacting online.

“We knew that the market was moving from offline to online, it was disruption at that point of time, and we identified it,” said Rajesh Magow, CEO, MakeMyTrip

Today, MakeMyTrip is one of India’s largest OTAs (online travel agents) with a customer base of over seven million, and page views crossing 20 million every month. They currently provide customers with more than just ticketing options, expanding its services offerings from standard holiday packages and rail, bus and flight ticketing to add even custom-built holiday packages.

yourstory_Travel_Startups

Though more than a decade has passed since MakeMyTrip made its entry into the online world of travel, more than a couple of dozen travel and tourism-based startups bet on this industry every year. While some startups try to disrupt the market, others just want to grab a slice of this highly fragmented market pie.

An Ernst & Young report on the sector in India noted that the online travel market grew rapidly at a CAGR of 51.8% from US$1.5 billion in 2007 to US$8 billion in 2011. According to a Deutsche Bank report, the travel industry will grow at a CAGR of 10% to reach US$111 billion by 2020, and will be the second fastest to grow worldwide.

The Indian consumer has been introduced to an array of out-of-the-box travel ideas ranging from backpacking and couch surfing, to even food tourism (to tingle the taste buds: http://indiafoodtour.in/ and http://www.easytoursofindia.com/ ) and fishing tourism (to put that angler to use: http://www.otterreserves.com/ ).

“People are jumping into building travel companies because of the general excitement in the space,” said Magow, but the real question is ‘what is causing this excitement?’

Ecosystem changes:

  • Internet and smartphone penetration: Startups foresee the next big technology disruption coming in the travel space, and hence have taken a dive into the sector.

Ericsson’s report on growth of mobile broadband in India estimated that the mobile subscriber base would reach around 1,145 million subscribers by 2020, while the smartphone penetration would reach 45% or 520 million devices across the country.

  • The rising household incomes and the corresponding expansion of the middle class have triggered more cash flow in households, opening up possibilities for spending and leisure.
  • Experts also attribute this sudden boom in travel startups to the recent stabilization of the macro-government, enabling FDI and various other routes for capital to flow through the economy.

Customer behavioral changes:

YourStory earlier reported that Indians travelling overseas for leisure alone is a $5 to $7 billion market and is growing at the rate of 40% annually.

“This sudden surge of people going on vacations and international holidays can be because of the impact of social media platforms like Facebook or Twitter on our everyday life,” said Deepak Wadhwa, Co-founder of WeAreHolidays, adding, “we suddenly want to go out, take pictures, share them and feel good about it.”

What are the existing business models in this sector?

  • Transactional: These are websites/apps that allow transactions to be completed on their platforms.
  • Marketplace model: The platform is just an aggregator of various agents that provide holidays or travel packages to consumers. Example: Thrillophilia
  • Inventory model: The platform owns the whole inventory of holiday packages or tours and offers them directly to consumers. Examples: MakeMyTrip and Cleartrip
  • Non-transactional: These are websites/apps that allow either help in the discovery or research of the travel plans. No transactions can be completed on their platforms.
  • Content-related: The E&Y report predicted that user-generated content is expected to play a significant part in consumers’ selection decision. It also mentioned that user-generated content (UGC) would become a primary source of marketing.“We try to answer the five questions that consumers or travellers usually have: Where to go? How to reach? Where to stay? What to do there? How do I book a holiday?” said Hari Nair, Founder and CEO of HolidayIQ.com, which provides content rich websites, emailers and reviews about destinations and holidays.
  • Events and tours: These websites just aggregate tours and events in a particular destination, helping consumers use their times effectively. Example: Holidayen, TripHobo
  • Hyperlocal information: These sites/apps generate alerts and notifications based on the consumers’ location or selection of destination, providing a more hyper local and real time experience. Example: MyGola’s recent app called ‘perfectday’.

What are Indian consumers like?

Most Indian startups have realized that picking a single type of consumer, as a target audience, is much better than trying to build a ‘one size fits all’ product. Experts put consumers in three sub-categories.

  • Highly sophisticated: These are people who have travelled widely and prefer to plan, discover and book their travels themselves.
  • Casual traveller: These are early stage consumers, who research a lot but finally prefer packaged tours for convenience’s sake.
  • Young experience-seeker: These are the new generation youth, who are inspired to travel, not just to explore a certain destination, but more for the experiences. These consumers choose meaningful products over standard holiday options.

What is the funding scene?

Just for your information, three Indian travel-related startups (Trip38, Stayzilla and iTraveller) got funded in the last one week! I’m sure that is good news.

According to Hari Nair, angel networks and VCs (including Tiger Global, Accel Partners, Blume Ventures, and Matrix Partners etc) from across the globe will invest in early stage travel startups as long as, “they (startups) know what they have achieved so far, have personal conviction, and know how to scale the business.”

On the other hand, some travel entrepreneurs say that funding is easier if the team has prior domain expertise, as in the case of WeAreHolidays, started by three former MakeMyTrip employees.

Even MakeMyTrip recently announced a fund, sized $15 million, called the ‘Travel Innovation Fund’. They made their first investment early this year in a Bangalore-based hotel booking services startup, Simplotel.

On the flipside, Nair cautioned budding entrepreneurs about a trend he has been observing over the last few years. He said that it was easier to get funded in earlier rounds than subsequent rounds, “because scaling becomes a major challenge in later stages.”

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