42 highlights
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It is a lazy Saturday morning in late June and word on the street is that Ixigo is headed for a public market listing. This is after living through 18 months of absolute horror, the worst crisis that the travel industry has ever seen. I never thought Iâd see Ixigo survive, leave alone list.
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âWe are cockroaches,â he says finally, and lets out a dry laugh.
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This was a different time. There was a company called Travelguru. Cleartrip had raised Series A. MakeMyTrip was there. So we said that looks like the online travel aggregator opportunity has been taken, we have to do something different.
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In INSEAD we had studied about the blue ocean strategy, so we were inspired that we will do something like that. [Blue ocean strategy is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand.]
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At the time a new business model was emerging called meta search. So why would consumers jump from website to website in search of best deals? This was in 2006 where the number of people using the internet was less than 15 million. So we decided to do meta search.
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Monetization was not easy. We went to airlines but couldnât convince many of them who didnât understand what we were doing.
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In the meantime we had pitched to all venture firms in India; there were only a handful back then, maybe 10 of them. So we had met Canaan Partners, Sequoia, Accel; everyone had said no. Their thinking was that travel is a very competitive space and it is unclear if our model will work.
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When I met them they were like capital markets are freezing in the US, we have been told not to do any deals now. A week later the Lehman Brothers collapse happened. And thatâs what happened to that round. The problem is not that the term sheet got pulled. The problem is that in the expectation that $7 million will hit the bank account, we started burning quite some money. When Lehman happened, we again had just two months of money left. Back to square one.
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Then I put the salary cost down and everybody was like even if we work with half the salary, maybe we will stretch this to 5 months. And if we increase revenue then maybe 12 months. This was a fairly young team. Everybody came together; as founders we went to zero salary, thatâs how we survived the 2008-09 era.
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Ultimately the deal that was struck was that SAIF Partners would come in and buy out the seed and angel investors, which was more than 30% ownership of our company. In hindsight, we had given away a relatively large equity dilution in that round. MakeMyTrip would put in money and owned 19.9% of the company after the round.
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At the time MMT invested, we were a meta-search company and they were an OTA so there were potential synergies for both parties. In fact, we collaborated on some content and international flights and other areas in the early years. But over time, as we entered the next billion users category and became more of an OTA than meta, there was some degree of overlap and competition in what we do, which was natural.
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Interestingly, MMT exited Ixigo this year, with a close to 8x return on its investment.
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By 2012, mobiles became the big thing. At this time most OTAs were not focused on it but we were like this looks like something big. Today, we call it the next billion users but back then it was like this could be big.
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People were like you canât make money from train bookings. The value of the ticket is small and IRCTC doesnât let you charge more than a small fee. Our thesis was this is a volume game and if we become large, there are more avenues to monetize beyond train tickets. Once you have acquired a train user, tomorrow he might need a bus or a flight ticket, so our thesis was this is a great customer acquisition growth hack. We took a very early bet on this.
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In 2016-17, we started fundraising again and this time, Sequoia and Fosun Capital were looking at us. They said you have traffic but you are not monetizing them enough. And this is true. Like if you look at us, we were making viral videos, doing SEO and generating traffic. We never really had money ever to spend on marketing. In 2017, we took the call that we need to go deeper into transactions.
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The problems we saw in the meta business were twofold. One, was cannibalization. We used to take people to OTAs and then they would forget Ixigo. Second, we were not able to handhold customers. They would book and later want to change the booking and Ixigo couldnât do anything there. It was super frustrating for the customer and also for us.
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Another problem, sorry third one, is that we took the call that despite having been around for 10 years, OTAs had not solved for some very basic problems. For instance, at the last step of the booking, the price would change by more than 10%.
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Our first step was customer support, so we made a chatbot which could answer customersâ questions without us hiring thousands of employees in a call centre. Today, 84% of customer queries are resolved by the chatbot. We knew that OTAs have been around forever but no one makes money. And we were like come what may, we will not become a big company. We will stay lean, and all we have to do is monetize our traffic.
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Thatâs the thesis we gave them: that we will leave meta behind and become a transactions company. They understood that what we had built with meta was a leaky bucket and even if 1-2% of our user base were to transact on Ixigo, the number would not be trivial.
