A new journey for MakeMyTrip after merger with Ibibo Group

Deep Kalra, MakeMyTrip founder, says the conviction to start his own business came after he sold his wife’s second-hand car online at a higher price
Image: Amit Verma

When Deep Kalra, founder of travel website MakeMyTrip, planned a holiday to Phuket in 1999 without the help of a travel agent, little did he know that he was on the verge of embarking on an entrepreneurial journey too.

Sixteen years on (MakeMyTrip was launched in 2000), Kalra, 47, who pioneered online travel in India, is the leader in the segment. The merger of his homegrown online travel company with smaller rival Ashish Kashyap’s ibibo Group has not only been a watershed moment for the Indian online travel industry, but has also created a combined entity that leaves little room for a close second. This entity, which will operate as MakeMyTrip, will control about a fifth of the lucrative online air-ticketing segment, besides having a substantial presence in the bus, hotel bookings and ride-sharing space.  

To break down the numbers further, MakeMyTrip, in an investor presentation in September 2016, claimed it had a 28 percent share of the Indian online hotel-booking segment and a 30 percent share of the online air-ticketing segment. On the other hand, ibibo Group’s Goibibo holds about 34 percent share in the hotel booking segment and around 20 percent in online airline booking. redBus, owned by ibibo, alone claims to control 65 percent to 70 percent of the market share in the online bus-ticketing segment.

For Kalra, the merger has perhaps been a natural evolution. “Entrepreneurship is all about rediscovering yourself. You have to keep evolving your business with time,” says Kalra as he sits back in the plush conference room of his Gurugram office, which has three tasteful Amit Pasricha photographs of Indian monuments on the walls.

The Game Changer
The announcement of the merger may have come around Diwali this year, but its seeds were sown a year ago. “It was mid-last year when we first contemplated a possible alliance as we realised ibibo is a strong competition, has deep pockets and is here to stay,” says Kalra. “We even met their shareholders briefly, but talks did not fructify at that point in time.”

A year down the line, the deal has been clinched and it is currently awaiting approval from fair trade watchdog Competition Commission of India. Once the clearance comes in, Kalra will take over as group CEO and executive chairman of the combined entity and co-founder Rajesh Magow will be CEO India of MakeMyTrip. Kashyap, founder and CEO of ibibo Group, will join MakeMyTrip’s executive team as co-founder and president.

This alliance seems to have been given destiny’s nod too.

Earlier this year, Kalra and Kashyap, 43, had been brought together in a legal battle they fought jointly against the Directorate General of Central Excise Intelligence at the Delhi High Court. They were both entangled in a service tax case where they were charged with tax evasion to the tune of several crores. “It was during the hearing of the case that we spent a lot of time together,” says Kalra. They won the case in September. In parallel, they also bumped into each other at a social gathering and their conversation went beyond the legal case to the future of the online travel business. It was then that “we talked about joining hands as we had a common ground and a clear vision,” he adds.

What’s more, they have similar backgrounds—both are first-generation businessmen who quit their corporate jobs to foray into the online travel business. “It is our mutual respect for each other that has got us together,” says Kashyap, who launched ibibo Group in 2007 and considers himself a rather late entrant in the industry. “By the time we came in, there were already a lot of entrepreneurs in the market and we were absolutely dismissed.”

But, sometimes, rejection helps people focus and do things differently. At a time when most entrepreneurs in the online travel industry were focusing on air ticketing, which was already dominated by Kalra’s MakeMyTrip, Kashyap says his foray into hotel booking and bus ticketing helped him gain a foothold in the market and get visibility.

The two had been giving each other tough competition in recent times. “The last 12 months have seen heavy discounting in the hotel segment as competition between the two companies intensified,” says Aloke Bajpai, CEO & co-founder at Gurugram-based Ixigo, which connects travellers with content and deals from online and offline travel, transportation and hospitality businesses. “Going forward, we expect less discounting and more sanity to prevail in hotel pricing that will lead to overall margin improvement for travel players.”

Customers and suppliers can now expect to benefit from integrated product offerings as the combined entity will be in a stronger position to negotiate prices and commissions. This may put immediate pressure on competition such as Yatra and Cleartrip. “MakeMyTrip and ibibo will have better pricing power because of higher market share. The ability to get better and exclusive inventory will also increase,” says Bajpai. He adds that in the months to come, the airline industry, too, may allocate increased spending to direct marketing and direct distribution, and invest in technology to improve their own websites and apps, since no supplier would like to be entirely dependent on any particular intermediary.

Avnish Bajaj, MD at venture capital firm Matrix Partners India, says the deal looks like a strategic masterstroke by Kalra. “The deal will work out very well for MakeMyTrip and the industry as it will remove unsustainable competition [deep discounting] from the market and allow the company to invest in innovations with a strong focus on customer value. Besides, Kalra has also been able to consolidate his business and align two giants in his company, Naspers and Ctrip, at a time when the travel market is just opening up.”

