The merging of operations by two of the major domestic players in the online space, MakeMyTrip and ibibo, will have a profound impact on the future of the industry, writes Deep Kalra, Founder and Mentor, MMT. He articulates how consumers would have a wider gamut of services and price points to choose from and how the industry would witness more rationalization with regard to margins and discounts.
The Indian e-commerce industry has truly taken off especially in the last few years. Brands like MakeMyTrip, Flipkart, Paytm, Amazon and Snapdeal, which were previously deemed to be for the urban and educated, have now become household names. Rapid consumer adoption led by increased smartphone and thus mobile internet penetration is the primary factor driving growth for this nascent but fast growing industry. These new age companies are solving real and existing challenges faced by consumers, that of access and reach. Consumers who previously did not have access to high quality products and services, are now realising the benefits of shifting their research, selection and subsequently purchase online. That said, as the sector grows and matures, consolidation is imminent. So what happens when two of the leading players in a category decide to join hands and merge their operations? How does a development as this impact the end consumer? The answer lies in the case discussed underneath.
MakeMyTrip – ibibo Merger
In mid-October 2016, two leading companies in the online travel space in India – MakeMyTrip and ibibo Group agreed to pursue a transaction that would consolidate their efforts to create one large entity – MMYT – truly a one stop destination for consumers’ travel needs. Whether they are travelling by air, bus or rail and staying at a 5-star luxury hotel in a Metro City or a homestay property at a hill station for the holidays, the combined entity will be able to offer the right travel products, at the right price point and across multiple familiar and strong brands. The combination is set to bring together a bouquet of much loved and popular consumer travel brands, including MakeMyTrip, goibibo, redBus, Ryde and Rightstay, which together processed 34.1 mm transactions during FY2016.
This consolidation will have deep impact on three key areas – consumers, the companies and the industry at large.
For the consumers
The combined entity will truly be a one stop shop for all travel needs. It brings together some of the strongest consumer brands under one umbrella, namely MakeMyTrip, Goibibo, redBus, Rightstay and Ryde – each offering the widest range of travel solutions, some catering to niche areas while some offering end to end services. The consolidation will also result in the operational efficiencies and we will see the value that the company derives out of these efficiencies being passed on to the end consumer by means of attractive price points, wider range of selection/ inventory and enhanced user experience. As the entities integrate their operations, we will also see them streamlining and integrating their processes which implies that the user experience will now become more consistent and seamless. One could also expect some integrations with regards to some of the properties which were previously unique to a specific brand. For example, both MakeMyTrip and Goibibo run their respective wallet programmes, the merger of the two entities could also see some consumer benefitting integrations in this space. All in all, the value creation potential as a result of this consolidation is tremendous and consumers should be able to see real and quantifiable benefits going forward.
For the company
The transaction will combine the complementary strengths of each business. MakeMyTrip brings its strong brand, robust mix of domestic and outbound hotels and packages business and strong position in the air ticketing business. ibibo Group, via its brand goibibo and redBus, comes with a strong presence in various fast growing travel segments including hotels, bus bookings and air ticketing.
With this deal MakeMyTrip and ibibo Group are joining forces and will be in a position to create an even more scalable enterprise and leverage their deep understanding of consumer preferences and expertise in the domain to transform the travel booking experience for Indian travellers. By combining the best practices and human talents of both companies, the combined entity will be able to innovate and solve traveller’s pain points much faster and accelerate the natural shift from offline to online in various travel segments. Previously competitors and now allies, we will also see some cost efficiencies and spend rationalisation going forward.
In India, majority of the travel bookings still happens and the market has just really started to open up, especially when it comes to non-air segment. The online hotel space still very under-penetrated and fragmented, literally in the low double-digits – under 15% presenting a tremendous opportunity for the two companies to take on together as a joint entity. The energy and effort which was previously being spent to tackle competition that one faced from the other, the two companies post integration will be able to focus on new growth areas especially in the accommodation segment.
For the industry
The consolidation resulting of the merger will bring greater efficiencies within the overall travel ecosystem. The air market in India is fairly mature and well penetrated online. The opportunity lies in the accommodation segment which includes hotels and other alternate accommodation options like guesthouses, villas, secondary homes etc… This segment, as mentioned above is underpenetrated and fragmented. As a result of this consolidation, one can expect rationalisation with regards to margins and discounts. Further, with the companies jointly taking on the task of catalysing the shift from offline to online, the online travel industry at large stands to benefit.