Three young BITSians who were pondering over starting a venture decided to leave their lucrative jobs and start a venture to facilitate booking bus tickets online. The idea had come from the pain point of a large number of youngsters who used to miss their Diwali or Holi with their families on account of non-availability of train reservations. They visualized a lot of scope for organizing the enormous and messy bus travel industry: a service to book bus tickets online or via telephone.
Phanindra Sama struggled through Bangalore traffic, desperate to buy a bus ticket to his hometown to spend the holiday with his family. Bus agent after agent were sold out before he reached them. He never made it home. That was the beginning of redBus. Pilani Soft Labs Pvt. Ltd launched a venture named ‘redBus’.
Sama decided to bring to those travelling by bus the same convenience that consumers enjoy while booking air travel online. He shared his idea with his BITSian college friends. Some of the old friends not only agreed to join the venture but were also keen to help out with market research. They wanted to thoroughly check out the idea—with bus operators, consumers and potential investors. The more they learned, the more they saw the value in streamlining a very complicated and disconnected system.
Sama explains, ‘Your travel agent may say that the last bus for Cochin today is at 8pm, because that’s the last bus of the operator he works with. That doesn’t mean there isn’t a bus for 10 or 11 pm from another operator. Also, the return ticket is something you’ll get only from the place where you visit.’
redBus provided the solution to all such hassles of booking bus tickets by allowing consumers to look at availability across all the operators and book in advance, even across state lines. ‘We even give a layout of the bus seating, and if you want a return ticket from the present destination, we update our inventory online at the final destination and you can get your ticket,’ says Sama.
They basically took a clue for customer convenience from the highly disorganized bus travel industry in India, as bus operators, agents and state transport bus service make it difficult for consumers to purchase tickets with any ease. Until redBus, no company had focused on bringing the pieces together to make it easier for the traveller.
On market segmentation, Sama explains, ‘Our customer is anyone who travels by bus, but we do focus on the middle class.’ In order to reach the non-English-speaking and non-Internet travellers, redBus is launching services such as mobile payment systems and call centre services in both English and local languages. Right now, redBus’ competition comes from the bus operators and online travel sites. The bus operators are unorganized, and although they can undercut redBus’ prices—and sometimes do—they do not and cannot offer the convenience. With travel sites not yet focused on this sector, Sama explains, ‘Our services are certainly better than these. And we’re the only ones who offer bus tickets at no extra cost.’
The Indian bus transport industry has long been a highly fragmented and unorganized sector. Some 2,000 private bus operators run about 20,000 buses on long-distance point-to-point routes. The buses are formally known as ‘contract carriages’, and tickets have to be bought in advance. Short-distance ‘stage carriages’ form the other category of buses in India; to ride these buses, commuters buy tickets on the vehicle itself and can get on and off at multiple points. redBus operates in the contract carriage space.
Although a few contract carriage operators have large fleets of about 100 buses each, most are small players with 5 to 10 buses. Some firms operate with only one or two buses each. The bus operators are all regional players lacking a countrywide presence. Given the scale of their operations, the majority of them do not offer computerized ticketing or reservations. Instead, the company (redBus) relies on a network of travel agents that handle bookings. Agents are given quotas of seats from the bus operators; they inform the bus company by phone each time a seat is sold to a passenger.
After understanding the business in totality, Sama and his two co-founders prepared a business plan that was submitted to a TiE (The Indus Entrepreneurs) mentorship competition. Their plan was appreciated by the experts, and their team was one among the three winners. With the initial seed funding and mentoring provided, the founders launched their portal and service. Once they started turning a profit, they attracted a further $1 million from Seed Fund, an early-stage venture capital (VC) firm. Sama says, ‘When we started raising funds, we had only one office in Bangalore and we had 60 destinations on our schedule. Post angel funds, the company expanded its operations from four more cities in India.’
The three founders—Sama, Sudhakar Paspunuri and Charan Padmaraju—were classmates from BITS Pilani, and all held jobs at IT multinational companies in Bangalore. They quit to form a company—redBus. Today, redBus consists of more than 63 employees, with a leadership team of five.
The company has recently increased the convenience of its services by introducing home delivery of tickets, pick-up points for tickets and mobile phone payment systems.
Satyajit Majumdar, professor at the Tata Institute of Social Sciences (TISS), who has been studying redBus closely, is impressed by the problem-solving approach of the co-founders. ‘This industry has been a problematic sector for many years. [Sama] and his team are trying to address both the macro and the micro issues and improves the efficiencies from a holistic perspective.’
