Ibibo Group and MakeMyTrip, by many measures the top two online travel agencies in India, announced a merger — ending an expensive competitive pricing and discounting race.
First, some context. While the merger of Ibibo and MakeMyTrip is a large consolidation by Indian standards, even the combined business, valued at $1.5–1.8 billion (depending on whose estimates you read) does not make much of a dent on the global stage.
That said, the Indian market is still growing, and this merger positions the combined group as a formidable global player.
NB: This is a viewpoint from Gautam Shewakramani, founder and chief executive of AudioCompass.
From the rhetoric around the deal, it appears the transaction was primarily led by the companies themselves, rather than by investors and bankers.
To me, as an outsider, this shows an immense amount of maturity amongst the management teams of the two companies. They knew what they needed to do in order to be able to win the market together.
What does this deal mean for us as consumers, suppliers, and start ups in the travel industry?
What does it mean for consumers?
Don’t worry! This isn’t the end of discounting. One of the biggest unsaid implications of this deal is that Naspers, which owns 40% of the combined entity, has very deep pockets and understands the Indian market and its consumers.
It is playing a long-term game, and recognizes that maintaining or growing market share in existing or upcoming lines of business may require discounting.
However, I do believe that this is the end of “irrational” competitive discounting. Discounting will become a tool to retain loyal consumers or re-engage dormant ones, rather than simply acquire new consumers.
I also believe that once the dust settles on the merger, the combined entity’s organizational focus will shift to improving customer experience, satisfaction and retention, in a manner similar to some of the more mature global players like Priceline Group and Expedia.
This merger may result in Priceline and Expedia starting to take India a little more seriously — heralding an age of responsible and sustainable growth in the online travel market.
What does it mean for suppliers?
Despite the popular belief that this deal is good for suppliers, I believe that their largest supplier , the airline industry , will be hit hard. With close to 50% of air travel being booked online, and the combined entity owning 20% market share, the collective purchasing power of Ibibo and MakeMyTrip will means immense power, maybe even resulting in slightly increased profitability for their air ticketing line of business (at the expense of the carriers).
On the hotel side, Ibibo’s strength in the value/budget category (mainly domestic) and MakeMyTrip’s strength in the three and four-star category in India are distinctly different, so I don’t see any major impact there.
However, Ibibo’s innovation around supplier and revenue optimization tools can be rolled out across the board , resulting in happier suppliers , and happier suppliers could result in better prices for consumers as a tangential benefit.
What does it mean for travel experience startups like AudioCompass?
I mentioned earlier that the combined entity’s organizational focus will shift to enhancing the consumer experience — this helps startups like us, that aim to improve how consumers engage with destinations during travel.
Mature companies like Priceline Group and Expedia are beginning to enter the in-destination space by making tours & activities available to consumers . I wouldn’t be surprised to see a renewed focus on investing in innovative companies that can extend the combined entity’s reach beyond just booking, and into the destination.
All in all, a well executed combination of the razor sharp business and customer experience focus of MakeMyTrip with the mobile-first DNA of innovation at Ibibo will create a force to be reckoned with on the global travel stage.
NB: This is a viewpoint from Gautam Shewakramani, founder and chief executive of AudioCompass.
Disclosure: MakeMyTrip is a customer of AudioCompass. Here's Tnooz's report on the merger.
NB2: Image via BigStock