Online travel market has been one of the most exciting ones over past few years from a growth standpoint. Starting with IRCTC, and then followed up by Online travel agents (OTAs), this category has seen a decisive shift online. Amongst other things, it has also helped bring a large base of shoppers online, and demonstrated the viability of the “assisted ecommerce” model in India through retail points.
As a category becomes large, specialized plays become feasible – focus on specific products, business models, customer segments or experiences can create a second tier of businesses that can create and realize value. In my view, online travel is reaching that stage. Following are some of the opportunities that we are seeing in the market and in many of these, entrepreneurs have started to build new businesses.
- Product centric online properties: Be it bus ticketing or hotel bookings, India still does not have large swathes of inventory available electronically. New startups are working to bring this inventory online. Typically, this involved automating the inventory management of primary suppliers (bus operators and hotels) as well, unless the startup works on allocation basis. The key risks in this area include scale questions with regards to online adoption, and ability to amortize customer acquisition costs over few products. However, global success stories exist, and if successful, these businesses would be ripe acquisition candidates by large OTAs. In some cases, such startups are taking a character of GDSs, and the margin concerns might be more acute there.
- Metasearch is becoming a reality – once you have multiple supplier websites and OTAs, the customer wants to be able to search across those and find the best deal. Again, a globally proven model, the key risk here is perhaps the ability of these businesses to compete with relatively large marketing spends of OTAs, since the central promise of both remains “cheapest fares”.
- Experience driven sites – such as content sites and travel planning sites. Timing and business model risks are the most significant here, though with the right consumer driven model, it could be a very valuable play over time.
- New segments – Corporate travel and B2B businesses are coming up to service different segments of the market, other than the consumer segment that has been most focused on so far. This space has the potential to get crowded quickly, given that most OTAs are also servicing these segments in part. Intimate understanding on unique needs to these segments (such as expense management) and ability to cater them well lead to success here. Similarly products focused on travel suppliers themselves, such as revenue optimization or cross-sales enablers could be interesting opportunities.
Travel is the biggest and one of the fastest segments to take off on the Internet. Entrepreneurs and investors are now looking for niche opportunities that can scale over time. Would love to get your views on what plays you find most interesting and scalable.
crossposted here.
WSJ India Chief Mentor has an interesting article on incubators being an important engine of growth of entrepreneurship. It is an interesting observation, and makes me think about what will make these successful.
Incubators have been known before to have an adverse selection problem. Simply stated, if an entrepreneur has an option to either get cash investment or incubator support, what are they likely to choose. Incubator “money” is likely to be at a far higher cost than investment, and hence unlikely to attract the best ideas/teams.
There are a few things that can still offer an interesting opportunity for incubators:
- Lower cost in startup phase: Web 2.0 has reduced the cost of internet startups in the west. If incubators can help achieve more with lesser money, or entrepreneurs can achieve more “under the radar” (with much less money than is typically supported through angels/VCs), they might be better off on a net basis being with an incubator. In a market like India, it remains to be demonstrated how much can be achieved (without compromising value) with 5 lakhs of cash.
- Dramatic shortage of cash investments: If the ecosystem is too weak to support the top tier ideas/teams, than incubators may land up getting some of those as well. I do not believe that is the case in India though - the key gap might be in offering the adequate investor diversity, and in that scenario the screening skills of incubators become critical. From what I have seen of some of these incubators, that is not necessarily the strongest point in their favor.
- Value beyond: In my mind, this is the most important element if an incubator has to succeed on a sustained basis. It has to provide value beyond money. That could be access to highly capable technical/scientific personnel (think IITs, or in a mature model, Israel). Or perhaps market access through a corporate incubator. I have heard claims that networking between incubator participants itself could be a key value, but am not sure of that one. Access to high quality mentorship at early stages - would the best teams get access to this anyway?
- Own the idea factory: If ideas are generated in the incubator itself (such as a company, or a university setting, though in India most university incubators are tapping outside ideas) then the adverse selection issue might be avoided.
I would love to get thoughts on the merits of such an initiative. One can justify the government programs as a developmental initiative, but I would ask the question if they should operate as independent selection entities, or double down to increase probability of success of companies that have gone through a high quality selection process. Another key success factor will be the length of time for which an incubator supports the company - if business building is taking a few years, can an incubator effectively influence the outcome through a 3-6 month involvement? An interesting article here which outlines some similar thoughts.
