2006 was the time when people struggled to get tickets for intercity journeys. It was more like travelling to altogether a new country. Train tickets were being sold single handed by government backed entities. IRCTC was not that famous. Travelling on bus was a nightmare especially during festive season. At the heart of that nightmare was the fight to get tickets from private ticket agents. Barring few well organized travel agencies whole ticket booking system was mismanaged and full of chaos.
Government bus infrastructure was never enough to cater to the festive season demands. Lack of any centralized logistics management system and missing link between the bus operators and public was well exploited by the middle men – booking agents. They had monopoly in the business. Nobody had ever thought that few engineers with the help of internet would one day side-line them – not at least in 2006.
How Private Ticket Booking Worked in 2006?
Private bus ticket booking was a tedious task for a customer. Customer used to contact ticket vendors or booking agents. These booking agents then use to contact the bus operator’s booking clerks who were having a detailed live chart for bus reservation on daily basis. These clerks then gave confirmation about available seat to the booking agent, who then told same to customer. Next step was price negotiation – bus agencies use to change the prices as per their wish and as per market demand. A trip from Pune to Bangalore could cost from INR 800 to INR 2500 (One side ). And one ticket booking was almost an hour or so job. Problems in that model were many but few worth listing were –
1.One ticket booking agent was linked to only few agencies. If Pune to Bangalore route was served by 20 bus operators then there was no single agent who had contacts with all 20 bus operators. So, customer had to contact number of booking agents for booking a single ticket.
2. Ticket booking required number of phone calls and lots of co-ordination with number of persons involved at different stages. Even if one link got affected, it was the customer who suffered. It was a man dependent service with loads of potholes in it.
3. Time and energy involved in ticket booking was another point of concern. So many resources were not worth wasting for mere travelling. Absence of proper organized system ensured resource wastage.
4. Even if a customer was able to book one side of ticket, he could never be sure about the return journey. The complete charm of spending few days in peace with the loved one’s was used to be pushed aside by the urgency of booking a return ticket.
5. Ticket cancellation few days prior to journey, poor buses, negligence of customer safety and security, absence of competition in bus operators, less luxury travel players.
6. Bus operators were exploited by the booking agents for commission. Also sometimes, due to lack of proper linking channel between customer and bus operator, operators were forced to run buses with empty seats.
How RedBus was Born?
RedBus journey started due to a personal problem faced by one of its founder. After being denied a journey to sweet home for spending Diwali holidays due to ticket unavailability, A BITS Pilani pass out – Phaneendra Sama tried to get to the root cause of the chaos bus in ticket booking industry. Little market research, with help of two more co-founders – Charan Padmaraju and Sudhakar Pasupunuri, was enough to unearth the mismanagement of logistics in private bus sector.
Initially Trio tried to make logistics management software which would help bus operators in managing the inventory. They tried selling the product to bus operators but operators were reluctant to buy new nuisance and were happy selling tickets in old fashioned way through agents.
Then under the mentorship of The Indus Entrepreneurs, they built an online ticketing system on their own, which would bring on-board bus operators and customers, leaving aside the middlemen like ticket agents and booking clerks.
As per Sama, Name RedBus has linking to the red color of virgin brand, Red line bus service from Delhi and a feeling that name should be easy to type and comprehend as it will be the first link between company and customers.
How RedBus Solved a Real Problem and Became Successful?
1.Mentorship and advice of few Mr Anandram at TIE helped them in building what the sick industry actually needed. It needed a website to sell tickets and not a logistics management software. When RedBus was trying to sell software to the bus lines, it was Anandaram who said: Don’t keep trying to sell the same thing, ask what they need and build that. The bus lines needed to sell seats. So RedBus built a site, and bought the inventory itself from the bus lines to list on the site. Once it proved it could move seats, the operators were happy to pay the company a percentage of seats sold as commission.
2. RedBus turned out to be a game changer. It was one stop solution from all the bus ticketing related need of customer. It provided a centralized nodal point for booking tickets, database on bus seat availability on different routes, online & offline distribution network. It turned a hugely fragmented and unorganized sector of long route travel into a well-managed show making the complete process, transparent, quick and hassle free for the consumer.
3. They helped the bus operators keep a track of the seats sold in a centralized manner. This holistic approach to solving the macro and micro issues faced by this industry has been one of the major reasons of their success.
4. RedBus always put customers as their first priority. Having a zero offline marketing expenditure, they had been able to achieve it solely via word of mouth publicity and customer satisfaction. One example is – company practically forced the bus operators to accept an SMS ticket receipt as payment just because it would provide a better customer experience. Its customer retention rates were 4 to 5 times higher than other online ticket sellers like MakeMyTrip and Yatra.
Timeline of RedBus Success Story
2006 – The first year was not a full year and RedBus did Rs 50 lakh (Rs 5 million) worth of business in the first financial year. There were no profits.