Pilani Soft Labs Pvt. Ltd, which runs India’s largest bus ticket booking Web site redBus.in , needs no introduction. The company, launched in 2006, has created an altogether new market only by connecting bus operators and travellers online, a service that was not available earlier. The news is that the company will be hitting the milestone of 3 million tickets sold and ` 150 crore in gross revenues by the end of fiscal year 2011. In addition, it is not just about setting up a Web site to sell tickets. The company is helping the traditional, old economy sector such as the transportation industry use technology in a big way.
6 million from Helion Venture Partners, Inventus Capital Partners and Seedfund. This is the third round of funding received by the five-year-old company. Earlier, it had raised $1 million in its angel round from Seed fund and an undisclosed sum from Inventus Capital Partners and Seed fund in July 2009. The latest round of funding was led by Helion Venture Partners, with Inventus and Seed fund participating. However, Helion remains the largest shareholder. Interestingly, Helion is a major investor in Nasdaq—a listed online travel company MakeMyTrip, which owns bus ticketing site Ticketvala.in . However, Ticketvala is not a significant revenue contributor to MMT today. MMT also had a strategic partnership with redBus before acquiring Ticketvala. Helion had previously backed Internet companies such as ad network Komli Media, PubMatic, Jivox and e-commerce firm Letsbuy.com . In the mobile space, it has funded payment gateway Ngpay, voice messaging company Kirusa and SMSGupshup. It is also behind 9.9Media and Getit YellowPages and outsourcing firms Hurix, UnitedLex, Mindworks Global Media Services and ZManda.
redBus has increased its gross revenues from ` 30 crores in 2008 to ` 60 crores in the fiscal year ending March 2010, and was expected to reach ` 150 crores for the fiscal year ending 2011. Gross revenues include bus ticket revenues and not just commissions on tickets. In terms of absolute revenues, the redBus Web site brings in 90 per cent of the revenues. Of the remaining 10 per cent, the majority is through distribution system Seat Seller, and about 3 per cent comes from BOSS (Bus Operator Software Service). In terms of volumes, they do more seats in Seat Seller or BOSS, but value-add and revenue per seat are very less compared with what they get through a direct sale. Actually, 50 per cent of their bookings are done over the Internet, 30 per cent through call centres and 20 per cent through Seat Seller
The start-up is focused on scaling up its ticketing site and its software platform Seat Seller for bus operators. It also aids in the computerization of the transport industry. redBus is adding 100 more people in 2011, primarily to its call centre facility. It also runs offline distribution with 75,000 point-of-sale outlets and is expanding across the country.
In the beginning of 2011, the company had 300 operators on their network of more than 700 plus. For operators in its network with their own computerized systems, redBus builds the required software interfaces and integrates their inventory of routes and seats into the redBus server.
Operators who use computers but cannot afford costly upfront IT upgrades can use a redBus software offering called ‘BOSS’ through which redBus gets real-time access to the operator’s inventory. In the case of operators who are not computerized at all, redBus acts in the same way as a travel agent: The firm is allocated a certain number of seats and uploads them on its server manually. Once these seats are sold, redBus informs the operators by phone. Currently, only 150 of redBus’ network of 700-plus operators have computerized reservation and route tracking systems.
redBus sells seats directly to consumers via its Web site, company-owned call centres and mobile phones. The company also sells through a network of travel agents, post offices, mom-and-pop stores and others. The firm has about 75,000 point-of-sale outlets across the country. The redBus.in Web site features relevant details about fares, seat numbers, seat availability, routes, timings and pick-up points. The information is also available through redBus call centres and partner businesses.
The company is aggressively working for pushing the software. Bus operators take it up as a function of the value they get out of it. As they realize its value, they go to Sama and they help them set it up. The company trains the operators to facilitate the process of computerized bookings. Sama says, ‘initially, we have to configure buses, routers, drop points, routes and convert offline data to online. Post that, we deliver central support over phone. Opting out of computerisation has not happened and we are only witnessing people signing up for it.’ The company has increased its bandwidth to sign on more operators. Sama is confident that in a matter of two to three years, every bus operator will be computerized, irrespective of which location they are in. According to him, the whole bus industry is growing fast. As per Volvo, Mercedes or other bus manufacturers, the industry is estimated to grow at the rate of 40 per cent per annum on a year-on-year basis. The growth is further expected to accelerate with roads getting better and better with additional investments taking place to come up with toll roads in association with private partners.
redBus has already come a long way. The company launched in August 2006 with two bus operators and a daily inventory of 10 seats covering two routes. It now has a network of more than 700 operators and a daily inventory of 500,000 seats across 2,500 cities in 15 states. redBus also offers the added convenience of home ticket delivery and even accepts payment against delivery. However, convenience, according to Sama, is seen as a given in the redBus model. ‘What we are offering is information and transparency.’