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The real advantage for Ixigo in all of this is that we are still a team of 300 people. In the OTA space, most players have thousands of people; thatâs where Ixigo is different from everyone. [MMT has 3,000-plus employees, Yatra has about 1,000-plus people.]
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In March 2021, we had 2.2 million people coming from Patna; 2.4 million in the same month came from Lucknow. We have crazy penetration in these cities. This happened because of our train-first approach. And thanks to the penetration of Jio and smartphones. This has really helped.
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We had four developers including Rajnish, our CTO. They said we will lock ourselves in a room for four weeks and come out with a product for train users. Usual engineer madness this is.
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I donât remember the fourth, which had something to do with Goa, but we launched all of them. The PNR app is the one that stuck. This is classic serendipity. Today this app is driving some 75% of my traffic and scale. In this app today, you can book flights, buses and hotels, which are now with booking.com but we will do this on our own eventually.
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For the year ending 30 March, 2021, Ixigo recorded income from operations of Rs 135 crore, and a profit after tax of Rs 7.5 crore. This is a significant improvement over the previous year where the company recorded a loss of Rs 26 crore. This is important from the point of view that OTAs are notorious for not making money.
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We havenât thrown money to acquire customers and it is okay to choose to not do that. My view has always been that there is enough depth left in the travel market. The billion users story has only just begun. So there was never any hurry for me to burn all my money and grow my market share and one fine day run out of money and sell my company for cheap.
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I will not spend the money raised on discounts. It is not like we have not done this; we have and we have learnt our hard lesson that customers acquired through that are not loyal.
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Some of this is wisdom in hindsight. Because had you been able to raise big money, you would have done the same as the other folks.
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The tough part was to figure out how to make these people stick. Even though I am from Kanpur and Rajnish is from Patna, we can empathize because all our relatives are also from smaller cities. Like they want multilingual ability in the app. They want the font size to be bigger because they are older users. They donât want complexity in the user interface. They want an app that is small. All other OTAs have apps of 40 MB, we are at 13 MB.
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Sure but does India need another OTA company?
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My counter to that is when was the last time you saw someone raving about their customer experience on an OTA. We are not claiming that we have changed this but that is our ambition. The confidence that you have in Amazon, have you felt that kind of confidence on any OTA?
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If I launch with ticketing as the use case and then try to build things around that versus launching a utility first and building ticketing around that, these are different approaches.
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There were 22 million train travellers in India pre-pandemic daily. And out of that, reserved train travellers were 1.8 million per day. So these are huge volumes.
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We have painstakingly created seat maps for every train in India. Nobody had done that before. We did for every bogie type, we show you which coach and seat you will get.
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There is something called a seat alarm. This was a use case where you are sleeping and your station has passed. So you tell your friend to wake you up 10 minutes before the station is coming. But in India trains are always running late so how do you do that?
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We make money through agent service charge, which is Rs 20 on non-AC and Rs 40 on AC tickets. We are allowed to charge this over and above the ticket fare. And thereâs a free cancellation product called Ixigo Assured which allows us to further monetize.
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As an aside from Ixigoâs DRHP: Ixigo and ConfirmTkt, the two apps, have the largest market share of 42% among OTAs and B2C distributors of the IRCTC in the train segment in fiscal 2021.
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They have the maximum monthly downloads on the Android Play store with 255 million app downloads till March 2021 and 37 million MAUs (including app and web), with a strong foothold in Tier II/III cities.
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The other thing though, and Ixigo has received some flak for this, is the companyâs lack of transparency on segment reporting. Where it breaks down its revenue not by what it makes from trains, flights and buses but under ticketing and advertising income. Segment reporting is essential for investors to understand how segments of your business are performing, but again a lot of startups coming to the public markets right now have the same issue.
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We were married to the meta business model till 2017. Thatâs when we said that for trains there is no point in being meta; there is only one supplier, so letâs do transactions. We integrated IRCTC and we started selling tickets.
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Take our example of viral videos. We donât have an agency. No cricketers, no Bollywood. We hardly spend Rs 20,000 per video.
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Why would we not get an agency and spend a crore? Because we didnât have the money. There was no other choice and this became our culture.
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Ultimately public markets reward capital efficiency. Thatâs the way we have built Ixigo over 15 years. Like a cockroach. We have survived everything. So the fear of dying is gone. If we work hard and do something well then maybe we will create an institution which will go on for decades. This clarity came in March this year.