Very interesting post on why “fail fast” philosophy might be ill-founded. I think partly this mantra is open to interpretation - if an idea is not working, do you wish to spend $10M on it and then realize it, or quicker? In the manner that this article refers to it, its valuable to learn and adapt, rather than to give up. In the manner perhaps originally intended, you dont want to dig too deep a hole before you realize you are in it.
Part of this mantra owes its origin to environments where staying alive is expensive - think high burn startups! One of the key levers I believe exists in the Indian market is to survive at very low burn rates, or even turn cash positive while still experimenting with the core idea. Secondly, many times, the key risk being taken is the timing risk - essentially how fast the market adopts a solution - think about all the dotcom startups that rejuvenated 10 years later. In this construct, the ability to survive and wait it out is even more important.
In the kind of opportunities described above, persistence is perhaps the biggest virtue of entrepreneurs. At the same time, the ability to adapt and improvise is the key to making progress. Like many other contradictions of entrepreneurial success, this balance between conviction and flexibility is the key.
ToI reports a 18000 crore broadband push by government to improve broadband access to every gram panchayat. While the initiative is welcome, it raises several questions:
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Investing versus creating an environment to invest: Government spending at such massive scale has been shown to be inefficient over and over again. What are the incentives that the government can create to attract private investment in this sector? The initiative around Common Service Centers is an interesting one - what will it take for that initiative to include backend infrastructure in addition to just the centers?
- Access versus ownership: The big success story around access is the PCO. That was 20 years back - that story has been substituted by the mobile revolution, which is a story centered around ownership. Ownership creates a level of value that can not be matched by access alone. What are the incentives and policy initiatives to encourage ownership? Incentives on broadband, on ownership of laptops/desktops, applications? Broadband access targets at every district level?
- Rural versus inclusive: The exclusive focus on rural areas is surprising. The state of broadband access in urban areas is dismal, and perhaps represents the bigger bang for the buck. Why are such initiatives confined to rural areas? What will it take to make these initiatives inclusive?
There are several recommendations that the industry has put out around solving these issues - I am no expert at that. I also welcome this initiative, rather than not doing anything. However, having seen what all of us have in the mobile world, it seems like a huge loss of opportunity to not address this issue with greater force.
Interesting concept here - www.growvc.com - entrepreneurs can now raise money from the community, kiva style. And they can invest their money into other startups to diversify their risk. With some strong on-ground facilitation (and an incentive model for the same) this can work…
Thoughts?
IBF Media, through Capital Connection, is organising an event around Cloud Computing on February 25, 2010 at Ista Hotel, Bangalore
The Latest Trends in Cloud Computing: An Operators and Investors Perspective
This event showcases some of the latest trends in cloud computing and looks at some of the successful business models and companies in this emerging technology area. The panel will be composed of successful venture investors from the Indian venture capital industry as well as technology executives from companies in India that are succeeding in this space. There has been strong investment activity in this sector from leading venture capital firms, both in India as well as brand name firms in the US and Europe.
Details here - http://ibfmedia.com/cc2010.php
Red Herring just came up with its Global Top 100 list. 10 companies from India - not bad!
Happy to report Consim and Cellcast from the Canaan portfolio made it to the list,
http://www.redherring.com/Home/26281
Canaan hosted a breakfast discussion with around 30 angel investors late december on sidelines of TiE Entrepreneurial Summit. It was a great discussion, and personally I learnt a fair bit from fellow investors. The interesting part were the linkages that are developing in biases that exist between venture and angel funding, and as a result the validity of some of the stereotypes we so hard try and counter!
It was also interesting to see some of the biases and stereotypes that are emerging in the process. I have heard many entrepreneurs complain about things like IIT/IIM graduates having a better shot at raising financing - however, it is interesting that there seems to be rationale to this - largely around the fact that positioning the company is a key role of founders, and hence a criteria in decision making.
Here is a brief summary.
I am happy to announce our latest investment in MotorExchange - a B2B auto exchange for Indian market. 
The B2B auto market in India is over $11Bn and expected to double over next five years. It is a very early stage investment for us, and the key driver in the decision has been the team behind it. Vinay Sanghi, the lead entrepreneur, has been in used vehicle business for over 10 years now. He started with this idea with Automart - like many other 1999 dotcom businesses, it proved to be too early to build that, and Vinay morphed that into what is now Mahindra FirstChoice business. We are privileged to back Vinay in his attempt to build again, what he has envisioned for many years.
Please join me in extending your wishes to Vinay.
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