Vous êtes sur la page 1sur 19

Asian Journal of Management Cases http://ajc.sagepub.

com/

The Journey of Redbus


Rakesh Gupta and Ajay Pandit Asian Journal of Management Cases 2011 8: 171 DOI: 10.1177/097282011100800205 The online version of this article can be found at: http://ajc.sagepub.com/content/8/2/171

Published by:
http://www.sagepublications.com

Additional services and information for Asian Journal of Management Cases can be found at: Email Alerts: http://ajc.sagepub.com/cgi/alerts Subscriptions: http://ajc.sagepub.com/subscriptions Reprints: http://www.sagepub.com/journalsReprints.nav Permissions: http://www.sagepub.com/journalsPermissions.nav Citations: http://ajc.sagepub.com/content/8/2/171.refs.html

>> Version of Record - Sep 30, 2011 What is This?

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

Case Editors Introduction

171
Asian Journal of Management Cases 8(2) 171188 2011 Lahore University of Management Sciences SAGE Publications Los Angeles, London, New Delhi, Singapore, Washington DC DOI: 10.1177/097282011100800205 http://ajc.sagepub.com

The Journey of Redbus


Rakesh Gupta Ajay Pandit
Abstract

E-ticketing in India has experienced tremendous growth in the last few years and has become a common and popular tool for booking airline and rail tickets. However, nobody thought it could work for bus reservations considering the fragmented nature of this segment. It was not until Phanindra Sama (Phani) felt it to be a huge customer dilemma, which could become a potential business opportunity. It was in the month of October 2005, when Phani decided to go home from Bangalore to Hyderabad to spend time with his family on Diwalia major Indian festival. When he went to the bus stop to buy a ticket, he found that there was no ticket available as buses were running full on account of festival season. The agent had suggested that Phani contact other agents to find out the possibility of getting a ticket from one of them. Phani was extremely disappointedhe could not spend Diwali with his family. Yet, it also made him think; why werent there other ways to find out about the availability of bus tickets rather than running from agent to agent? Phani wondered why one simply could not book a bus ticket onlinejust like airline and railway bookings were made via the Internet. In this question lay Phanis answer. Thus, Redbus was born. Keywords Ticketing, business opportunity, fragmented segment, business model, India

Introduction
Sorry, no more tickets left. These were the words that kept ringing in the ears of Phanindra Sama (Phani) while returning empty-handed after trying his best to get a bus ticket from Bangalore to Hyderabad to join his family to celebrate Diwali, a major Indian festival. Like thousands of young engineers who had moved to Bangalore to pursue job opportunities and were planning to return home to celebrate the festival, Phani had also decided to go home for a few days in October 2005. Since the plan to go home was made at the last minute, all the trains were full; so, Phani decided to go via a bus. When he went to the bus stop, Phani was unable to get a ticket as all the buses, just like the trains, were full due to the heavy rush on account of the festival season. Various agents suggested that Phani check with other agents to explore the possibility of getting a ticket. This struck Phani as odd and he
This case was prepared by Rakesh Gupta, PhD Scholar, Faculty of Management Studies, University of Delhi, and Ajay Pandit, Professor, Faculty of Management Studies, University of Delhi, to serve as basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

