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Deep Kalra, Founder and CEO, MakeMyTrip.com

A passionate traveller having entrepreneurial ambitions is probably the right kind of person to launch a travel business. Deep Kalra, founder and CEO, MakeMyTrip.com, says a similar thing about himself as he shares with AlooTechie the story behind setting up MMT as a business.

What does it take to leave one’s job and become an entrepreneur? What were the opportunities that you saw when you decided to quit your job at GE Capital and become an entrepreneur?

A passionate traveller having entrepreneurial ambitions is probably the right kind of person to launch a travel business. Deep Kalra, founder and CEO, MakeMyTrip.com, says a similar thing about himself as he shares with AlooTechie the story behind setting up MMT as a business.

What does it take to leave one’s job and become an entrepreneur? What were the opportunities that you saw when you decided to quit your job at GE Capital and become an entrepreneur?

I have always had entrepreneurial ambitions — and giving up the relative stability of my job was actually not a big deal. However, I got a lot of support from my wife, who was working at that time. I think what made the decision easier was the fact that I was convinced that this was the right time to try my hand at entrepreneurship and that after this it would only become more difficult to take the plunge. It is much easier to do things at an early stage of your life. I think you can do a lot of things when you are 30 that you can’t dare do 10 years later.

During my stint at GE Capital as the VP, Business Development, I got the opportunity to be closely involved with the then nascent internet industry in India. I had the mandate to develop and partner new distribution channels for the company’s consumer financial products, and internet was an obvious choice.

About this time I was also thinking about my entrepreneurial aspirations and was already interested in a couple of sectors including travel. Having observed the growth and evolution of internet in other markets, I gauged that the India opportunity was just about to get realized. After studying various verticals that could be well-suited for the Indian online market, I found that the travel industry — being a service industry with well-automated processes at the supplier-end and undergoing significant changes at the consumer level — lent itself seamlessly to internet. Being a travel bug myself this choice was closer to my heart. The sector had tremendous potential — a vast gap in the delivery standards of service levels for the average consumer left much to be desired, and MakeMyTrip was conceptualized to provide travellers with greater choice and flexibility.

How challenging it was to start an online venture way back in 2000 when you decided to launch MakeMyTrip.com? How the scenario has changed in the last 9 years?

The travel industry in 2000 had not achieved momentum yet but there were signs of hope — IRCTC (Indian Railway Catering and Tourism Corporation) had proven to be a success and demonstrated both that Indians were comfortable booking online and that they were ready to pay a premium for booking at their convenience. There were a couple of websites that offered air-tickets but none that could comprehensively claim to cater across categories (low cost carriers and full-service) and offer a winning proposition like ours — Best Deal and Lowest Airfare Guarantee.

Entry barriers were around minimum investment amount, right team and technology.

Growing impressively, the online travel industry in India is estimated to be worth $6 billion by 2010. The travel boom, emergence of low cost carriers, proliferation of internet and the growing acceptance of e-commerce over the last few years, are key factors that have contributed to the emergence of this sector as a formidable force in the overall travel industry. According to industry estimates, it is expected to corner around 23 per cent share of the total travel market by 2010.

If we are not mistaken, MakeMyTrip started with selling air tickets then added hotel bookings and then bus tickets, while simultaneously developing travel package business. Was there some sort of strategy here or did it just happen that way? Also, why did you first launch MMT in US and then in India?

Our core proposition to the customer is best deals at their convenience. While the initial growth driver for MakeMyTrip was air tickets category, we could foresee that the ridiculously low costs were not sustainable for airlines in the long run. Therefore, we also made efforts to grow the non-air business by offering holidays and online hotel bookings since real growth and revenue would be achieved by making inroads in these high-margin categories.

Upon launching the first version of the site in October 2000, we received a favourable response from the NRI (Non Resident Indians) market in US. In India, however, travellers were more inclined to research online but make the actual buying decision using traditional modes of payment. We had to take a hard call to stop all marketing in India; on hindsight this turned out to be one of the best decisions for the company. By focusing solely on the NRI market, we managed to conserve precious marketing dollars while our competitors burnt their fingers in a pre-mature online market.

What was the initial investment that was pumped into MakeMyTrip? Has the company started making profit, if not how soon you see that happening?

First time around in the year 2000, when we started the US business, it was relatively easy to raise money and the first VC (eVentures), I met were ready to invest fairly quickly. However, post the dot com crash and 9/11 (September 11, 2001) I had a really tough time trying to raise money all the way till 2005, as the investors decided to pack up all their operations. So, we were left with two alternatives: either to buy back equity or to shut shop and go back to our respective jobs. Besides, there was virtually no appetite for a B2C (business to consumer) internet play, that too in travel.