South Africa-based Naspers is the majority shareholder in ibibo with 91 percent stake, while the balance is with China’s Tencent Holdings, Kashyap, and employees. Together, they will now own a 40 percent stake in MakeMyTrip and become the single largest shareholder block in the Gurugram-based company.

Chinese online travel company Ctrip, on the other hand, which invested $180 million in MakeMyTrip in January 2016, will own another 10 percent stake in the entity following the merger.

Strategic Moves
It is not the first time that Kalra has roped in like-minded people. Take, for instance, MakeMyTrip’s acquisition of startup travel guide firm Mygola in April 2015 through its innovation fund. The entire team of Mygola was retained by Kalra, while its founder Anshuman Bapna was roped in as chief product officer at MakeMyTrip to ramp up its mobile strategy. “I plan to bring in like-minded people in the company,” says Kalra, who launched MakeMyTrip in a nondescript Okhla building back in 2000.

Kalra, who studied economics at St Stephen’s College in Delhi in 1990 and then went to the Indian Institute of Management (Ahmedabad) in 1992, began his career with ABN AMRO Bank before turning entrepreneur in 1995. His first venture, AMF Bowling, through which he tried to bring ten-pin bowling to India, tanked but he learnt a lot from it. “It was fun, but a financial disaster.”

After a four-year entrepreneurial stint, in 1999, Kalra returned to the corporate world to join GE Money (earlier GE Countrywide), but his longing to start something of his own made him try his luck again—this time with MakeMyTrip.

At GE Money, he was exposed to the internet as they were looking for new avenues of distribution and he realised the untapped potential of the digital world. “If it had not been for the internet, I would have perhaps carried on with a regular corporate job,” says Kalra, whose father was a private sector employee, and mother, a teacher. “The early conviction came when I managed to sell my wife’s second-hand car online at a higher price,” he says.

He played around with two options: First, an online stock broking firm and the second, an online travel website. While he drew up plans for both, he went ahead with the second inspired by his own travel experience. “I was planning a holiday abroad with my wife… we were expecting our first child. After several visits to the travel agent, I did the booking myself with a lot of trepidation and it was a success.” Kalra managed to clinch a deal that was much cheaper and more customised than the travel agent’s. It led to the birth of MakeMyTrip.
 
However, the initial years were no cakewalk. “The digital market had not opened up and people were not willing to shell out money online. It was unstructured to the core.” But Kalra’s management degree came in handy. “A good MBA teaches you to structure the unstructured and be perseverant.”

MakeMyTrip began as a business model that primarily focussed on facilitating travel plans for NRIs wanting to visit India. In those days, air ticketing had just begun to pick up for inbound travel while people in the domestic market were still sceptical about transacting online.

However, they managed to get early funding of $2 million from eVentures—which was backed by media baron Rupert Murdoch and Softbank. But they backed out in 2001 during the dotcom bust. “We had a tough choice: We could either shut down or find a way to buy them out,” says Kalra, who then garnered funds from his own savings, family and friends. “We did not want to fail another time and finally we managed to get some money to buy them [eVentures] out and become a management- cum-angel owned company.”

Kalra was on his own for a while before raising the first round of institutional money from Saif Partners in 2005.
 
He recalls how they had judiciously cut down all costs when eVentures exited. “We decided to stop all marketing in the country as we did not want to blow up our funds. Things did not pick up initially in India,” he says. But with Indian Railways going online in mid-2000, the contours of the industry changed. A further push came with the advent of low-cost airlines around the same time.

“Lots happened after I launched MakeMyTrip. In the early years itself, I saw the dotcom bust that taught us innovation is key. And more recently, with the advent of technology and the entry of several startups, we have seen the industry go through a sea change,” he says. Changes that MakeMyTrip has constantly adapted to.

To start with, earlier it was all about simplifying the ticket booking experience online. Then, there was a phase of content aggregation, which benefited consumers. Now, technology is connecting businesses with consumers directly. “Having been in the industry for long, we realised the online medium is great for disintermediation. And that is what is fundamentally happening right now—digital is connecting sellers directly to buyers,” adds Kalra. This is in turn opening up opportunities for companies at every distribution point. And budding entrepreneurs are sniffing out new business ideas across diverse travel categories. Sample this: Between 2011 and 2015, the number of online travel startups has grown from around 50-odd to over 250, as per data available with Ixigo.

As per a study jointly conducted by KPMG and Confederation of Indian Industry, the online travel segment comprises about 61 percent of the total ecommerce industry in the country, which stands at over $27.5 billion.

Another set of data available with Ixigo suggests that by 2020, India is poised to become the third largest online travel market in the world, registering an annual growth of 10.5-11 percent. Currently, it is the ninth biggest travel market. And MakeMyTrip is ensuring it makes the most of it: Not only is it already a full-fledged travel company, it has even forayed into the online hotel segment around three years ago.
 
Keeping up with the trends, MakeMyTrip recently also got into the alternate accommodation space—led by homestays—through a new entity called Rightstay, which already has more than 13,000 properties registered ranging from guesthouses to villas.

“If you plant a sapling, the mortality rate is quite high. You cannot give up,” says Kalra.