Sunday, April 29, 2007

Web 2 point Oh - half done, almost!

Dan Farber describes the 6 levels of user participation in the social web media. The report of suggests that 48% of US adult online consumers create, collect, critique or read blogs or use a social networking site. The other 52%? They are still using hotmail, i guess...

Sunday, April 22, 2007

Of India, Web and Online Travel

There is clearly a lot of enthusiasm in India regarding Travel. There are five big VC-funded companies, two large portals (India Times and Rediff), several international behemoths (Travelocity, Expedia, Mobissimo) coming in quickly, a rapidly rising LCC business model and gazellions of new hotel rooms being constructed. Its hard not to get excited about this industry, no?

But wait, hold on a sec. Let's dig a bit deeper -

a) Research reports suggest that the Online Travel Market in India was at $300MM in 2005. Phocuswright projects it at $2B in 2009. Evalueserve is more conservative and estimates it at $1.2B in 2010. The former is a travel consulting and research firm and has a clear interest in being optimistic. Evalueserve probably is a bit pessimistic at least to the extent it supports its report on an overheating VC market. Well, let's say it will be $1.6B in 2009. Lets also assume a healthy 25% growth rate after that until 2015. That pegs the market at 6 BILLION DOLLARS. Dr. Evil, are you listening?

b) Currently, OLTAs are 14% of online travel. Lets assume they garner 30% of total in 2015, which is quite optimistic, I think. For context, OLTAs account for 40% market share in the US, but have a slower growth rate than supplier-directs. With a popular and flourishing LCC market in India who love supplier-direct sales, the 30% expectation is quite generous.

c) The current split between Air and Hotel is 90/10. Air is just more attractive and appealing to consumers. Its the first thing they think about when they think of travel. Traditionally, Hotels pay higher commission rates, and the level of commission rates are inversely proportional to how full the hotels are. Now, in India, there is severe capacity crunch. Hotels in the top-5 metros are running at close to 80% occupancy rates (HVS). With the minimal need of additional distribution channels, a highly competitive OLTA market and no strong brand or traffic generation record, I can't imagine a Hotelier paying an Indian OLTA anywhere near that level. Air is equally grim, if not worse. Load factors are equally high and LCCs just don't use OLTAs.

In their latest filing, Expedia reported ~15% gross margins. Travelocity and Priceline are close. This, for a company that probably has a huge leverage with its suppliers, commands a 40+% market share and drives a significant portion of its business through Hotels and Packages that are higher margin businesses. With no volume, brand and power at hand, I'd guess the Indian OLTAs would be happy to take 6% home.

d) Expedia with all its benefits of scale, reported ~17% in operating margin, with sales and marketing accounting for the bulk of its costs. Given recent trends in the US travel market, I suppose Expedia is only trying to maintain its market share through its advertising. The Indian OLTAs are trying to create a market, then grow their share and then protect it through advertising. Ouch - their spends will be much much higher. At the same time, travel is a high-touch business and the infrastructure in India sucks and shit just happens - so good luck cutting down on customer care costs. Well, lets just say these OLTAs are sharp and super efficient and will in fact manage 20% operating margins.

e) So, fast forward to 2015 - and we have all OLTAs fighting for a $6B * 25% * 6% * 20% = a whopping 18 MILLION dollars per year in profits. And that will be split between 10 different agencies? At a P/E multiple of 30 (remember we are in 2015 now, when growth rates will slow down), the entire market would be roughly worth half a billion dollars.

Ouch... it seems like the real winners in all this will be the LCCs. The OLTAs are driving awareness of booking travel online through their beefed up marketing and focussing on price-based messaging. If price is king and online bookings make sense, then LCCs rock. And why would would I buy an Air Deccan ticket on Makemytrip. I am trusting Air Deccan with my life to fly me from Point A to Point B. Sure, I can trust them with my credit card.

Ah well, here are my predictions for 2010 -
1) Of the current lot, Makemytrip will succeed thanks to its strong start and dominant market share. One of Cleartrip, Yatra or Travelguru will be a distant second (think Elong in China) - thanks to their VC backing. The other two (my guess - Travelguru and Yatra will die or get acquired for cheaaaaaaaaap.
2) Travelocity and/or Expedia will do very well, very very well. It will provide differentiated value to suppliers by marketing them to the high-net worth business and leisure segment traveling to India. Both will grow organically like they did in other Asian countries.
3) A meta-search player will emerge big (possibly Rediff?) - and will give each OLTA a run for their money. Airlines will love it for driving traffic to their sites
4) A specialty vacation package business (like pleasant holidays) will realize that dynamic packaging is bogus and will focus on good-old pre-packaged vacations to leisure travelers online. It will offer great prices, rich content and excellent customer service. It will also succeed.

Saturday, April 21, 2007

Is herd mentality really bad?

In his post titled "Herd mentality and Indian startups", Pranav cites some interesting examples of how almost every successful internet model (mostly in US) is quickly flooded with their indianized me-toos. While I do think Pranav is being harsh on budding entrepreneurs (you can argue that his blog itself on indian startups and entrepreneurship shows herd mentality given the many that appeared before him - try webyantra, ileher, business india 2.0); he does raise an interesting point.

Why is this happening? Lets dig a bit deeper.

First off, I don't think herd mentality is bad - I think its terrific. There is no bigger motivation than trying to replicate a proven business and success elsewhere, and its this drive that takes people through all the hard work and no money phase of a startup. And its not any different from how other things in life work - doesn't almost everyone want to be a sofware engineer right now? isn't every Bollywood movie a love story? do we really need a 100 different types of car models to choose from? But if its a formula that has worked for someone else, then why not?

Secondly, the idea in itself has no meaning. Its all about execution. If ideas is all that's needed, all VCs would be billionaires and all B-schools would be selling ideas, not degrees.

Third, and most importantly, almost all web 2.0 startups are a product of software engineers. They build great technology, decent interfaces and then just hope for traffic. What happened to marketing? Ask them and they will you - "Aah, that's not a problem at all. We'll get blogging coverage, buy google keywords and its all going to be viral". Good luck to these guys! Think about marketing first. People don't need 8 photo sharing sites and 6 DVD sites. But they do need one. How do you get to them first? How can you make them remember you forever? It's all about marketing, baby! Product is a distant second.

Finally, its all about economics. The field will become even in the long-run. If a business is easy, cheap and profitable - then it will get competitors. Ultimately, all markets get reduced to a few handful quality companies. Its just a matter of time.
Figure out how you can make your business difficult and profitable. Thats what gives you unfair advantage. Don't look at how google got to where it is - look at where they are and how difficult or impossible it will be to displace them. Its f***'ing scary...

Ask this. The internet population in India is 38ish million.
a) Are all of them taken? The answer is probably yes for social networking and matrimonial sites, but definitely not for DVD rentals
b) Is there a reason they have to be loyal to their current brand? Again, given how much time they have invested in their site, this is a yes - for social networking sites. For photo sharing sites and travel - probably 'no'
c) Is the cost to switch them over to me too much? matrimonial sites - may be ( I say may be because what if you mareketed your product to 17-year olds? They will be ready in 5 years and they will only come to you). DVD rentals - should be easy! Travel - even easier.

Like it or not, I think there is still room for a few more sites in a few of these categories।

Friday, April 20, 2007

What is it that drives you?

What is it that makes us violate the speed limits? adrenalin? the 65mph odomoter reading that calibers upto 120? is the cars in the lane next? the person next to us? or just the heck of it? whatever it is - it is freakin' fun, isn't it! I love cars that drive fast. I love employees that work fast. I love waiters that serve fast. speed is f***'in fun!

Just peep into your body odometer... if it has been reading below 70 for a while - something's wrong. CHANGE your life - find something else. If nothing works... go test-drive a porsche... or go carting. or watch a good movie. it'll help rediscover your inner fire. Go ignite!

Just do it!

Do you wake up early in the weekdays than weekends? If you answered yes, you must hate your job! No excuses, just say yes! There is nothing wrong with hating your job. If it pays you well, there must be something wrong about it. Aren't all things good the ones where we have to spend? Be it food, fashion, females?

I always try and register the first word i say as soon as I wake up. If I am saying too much of "Oh Shit" - its time to quit. If I am not eager to wake up for my job - it must suck... I wonder what makes a job fun... Is it work? Is it people? Is it the culture? Its definitely not money. I say - its fun only if it makes you feel special - whether its the client, the boss, the work or the pay-check.

When was the last time you had trouble getting out of bed? Don't remember? Stay put!