172

Rakesh Gupta and Ajay Pandit

wondered why this was the case with bus travels. He thought, If you try to book a flight or a rail ticket, an agent would tell you whether a given train or airplane is full, and if not, the agent can sell you a seat. Phani thought hard. He was determined to find a way to overcome this problem and enquired from many agents, asking them how the system worked and why one agent might have a seat available while another did not. Phani soon learnt that there were thousands of agents across the country and each agent would normally sell tickets of a few bus operators. This resulted in the customer going from one agent to another, hoping that a ticket might be available. It was a rather tedious experience. Nobody aggregated all the tickets to a particular source, and the fragmented nature of this segment meant that no single agent knew about the availability of tickets once he was sold out. Later, Phani discussed this issue with his friends, and that he was keen on finding a solution. Six of Phanis friends got excited about the ideathey even started debating over possible company names. However, with the passage of time, four of Phanis friends went their separate ways; leaving behind Phanindra Sama (Phani), Sudhakar Pasupunuri and Charan Padmarajuall classmates from the Birla Institute of Technology and Science (BITS), Pilaniwho were still passionate about the idea and decided to take it forward. Phani was an Electrical Engineer working with Texas Instruments while Sudhakar was an Engineer with IBM, and Charan was working with Honeywell. They agreed to form a company named Pilani Soft Labs Pvt. Ltd to develop the idea into an enterprise. The name Redbus was chosen after a lot of discussionthey were convinced that the name should be simple. While studying at the Birla Institute of Technology and Science, the friends used to go to Pilani via Delhi where the redline and blueline buses ply. The initial thought was to name their company Redline, but the name was already registered; yet they decided to use the word red in the name as it symbolized energy and passion. After a lot of thought, they decided to add the suffix bus as it would help the customers to connect with the business. It was a great time to live in Bangalore. This was because, at that time, India had emerged as a major hub for outsourcing of services work from various parts of the world, especially in the field of Information Technology (IT) and Information Technology Enabled Services (ITES)and Bangalore was its undisputed leader. A large number of global majors had already established their development centres and back-end operations in India, especially Bangalore, and a host of Indian IT companies had emerged on the scene. This created a huge demand for skilled technical professionals. The culture was great and Bangalore became a breeding ground for young entrepreneurs in the IT sectorthose who were happy with their jobs but still wanted to do something of their own. At the same time, the Internet usage within the country was growing rapidly; even though the country had a low Internet penetration rate, the absolute number of Internet users was high. India had 81 million Internet users and was ranked as fourth in the world in terms of number of Internet users after China, America and Japan (Figure 1).1 Within India, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh and Delhi were the leading states in terms of Internet users. The rising Internet connectivity had encouraged the growth of the E-commerce industry and a large number of new companies emerged especially in the services sector whose business models revolved around E-Commerce. Though Phani came from a predominantly agricultural family, he had the ambition to venture out on his own. Phani was born in rural Andhra Pradesh and moved to a boarding school in Kindergartenthis Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

The Journey of Redbus

173

Figure 1. Major Users of Internet across Countries (millions)


Source: Internet Worldstats by Miniwatts Marketing Group.

early move made him more independent. He always fantasized about electrical motors and had thought of only one career for himself: to be an Electrical Engineer. Phani had stated: I had been an Electrical Engineering wannabe throughout my childhood, so I trained to design microchips.

The Initial Idea


The three partners started travelling and interacting with bus operators and agents to understand the market dynamics and requirements. Discussions with bus operators persuaded Phani that a third party was needed to change the system. They figured that most operators were small players who did not know anything about technology, and that travel agents were even smaller players who did not care at all about technology. So, Phani thought it would be a good idea to build an IT-based system for operators. As they started reaching out to more operators, the enormity of the task struck them. Besides, the response was mixed; few were encouraging while most were dismissive. Getting operators to update their inventory to make real-time seating information available to customers would be a Herculean task. It would be impossible to convince the operators and agents to buy software and hardware to run the Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

174

Rakesh Gupta and Ajay Pandit

system. The idea was to build what would be an inventory management system for bus operators, which would help operators, manage their inventory better, help the potential customers book tickets in advance and also buy return tickets. The three friends started working on this software part-time while continuing with their respective day jobs. They were not sure whether this would work or not, however, the one thing they were clear about was that the solution should help the customer, the operator and the agent. This was not an aggregator system like the airlines where each airline had a system that would communicate the inventory situation to the Global Distribution System (GDS) and the ticketing agent could then avail data from the GDS and do the booking as a result. Here, bus operators had no systemsforget real-time inventoryand this came as a huge setback to the group. But this did not deter Phani who kept mulling over possible solutions:
I believed that the operators would benet because they couldnt scale up their distribution, which was manual and were turning away customers. They would have a chance of reaching out to a larger customer pool, and serving their customers better if they used this system. Most agents represented only two or three small operators, so they would see the benet of having more seats.

Mentoring
Meanwhile, the Bangalore chapter of The Indus Entrepreneurs (TiE) was running the Entrepreneur Acceleration Programme (EAP) for entrepreneurs. Phani had been attending TiE events and meetings for some time and was aware of the programme. TiE used to invite proposals, review them, create a shortlist and then ask interested individuals to present their ideas to a group of TiE members who had venture investing experience. Some of these ideas would be selected for mentoring and money would then be raised from venture funds or private individuals. