Some liken it to fulfilling what Admiral Zheng He, the great Chinese explorer, started in the 14th century when the eunuch mounted expeditionary voyages across the world, from Asia to Africa.
Some see it as the awakening of Asia, a time when Asian giants have the ambition, appetite and, most importantly, the means to expand beyond their own home markets and the region.
Still others see it as a necessity – expand or stagnate.
Whatever the reaction, there is no doubt that the news of Ctrip investing US$180 million into MakeMyTrip marks a significant milestone in the Asian travel market and will set the tone for what will unfold in the rest of 2016 and the Year of the Fiery Monkey which the Chinese will mark on February 8.
Think about the significance of this move which also makes Ctrip, valued at over $10 billion, the single biggest shareholder in MakeMyTrip and gives it a seat on the Indian company’s board.
It brings together two of Asia’s largest online travel companies. It brings together two of Asia’s largest travel markets – many people have spoken of the “Chindia” effect, two remarkably different markets yet technology in many ways is bringing them closer together.
In many ways, it was inevitable that it would happen – these two companies are led by two extremely smart and savvy leaders, James Liang and Deep Kalra who both hold similar beliefs that in the age of disruption, you have to disrupt yourself or be disrupted.
Liang said it at a Phocuswright conference two years ago and I found it interesting that Kalra echoed that belief during the WIT Conference last year in Singapore when he said you have to be paranoid and disrupt yourself particularly in the age of the mobile Internet.
Deep Kalra: “In lucre, we trust”
During that session – see video (31.39s) – I also asked Kalra the specific question about the coming together of China and India – China’s Didi Kuadi had invested in Ola and Alibaba had invested in Paytm, a mobile payments and e commerce business.
His answer – it’s obvious that that if someone was looking for the next big market in the Internet economy, they’re going to ask, what’s the next China and it wouldn’t take a genius to say India. “It’s going to happen, they (investors) are training their guns.”
Asked about the cultural fit between a Chinese and Indian company, he said it’s less about the culture, more about the philosophy that guides investors – “in lucre we trust”.
So take away the culture equation – in fact, one travel insider who’s close to Liang and Kalra, dismissed the notion saying “the entire senior team at Ctrip has spent years abroad working, studying” – let’s look at the lucre side of the story.
The benefit has been immediate for MakeMyTrip whose stock price has been flat last couple of years. Its share price rose by 23.5 percent at the close of trading last Thursday to give MakeMyTrip a market cap of $689.4 million.
“In my view,” said one investor close to the deal, “the two questions to ask are, is MMT a good asset and what value is it to Ctrip to buy one-third? The negative view is that MMT is really a flight business, has not proven the flight model, and faces fierce competition from Booking and Agoda. The positive view is MMT is another Ctrip, undervalued and has a long runway of growth.”
At the WIT Conference, Kalra spoke of the shift in MMT to more of a hotel model with almost half its revenues now coming from hotels, and he pointed to the promise of unlocking the independent hotel market in India when by 2017, there will be 500 million people on the Internet. “Obviously not everyone can buy a fancy hotel but they can buy a budget hotel, air, rail or bus.”
Mobile will be the game changer and disruptor, he said, and Ctrip certainly has command in that space as well with almost 70% of its transactions happening on mobile. MMT sees about 40-45% of transactions for hotels on mobile “and this number was zero 18 months ago”, said Kalra.
Let’s not kid ourselves though that this is purely an Asia play. Priceline has significant investment in Ctrip. Last December, it agreed to invest an additional $500 million into the company, on top of the $250 million it had made earlier. So if anything, it speaks of the continuing consolidation of the online travel market with major players trying to solidify their hold in the world’s fastest growing and most promising market.
Commented Kalra of the investment “We believe there are many similarities in the Indian and Chinese online travel markets and we expect this strategic relationship between two market leaders to be mutually beneficial.”
In the same statement, Liang said, “Today’s announcement marks the beginning of the strategic relationship between Ctrip and MakeMyTrip. Through this transaction, Ctrip has now gained exposure to India’s fast growing online travel market.”
