MakeMyTrip, Ibibo to save millions from merger
The merged entity will use the money to expand existing business, and build new technology and products around mobile and shared servicesbusiness Updated: Oct 20, 2016 12:53 IST
In the largest deal in India’s online travel business on Tuesday estimated to be in the range of $400-700 million according to reports – MakeMyTrip (MMT) merged with Ibibo – the combined entity will save cash it was burning to grab market share.
MMT, which is making loses, was burnt $80 million last year, said Deep Kalra, group CEO of MMT. Another $100 million was spent on marketing, essentially to strengthen the hotels business. “These guys (Ibibo) were doing the same… That’s a lot of money and spending it like that was not pragmatic,” Kalra told HT.
On the night of the deal, stock prices of MMT (listed on Nasdaq) surged 45%. “Wouldn’t you like a deal like this if you were an investor in MMT,” asked Kalra.
The company has been struggling with low margin commoditised airline ticketing business, and stiff competition from new startups such as OYO, FabHotels and Paytm, as well as incumbents such as Yatra and Cleartrip. Ibibo was also a competitor in the hotels business – which will contribute 75% to MMT’s revenue in the coming years, up from 50%.
Goibibo had become our largest competitor in the hotel business. The merger also helps MMT to fight its rival, with additional cash on its balance sheets. “With Paytm getting into hotel and flights ticketing and heading into a discounting way, this merger us a strong play to fight competition,” said Kalra.
It will also promote RightStay, MMT’s rival for Airbnb and OYO.
It also gives the combined entity more brands to leverage on. For example, in the buses business, RedBus, owned by Ibibo is the single largest aggregator of buses across the country. MMT, which also has a bus booking business, gets access to its inventory.
Buses, according to Kalra, is the future growth story in the online travel business as more people get on to the internet and book online.
And there is more.
MMT will invest in futuristic technologies of ride sharing, accommodation, mobile and booking solution, data science technology, to improve consumer experience, as Kalra is unsure when companies such as Google and Facebook will enter the travel business.
MMT for example, has wants to build a business that is based on customer experience, something like Amazon in the US, where people continue to shop on Amazon even if there are other e-commerce companies giving better deals.
“There will be some bargain hunters, but we don’t need them. We will be happy with 20-30% of the market, which is the cream of market,” said Kalra.
He wants to build MMT’s defence around better experience, which he said will come from technology and new products, being built at the company’s research and development centre in Bangalore.
For example, data science will help MMT to differentiate in the commoditised ticketing business. It will build algorithms that will help the company understand user “expectations, needs and preferences”. It will also help MMT reduce its marketing spend. It will tell what is the kind of money the company should spend in acquiring customers, how much one should bid for key words, etc.
There is also shared rides that Kalra is looking at. Ibibo has something called Ryde, the intercity cab service. MMT will identify customers flying from a same town, ask them if they want to share a trip to airport, based in location, and offer a cab ride at one-third the price.
First Published: Oct 20, 2016 12:51 IST