In October 2005, Phanindra Sama was in Bangalore, looking forward to the Diwali break. It was a long weekend and the electronics engineer wanted to be with his family, in Hyderabad. Sadly, however, he had to stay put in the Garden City. It wasn’t because of work or an illness; he just couldn’t get a bus ticket, no matter where he tried. Every travel agent he approached told him there were no tickets available. Train tickets were sold out, as usual. And flying was too expensive an option. “I felt guilty,” says Sama, “I was not convinced that all the buses were full. I kept wondering if I had spoken to enough agents.” That night Sama went to bed feeling uneasy. When he woke up, he realised that there was a simple solution to help people book bus tickets. A ticketing portal. And thus was born redBus.in.
Linking The Twain
Travel operators love the holiday season, which runs from October to January and May to July. Reports suggest that close to half a billion Indians holiday every year. But despite the heavy volume, some buses fail to achieve even a 50% seat load. Sama explains that most of these bus operators cannot reach their customers: “Not one of them is organised.”
Operators still hold on to the archaic system of depending on walk-ins or fix-ups through agents. There was a bridge missing between bus operators and consumers and that was what Sama wanted to build. Sama roped in two of his friends—Charan Padmaraju and Sudhakar Pasupunuri—to help him develop the solution he had in mind.
“Initially, it was meant to be an open source solution,” he recalls, “We wanted to create a platform and let someone else develop it.” It was a safe bet. It would require no investment and since none of the three had first-hand knowledge of web designing, they would learn a new skill.
The interface was simply meant to be the intermediary between travel agents, operators and customers, without incurring any costs. The plan was to access operators’ systems and present them to customers, who could pick and choose tickets from various options. But that didn’t work out. “None of the operators wanted to work with us,” says Sama. They refused access to their systems and the idea was in danger of being stillborn.
It was then that Sama read an advertisement by TiE, a non-profit that helps entrepreneurs realise their dreams. TiE’s Bangalore chapter was inviting start-ups to participate in a workshop and seek mentors to help monetise their ideas. Sama came out of the workshop with a mentor and a business plan. In partnership with his friends, he set up Pilani Soft Labs as a tribute to his school—BITS. The initial investment: ₹5 lakh.
Tinkering Under The Hood
“We were doing it all wrong,” explains Sama. His mentor asked him to “first sell seats on a bus just like regular travel agents” and establish credibility. Only then would the money start to flow. The company bought a few seats on popular routes and put them up on the website. “We bought two seats on a bus. Customers saw those seats and assumed the rest were sold out and bought the seat,” explains Sama.
redBus provides a number of options for each route, allowing customers to sort buses according to type (sleeper, seater, AC or non-AC), timings and cost. If seats are available, customers can choose between window or aisle options and then pay to book the seat. redBus retains a commission for its trouble.
The model is not new. Other Online Travel Agents (OTA) do exactly the same thing in the airline business. So consumers were familiar with the process. The business grew and redBus now has ties with 850 bus operators, including Goa’s state-run Kadamba Transport Corporation. The portal employs 500 people and runs six call centres across the country.
After the success of redBus, its business-to-consumer model, Pilani Soft Labs developed two more products: Bus Operators Software System (Boss) and SeatSeller. Boss connected Pilani’s network with bus operators’ systems. This allowed the latter to access valuable information such as consumer traffic on routes and consumer profiles, using tools similar to Google Analytics. “The system can help bus operators see which routes are popular and which ones aren’t. They can then direct inventory toward preferred routes,” Sama explains. Boss is sold to the bus contractors for a monthly subscription, and brings in around ₹50-60 lakh a month.
SeatSeller is a tool that links travel agents to Soft Labs’ network, helping them choose between an array of buses, routes and timings. Together, these business-to-business models account for 30% of Pilani Soft Labs’ revenues.
redBus still accounts for the lion’s share of the top line though. In the last five years, the ticketing site has grown to become one of the biggest e-commerce websites in the country. It has attracted venture capital from Seed Fund and Inventus capital. Seed Fund got in on the ground and has no plans for an exit yet while Inventus is reported to have invested $2 million in 2009. Recently, Pilani Soft Labs also raised $6.5 million through series C funding from Helion Ventures.
Turning The Corner
Today, redBus is almost a monopoly in the bus-travel market. Out of 2 million unique visitors that log on to the site every month, sources say the conversion rate is closer to 20%—almost 10 times Makemytrip’s conversion. And it’s getting more popular by the day. Internet traffic stats site Alexa reports that the ticketing site has seen an 11% increase in page views in the last three months.
Several others have tried to match the Bangalore-based company but have failed. “There were a few,” says Ram Badrinathan, Market Analyst at PhoCusWright, “but none could succeed. It’s the management style and execution of redBus that makes it successful.” Several bus ticketing portals, including Ticketvala.com and Abhibus entered the market but did not execute as effectively as redBus. Ticketvala was even acquired by MakeMyTrip but has not been able to make a dent in redBus’ popularity. “OTAs have now started to source their tickets from redBus,” says Mahesh Murthy, Founding Partner, Seed Fund.
Sama attributes this to his ground-up approach to marketing. “When we started the company, I stood outside IT companies during the lunch hour to distribute pamphlets about redBus,” he recalls. He learned what customers wanted and changed his product accordingly. Pilani Soft more than doubled its turnover last fiscal, recording sales of ₹12.14 crore compared to ₹5.19 crore in FY10. It’s inching closer to the black: operating loss in FY11 was ₹3.11 crore, down from ₹3.61 crore the previous year. The equity capital of the company expanded to ₹48 lakh with an infusion of ₹35 crore last fiscal.
Sama now plans to target government buses. “IRCTC’s revenue is close to ₹6,000 crore and we [redBus] want to get close to that,” says Murthy, talking about the company’s five-year target. redBus has started services in Bangladesh as well, though that arm is yet to take off fully.
Sama refuses to be drawn into the hotel game, which other OTAs have gotten into. “The bus travel space is worth $2.5 billion and we have been able to access only 3% of the market,” he explains. “There is a lot of headroom for growth.” An IPO is not in the offing anytime soon but “that is a good dream to have, maybe in three years”, Sama adds. For now, he’s focusing on keeping redBus’ accelerator pedal floored.