Asked for his analysis of the deal, Phocuswright research analyst Chetan Kapoor commented, “Over the last year and a half, Chinese online companies – Alibaba (Paytm, Snapdeal, Alibaba’s India domain), Tencent (Practo, WeChat) – have invested in Indian online companies as part of their regional expansion efforts. Positive economic outlook (Indian GDP is forecasted to outpace China’s this year), rising Internet, mobile and online banking rates – and with that a sizable online population – are major draws for Chinese dot-coms expanding into the country.
“We have been envisioning some degree of consolidation in the Indian online travel market for a while now. As OTAs transition from dependency on air to a focus on the more lucrative accommodation segment, the landscape is again getting crowded with cash-rich next-generation aggregators such as Ibibo Group, OYO Rooms, Stayzilla, Paytm, and global players creeping in to pursue their share of travel bookings.
“Moreover, given the continued costs associated with supply acquisition and rampant discounting to incentivize customers to transact online, companies are constantly looking out to raise capital from public and private markets to support their expansions.
“With Expedia and Priceline combined accounting for over half of the global OTA gross bookings – and consolidating – aligning with a major OTA certainly has benefits. In addition to the strategic tones highlighted in the press release, a co-operation of this extent between Ctrip and MakeMyTrip, may also allow the former to use MakeMyTrip as a vehicle for its future investments and designs in India over time.
“Akin to China, India too has a fragmented lodging and activities landscape, and a vast network of offline agencies, where online distribution can add value. Ctrip’s learnings across verticals, and the ability of MakeMyTrip to execute on those lines could elevate the duo further against competition in the market.”
Industry observers have welcomed the move.
Amit Anand of Jungle Ventures, an investor in early travel companies, said, “I think this is the right approach for them and a reflection of the growing desire of Chinese tech companies to be regional or global category leaders.
“To that effect the competition amongst local players in China is now going to be fought on India and South-east Asia soils and it is good for local startups and the ecosystem. This is going to result in the next wave of value creation on top of the growing interest from technology investors.”
Added Kei Shibata, CEO of Venture Republic, Japan, “This sounds a great investment for both MakeMyTrip and Ctrip, and Priceline, given the current state of capital market, long term potential of Indian market and perhaps the rise in demand for those winners in China to find next growth potential outside their mother country. The question remains on how the cultural fit between them will play out down the road.
“I am personally excited to see more intra Asia deals like these to accelerate the growth and dynamism in the online travel market in this region.”
Stephan Ekbergh: Waiting for the Japanese to make good on their call to go global
Stephan Ekbergh, CEO and founder of Travelstart, the South Africa-based OTA, said, “Hallelujah. Someone needs to challenge the global OTA duopoly. And I’ve been waiting for this to happen. Ctrip is the only one with marketcap that can make this happen. So the acquisition of travelfusion was the first in that direction. Now I think they most likely will start to move faster.
“I’m also hoping for the Japanese to make good of their word to go global but I haven’t seen anything in that direction.”
Added Turochas Fuad, co-founder of Travelmob, “The Chinese dragons decide to expand beyond China. They can’t be just China focused especially with the recent beatings in their stock market. To survive and take a leadership position, they have to go beyond local – do what the western companies have been doing for years. Finally fulfilling what Zheng He started many many years ago. With the backing of an American company of course.”
It won’t be smooth sailing for sure as Ctrip continues its adventures abroad. At home, the market is facing challenges. It struck a partnership with long-term rival Qunar, which is controlled by Baidu, in October. Qunar has been the target of domestic airlines, with up to seven airlines saying they’ve cut ties with the company.
Competition is severe. While together, Ctrip and Qunar are estimated to account for 70-80 percent — iResearch claims Qunar leads flight bookings with 32 percent marketshare, while Ctrip is winning on hotel bookings with 39 percent market share –– competitors are snapping at the heels, and it is outsiders such as Baidu, Alibaba and Tencent it has to watch.
This is why its move to invest in the Indian travel market not only makes sense but is a necessity. And if there are two leaders who can make this work, well, it’s Liang and Kalra – two of travel’s smartest leaders. We wish them well in this new union.
For another view, read this.