2007 – It was a huge success. The turnover was Rs 5 crore (Rs 50 million). RedBus had 25-30 people working for it in three offices and had 50 bus operators. It raised its first round of funding – $1 million through Seed Fund and an unknown investor.
2008 – It grew six times and the turnover was Rs 30 crore (Rs 300 million). It had connections with 135 bus operators and sold 400 tickets per day.
2009 – It had Rs 60 crore (Rs 600 million) as turnover. Company turned profitable. It covered 15 states, 5000 routes and had connection with 300 bus operators. It received its second round of funding -$2.5 million from Seed Fund, Inventus Capital Partners and some unknown investors.
2010 – Redbus claimed to have linking with 700 bus operators and sold around 5000 tickets per day.
2011- RedBus raised $6.5 Million from Helicon venture partners and existing investors.
2012 – It had 250 people working in 10 offices — Bangalore, Hyderabad, Chennai, Coimbatore, Pune, Delhi, Vizag, Ahmedabad, Mumbai and Vijayawada. It covered all the places where the bus industry is active.It sold 5000 tickets per day and had 800 bus operators. It claimed to become profitable.
2013 – It had 600+ staff, sold around 1 million tickets per month. It had linking with 1000 bus operators and its GMV touched $120 Million.It also launched its Android based mobile app to facilitate ticket booking through mobile.
Innovations Brought in by RedBus
1.It chose to go with Cloud Platform for IT Infrastructure and services. Moving to the cloud platform was one of the innovative practices RedBus did when it was not popular. This move was very critical for RedBus as it brought in around 40 per cent saving in cost and provided business sustainability.
2. Redbus stuck to the same amount of commission irrespective of number of tickets sold by them. This move provided the breathing space to the bus operators who were now more than happy to link their bus with RedBus. Redbus thus ended the parasitic influence of agent on bus operators.
Why RedBus was sold?
1.An Eye on Further Expansion – By mid-2013, RedBus were market leaders in India with a market share around 65%. They sold 1 million tickets per month and in no way had any threat from other players in market. It had reached to almost all those parts of India where there was possibility of selling online bus ticket.
Next target was to start its operations outside India, where the market was ripe with opportunities. Setting up its own internet and other infrastructure and then developing altogether a new clientele could have been a test for RedBus. Naspers group with its presence in all over the globe would give them better chance to scale up and consolidate in bus ticketing space.
2. Startup Cycle Completed for RedBus – By mid-2013, Redbus has completed the cycle of a startup. Right from Idea generation to Idea implementation, Seed funding, Base built up, Customer acquisition, more funding rounds, business expansion and being profitable. RedBus has achieved almost everything. They were on the road leading the Indian bus ticket service industry. Investors were happy with the business growth and new investors were looking for a way to invest into this successful venture.
Future of RedBus was bright. It had two options left – Either to run along and gain more valuation and gather more customer base or make an exit so that founders and investors could reap the benefit from the enterprise which they have made.
3. Timeliness of Ibibo Group Proposal – Just before settling the deal with Ibibo group, RedBus founders were looking to raise some funds to make its balance sheet look healthier. And at the same time Ibibo which was building its name as a travel aggregator came up with a really good deal. Timing of the offer was so apt that board members left the discussion about raising more funds behind and started thinking seriously about a worthy exit.
4. It was a Long Term Goal of Founders – As per Sama, after working for two years in RedBus, founding team had a clarity that they would be selling the business some day and that they would have to make an exit. Its timing was not set by them and they waited for the right moment and right offer before making a decision for selling.
5. Lucrative Terms of the Deal – Naspers had agreed to let RedBus remain an independent entity; in that sense it was not a merger. Two, because there was no merger, there was no risk to the company and it would not have to face problems of integration.
Why Ibibo Group Acquired RedBus?
Ibibo Group organically developed horizontal online travel agency platforms called goibibo.com back in 2010. That platform basically started off with flights and hotels and started growing very fast with the essence of what company wanted to deliver everything to the customer very fast.”
With that being the core anchor, Group realized that the bus category was unique with a large volume of sellers and operators in the space. That’s what drove Ibibo to acquire RedBus last year. With that acquisition, Ibibo really grew in terms of volumes of transactions and travellers on a daily basis. It became the biggest travel ecosystem in the country.
Exciting market opportunity was associated with bus ticket booking service as online penetration of the bus market was only 5.7% compared to 28% for air travel, suggesting headroom for rapid future growth.
Started in 2006 from scratch, Redbus addressed one of the most common problems of human basic necessities and was able to aggregate the bus operators and successfully sold it to Ibibo Group in 2013. It shows a great sign for Indian Startup Eco System. If entrepreneurs are able to address the big challenges of daily life and provide simple, affordable and optimized solution, the chances of acceptance of that business model by large mass are quite high. Starting a business with clear vision on short and long term would definitely help in getting progressed in right direction.
Stay tuned with FS for more updates.