But we saw that our revenue curve was going nicely up. Expense was still higher but the intersection point was not far away. So, I took money from angel investors, made personal investments, right-sized the business and focused on turning profitable at the soonest, hence obviating the need for further capital. This helped us run a tight ship and thus we turned profitable in 2002. And we continued to be profitable till 2005.

[Editor: In 2000, MakeMyTrip reportedly raised $2 million in venture capital funding from eVentures. But later — when the travel market started to face tough times following the World Trade Centre attack on September 11, 2001, the dot com bust as well as the Parliament attack on December 13, 2001 — eVentures decided to exit and so MMT had to buy back its stakes from eVentures.]

Then in 2005, we decided to launch in India with our own money. We had around Rs 2 crore in the bank and we thought that we would do it. But good sense prevailed and we realised that in the long run, India was going to be a hot market and all the big players would be investing in online travel. At that point we realised that it would be very important for us to focus on technology and build the brand. Thus we decided to take private equity all over again. Now I joke with my VCs that ever since we had taken money from them, we had gone to the red again. However, we are hopeful of coming back (in the black) very soon.

How much funding MakeMyTrip has received so far? Are you also looking to raise another round?

We can’t disclose the amount but we have had three rounds of funding in 2005, 2006 and 2007 so far and we are not looking at raising more funds from VCs. [Editor: According to reports, MakeMyTrip received $10 million in its first round of funding from SAIF (Softbank Asia Infrastructure Fund) Partners in 2005; $13 million in second round from Helion Venture Partners, Sierra Ventures and SAIF Partners in 2006; and $15 million in the third round of funding from Tiger Fund, Helion Venture Partners, Sierra Ventures and SAIF Partners in 2007.]

You were probably the first major online travel company in India when you had started MakeMyTrip and now there are perhaps more than ten companies competing against each other. Where do you see the industry heading up?

At 40 per cent year-on-year growth, the online travel industry in India is a rapidly growing space. The travel boom, emergence of low cost carriers, proliferation of internet and the growing acceptance of e-commerce over the last few years are key factors that have contributed to the emergence of this sector as a formidable force in the overall travel industry. The offline travel industry was expected to see its share drop from 32 per cent in 2005 to 10 per cent in 2008, owing to the growth in revenue of online travel agents. In domestic ticketing, if you compare OTAs (online travel agents) like us with Supplier-Direct, every second ticket is bought online. I think around 40 to 50 per cent of the tickets are now bought online. But the hotels sector has just started to move online. The percentage of online booking for hotels would be around 10 per cent now.

While the US market is clearly the largest online travel market in the world, the ‘offline to online shift’ has been the fastest ever in the Indian market, with over 40 per cent of all air tickets being bought online, in under 3 years. From $295 million in 2005, the market for online travel bookings is estimated to grow to $6 billion by 2010 and OTAs are expected to corner around 23 per cent share of the total travel market.

Online booking of hotels in India is not picking up that fast. What according to you are the hindrances?

What happens in hotel is that, when a customer comes to know about any particular hotel on MakeMyTrip, he invariable goes to the hotel’s website, finds out the phone numbers and calls the hotel up to say that “I want a room and MMT is offering me the same for Rs 2000.” The hotels know that they are paying us 10 to 15 per cent as commission and thus they will undercut. Small hotels do that and that is a problem.

Another problem is habit. The habit of buying an air ticket in India was always through a travel agent. But the habit of booking a hotel room was always through calling the hotel directly or by showing up. People would drive to Shimla and then go from hotel to hotel. That’s how common man does it. So it’s a habit change and changing a habit takes a long time, but I am happy to say that it is happening slowly.

Could you please share some numbers about MakeMyTrip to show how the company has been growing in the last couple of years?

The turnover (revenues) of MMT for the fiscal year ending March 2008 was Rs 1000 crore ($250 million), up 85 per cent from previous year. The company has achieved a turnover of Rs 1500 crore in the current fiscal.

What’s the status of your reported plan to go for public listing?

IPO (Initial Public Offer) is a function of how the company is scaling up and its market dominance; the other is clearly the function of the market. We will be watching the market conditions continuously and then take a decision. We plan to file for an IPO 24 months after the company turns profitable.

What percentage of business MakeMyTrip earns from air and non-air?