According to Shaheen Qureshi, director of HKB Travels, which has a fleet of 12 buses, ‘redBus has introduced new concepts in our industry. It has freed us from the clutches of the agents and given us a great medium to reach our customers.’ He notes that with redBus, the smallest operator can have the same reach as the biggest one. Yogesh Krishna, proprietor of travel agency Radha Tours and Travels, which has been on the redBus network for the past three years, describes the service as an ‘excellent one-stop shop’.
‘There are a lot of inefficiencies in the bus industry in India and there is tremendous scope for improvements and value additions,’ says Aurvind Lama, co-founder of Travelyaari.com . Vasudevan Ramasamy, co-founder of Ticketgoose.com , another bus ticketing portal, agrees. ‘The Indian bus industry is still very immature and there is a lot more that can be done. Right now all of us are only scratching the surface.’
Travelyaari and Ticketgoose are among several businesses that have joined redBus on the bus ticketing bandwagon. Most have remained regional players, however. Travelyaari, which Mantis Technologies set up in 2008, has a network of 75 bus operators and operates primarily in Gujarat and Maharashtra. Ticketgoose was launched in August 2007 by software company Efficsys InfoTech India. It has a network of 150 operators and offers services only in Karnataka and Chennai. Ticketvala.com , set up by Travis Internet in June 2009 and funded by Footprint Ventures, was acquired by MakeMyTrip.com in February this year.
‘At a surface level, the redBus model seems to be easy to replicate but getting this scale of operations is very difficult. The aggregation capabilities and the operational efficiencies of the redBus team are their core competencies,’ notes Majumdar of the Tata Institute. JumpStartUp’s Anandaram suggests that the ‘key value’ of redBus is in the relationships it has built. ‘They have been able to successfully and respectfully negotiate with the bus operators and the agents. If the chemistry had not been there, the arithmetic would not have worked. That is the greatest entry barrier for anyone else.’
According to Bharati Jacob, managing partner at VC firm Seed fund—the first VC fund to invest in redBus—‘given the amount of capital it has used and the scale it has achieved, redBus is the most capital-efficient company in the Indian travel industry’. Jacob points out that redBus has built an ‘excellent brand’, but has spent only $250,000 on marketing till now. ‘That’s a fraction of the marketing spending of some of the other online travel brands,’ she says.
Helion Ventures Partners and Inventus Capital Partners are the other investors in redBus. Out of the total VC funding of some $2.5 million, redBus still has $1.5 million left. Going ahead, the main areas of investment will be to scale up the current operations, says Sama. Plans include increasing the 200-plus employee pool, setting up regional hubs and increasing the number of call centres. Getting operators hooked into the company’s software offerings, strengthening marketing and brand building will also be key focus areas. Sama is also exploring endeavours including setting up bus lounges for passenger convenience and comfort.
Although other players have entered the sector, the growth potential in the bus transport industry is enormous, Sama points out, ‘The per capita consumption [use] of air-conditioned [buses] in India is estimated to be one per 100,000. Compare this to 10 per 100,000 in China, 60 per 100,000 in America and 180 per 100,000 in South Korea. We have a long way to go.’ Jacob of Seed fund agrees, ‘With improvements in road infrastructure and increased Internet penetration, this industry will only grow.’
Jacob suggests that the redBus team now needs to focus strongly on increasing its geographical footprints, strengthening the brand and mining the existing customer base. ‘They need to get into customer analytics and come out with segmented products,’ she says. Anandaram of JumpStartUp notes that bus transportation is a very transaction-heavy business and ‘one big challenge is to ensure that the relentless focus on execution and service quality continues even as operations expand’. TISS’ Majumdar says that as redBus moves into the next orbit of growth, ‘its leadership capabilities and management bandwidth will determine its success’.
Not everyone is convinced that the redBus model is viable in the long run. Travelyaari’s Lama says offline distribution is not a viable strategy, as ‘it increases the operational costs’. Sama agrees that managing offline services is challenging, but says that redBus is trying to serve a diverse consumer base. Pointing to the Nasdaq-listed Chinese travel company C-Trip, which has call centre operations with more than 4,000 people, Sama says, ‘as long as we can remain profitable we will offer the offline booking and home delivery service to customers. We want to rewrite the rules in the Indian bus industry.’
1. What are the key challenges that Pilani Soft Labs Pvt. Ltd is going to face in the next 10 years?
2. What are the key strengths that have pushed the growth of the company so far? Analyse them.
3. Does one think the strategy to raise multiple rounds of funding was well thought out and prudent from the growth point of view? Justify your answer.
4. What would be the key strengths of redBus to grow in future?
5. Does one agree with Bharati Jacob’s, managing partner at VC firm Seed fund, suggestion to redBus for future growth? Analyse critically.