Travel Travails

Remember the dotcom boom time when you just had to have a

Web-based business model that would sound reasonably viable and there would be a

VC waiting at every corner to lap it up and back you with enough funds to give

shape to your idea? Well, that was the story five years back. Then came the

burst and everything ran out of steam. Just a handful of the e-Commerce ventures

survived since then.

Five years later, the heat is suddenly back in the Indian

dotcom space. And, travel sites have largely fueled the trend this time around.

In February 2006, world's largest venture capital firm, Kleiner Perkins

Caufield and Byers (KPCB) announced its first investment in India. KPCB is

putting its fund behind yet-to-be launched Cleartrip.com, an online travel

portal for India. That's not the only one. Ram Shriram's Sherpalo VC fund is

also expected to be a co-investor in the company. The first round of funding is

likely to be in the $2.7-3 mn range. The travel site is still at the

construction stage. The funding, though small at this point of time, is likely

to increase according to industry sources.

Big-ticket Investments



In January 2006, Pramod Haque's Norwest Venture Partners (NVP) teamed up

with Reliance Capital and Television 18, the broadcaster of satellite television

channels such as CNBC and IBN to form Yatra Online. The NVP press release issued

to make the announcement said that move driven by the tremendous boom India is

witnessing in both business and family/leisure related travel. NVP estimates the

Indian travel market to reach $40 bn by the end of 2006 and close to $50 bn by

2009.

February also saw another big-ticket investment. WestBridge

Capital Partners, a leading Mauritius-based Indian venture capital fund,

announced its decision to back Travelguru. The objective is to help Travelguru

emerge the market leader in the online travel industry.

Trendz



There are some interesting trends that come out of this recent appetite

among VCs on travel portals. One significant trend is that of Yatra online,

where VCs have actually come together to launch a travel portal. The second is

that of Travelguru, where the investment has gone into dotcoms that have been

around for a while and are focused in the market. Says Deep Kalra, CEO of

Makemytrip.com, “Travel is booming in India at the macro level, but more

importantly, online travel is one of the few verticals, which is actually taking

off.” Take the case of Makemytrip, for example, which received a funding of

$10 mn from SoftBank Asia Infrastructure Fund (SAIF) last year. This travel

portal was initially launched in 2000 as a travel portal that was completely

focused the highly profitable US-India travel when both the Indian

brick-and-mortar as well as the online travel market was far less matured.

Last year SAIF backed the India launch of MMT. What makes

MMT's case stronger that it is already an established player and knows the

tricks of the trade. The portal now wants to take advantage of the booming

Indian travel market.

Both MMT and Travelguru claim to be the one-stop online

shops for travel catering to all aspects of travel such as hotels, car rentals,

vacations, adventure travel et al. Travelguru, for instance has strategic

alliances with over 400 hotels as well as both domestic and international

carriers. MMT has also put a similar business model in place. Yatra Online has

also been planned on similar lines.

Bright Future Ahead



Apart from the booming travel industry in India (even modest estimates by

the likes of WestBridge pegs the Indian travel industry at $32 bn by 2008), the

other important factor that has tilted the scale in favor of online travel is

the success, the model has seen in US and Europe. Even China has witnessed a

fair share of success in the online travel model. According to Analyst

International projections, China's online travel transaction in 2005 is

expected to go up by 40% over the previous year. Says Kalra, “Online travel

has been a huge success in most developed markets around the world.” Put

simply, online travel is a proven business model and most VCs see it as a safe

bet at this point of time.

However, there is a catch of course. Dataquest spoke to a

VC, who did not want its name to be disclosed, says that players need to extend

their reach to mass segments such as railways, budget hotels, and buses in order

to survive in the long run. Seconds Kalra, “You just need to offer more than

what the traditional travel agent is offering.”

Currently, there are around 40 mn Internet users in India

and this number is expected to rise to 110 mn by the end of 2010. So although

there is always room for uncertainty and the need for caution, the Internet

scenario today is far more evolved and holds far more promise for the future of

e-Commerce. So that gives us enough reason to cheer.

Bhaswati Chakravorty



bhaswatic@cybermedia.co.in