Last quarter (October-December 2008) the product mix for us was 66 per cent air and 34 per cent non-air. And this is very consciously being moved towards more non-air as you know.

What’s your plan for MakeMyTrip in terms of future growth?

Domestic travel bookings on MakeMyTrip saw a growth of 127 per cent in the last fiscal year ending March 2008; during the current fiscal year we expect the strong growth to continue at over 100 per cent. Domestic tourism is a key thrust area as well as packages to South-East Asia and Europe. The big growth, however, will occur in the outbound travel segment — more Indians now prefer to travel overseas and with domestic airfares rationalised after the zero-rupee ticket days, we expect domestic travellers to convert into international holidayers.

We intend to continue our dominance of the OTA market by continuing to grow strongly in the air, hotel and packages business. I see online hotel buying as the big high for OTAs this year as also new products like Buses and Railways moving online. Also for MMT, retail is a priority — with our 20 branches we believe that packages will sell via retail and call centre.

Is there plan to venture in other countries?

At present, we will not be commencing our operations in other countries.

Being an online travel company, why did you decide to open offline retail outlets?

We believe that different parts of India buy differently and we are doing this to promote our holiday and packages. Holiday and packages moving online is really hard. We have managed to move weekend brakes online — so a person looking for two-three nights in Goa in the weekend buys tickets online. But it is difficult to move a person online who is looking to visit three different places within the seven days of his vacation. Even the similar thing is happening for people who want to go abroad. People want to know whom they are speaking with and whether there are any issues related with their itinerary. So international vacation going online is again hard and going retail was MMT’s way to be in that sector.

Another advantage that retail gives you is branding. Opening a store in some small places in India lets people know about us and this gives a positive effect to our online traffic. Traffic on the site coming from those places goes up. Technically, I call it the bleed-over impact.

How has been the performance of your offline retail stores?

It has nearly been two years that we are running our offline retail business. Out of the 20 operational stores, we are happy to say that 15 are performing very well and they are profitable by now, but we have issues with the rest five of them. The issues have always been person-related. In retail, there can only be two issues — person and location. We chose the location well and hence the issue has to do with the store manager. The person who is in charge of our retail store needs to think and feel like an entrepreneur. One has to be aggressive about merchandising and promoting the brand in the vicinity.

What share of your overall revenues comes from the retail outlets?

About 15 to 20 per cent of our overall revenue is earned through the offline stores.

What was the objective of launching travel community portal OkTataByeBye.com? How the site has performed so far?

OkTataByeBye was launched to be a platform for travellers and travel enthusiasts to find and share real, unbiased and honest hotel reviews, destination information and travel advice in India.

With over 5,000 hotel reviews, a repository of user generated information on over 400 destinations, members in excess of 65,000 and traffic that consumes more than 10,00,000 pages a month, OkTataByeBye.com is among the fastest growing Indian travel communities online today. The site is supported by MMT but has completely independent operations.

Do you plan to somehow integrate OkTataByeBye with MakeMyTrip?

Right now there is no plan to integrate with MakeMyTrip. OkTataByeBye is an independent website that will continue to be a resource for honest and unbiased user reviews and travel advice for all travellers in India.

Online railway ticket booking seems to be a good growth potential for OTAs. But it is yet to appear on MakeMyTrip. Any thought on this?

It’s only about priorities. I prioritise things on the basis of ROIs (return on investments) and I feel that ROI is really low in rail bookings. IRCTC allows an OTA to make Rs 10 per ticket. So, there is not much money to be made as setting up a railway booking interface needs a lot of servicing costs. It’s only for gaining traffic and you can’t even monetise that.

I believe the essence of any intermediary business, not just the travel business, is that you can make money only when there are many suppliers. The fewer suppliers you have, the lesser the bargaining power. In air we have around eight suppliers, around 5 to 10,000 in hotels, around a thousand in bus, but in railways, there is only one supplier. However, we are working on that and may be within a month, we will be able to speak on the same.

MakeMyTrip has advertised both on conventional as well as new media? What were the different objectives behind advertising offline and online?

Online advertisements are meant to drive transactions, while offline advertisements, mainly television advertisements, help us to build the brand. It’s very hard to build a brand online. The reason is attention. When a guy is online, he is busy in surfing information and looking for his mails. He doesn’t have the time to look for ads.

Actually, we announced our brand in India on TV. I asked my agency to bring people on the site (MakeMyTrip.com). We were confident that once traffic flowed in, rest would be worked out by us.

Speaking about the website, there is a view that the homepage of MakeMyTrip is a bit cluttered. What’s your comment on that?

It’s a conscious decision. I found that depending on the state of the market, one needs to fine tune that product. Today, the US is an evolved market and hence one can come up with a Kayak like homepage. But in India, we feel a not-so-evolved internet user needs a lot of handholding. And I think that has led us to be the market leader in the country.

Another point in India is that, anything empty doesn’t work. People don’t like an empty shopping mall or an empty restaurant. People like action and probably that is why we are successful. However, we have found a balance now and we will be launching a new homepage very soon. We are continuously doing experiments and making our homepage user-friendly.

You got MakeMyTrip designed by Canada-based agency Nurun. Do you think Indian agencies are not creative enough?

We reviewed 10 agencies in India but we did not find very good designs here. Indian agencies did not understand consumer behaviour on internet. They did not have an idea of the heat zones in a website where the visibility is the most and where the product needs to be present. However, now, there are some specialists who are doing things well. They know how exactly the consumer behaves on internet. I think consumer acquisition should be given priority while designing a consumer faced website.

Things are changing at our end now and we have learnt a lot. The MakeMyTrip website is now being developed in-house.

What are the advantages of having an in-house development team?

The most important advantage is response. You can get things done instantly without having to wait, whereas when it is outsourced, it takes a long time for execution.

What kind of impact the current economic slowdown has on the online travel domain? How is your company dealing with the slowdown?

By the second half of 2008, as demand from international tourists and corporates dried up, most players were facing a downturn — including suppliers (airlines and hotels) and also a lot of intermediaries. The online travel industry was fortunate as it gained market share from the offline players.

MakeMyTrip grew over 100 per cent during the first eight months in 2008 (from 2007) and registered a growth of over 80 per cent during the Sep-Dec 2008 period thus averaging a 90 per cent year-on-year growth.

The phenomenal growth is noteworthy as the industry has shrunk over the last few months and most of it has come from the fact that more customers are turning online in search of good deals, and also within the online space the competition is becoming less fierce as some of the players are finding it harder to keep throwing advertising money to buy revenues.

Since technology is our backbone, the operating costs for OTAs lend themselves to fewer wastages or components that can drive savings. We issue close to ten thousand tickets every day. It is all done online with the help of technology, but if we had to do the same thing manually, we would have to employ an army of people and the operating cost would have gone higher. So, the success of OTAs would be largely dependent on increasing margins from existing products and non-air revenues going up.

Do you think the time is good to acquire companies at low valuations? Are you looking at acquisition?

The company that one acquires should be right. One has to understand that acquisition is not something that you do and that is it. The easiest thing in an acquisition is to make up your mind; the toughest thing is to consummate the acquisition. One has to realize that a lot of bandwidth would get used up in the process. One has to look if that bandwidth would be better used in aligning yourself to the company goals.

We have been on the lookout for a while; that hasn’t changed. The cost of money is higher. But it has to be a spectacular company. The good news is that things might get cheaper, but the bad news is that even our cost of capital has become higher. And the last thing that I am going to do is go out and raise money again.

What would be your suggestion to budding entrepreneurs? What should they do and not do during the economic slowdown?

An aspiring entrepreneur should choose his business model and industry carefully. Get into industries with a lot of scope for growth and plan your fund-raising right. A stint with the corporate world before starting your own firm would be beneficial and would provide the right amount of exposure and foundation that is quite essential.

In current environment always keep a buffer of cash or line of credit you can dip into when times are tough. Also, get the team right. It’s the single most important determinant for success and everything else can and will change! Build a healthy and honest culture. One needs to share the spoil with the employees. A good guy will only come to you if he gets the best value for his efforts. Lastly, be a KarmaYogi and don’t focus too much on exit!

But even a KarmaYogi might like to exit one day. So for such entrepreneurs, when, according to you, is the right time to exit a business?

It is exactly the same as selling a stock. Ninety nine point nine per cent of the times you will be unhappy after selling a stock. It is the same thing here and so there is no defined time on when to exit a business. But there is no looking back after one has taken the decision.

There are two kinds of exits — IPO or a sale. Before going for an IPO, one has to decide whether the company is ready and whether the market is ready. However, one can get sale offers anytime.

According to us the correct time to sale will be when you start knowing that the quality you and your team is going to put in the product is diminishing and a new team will be able to do a good job. Quite honestly, every entrepreneur knows that and hence they need to ask themselves whether there is another team who can do the job better. Probably that will be the right time to exit.

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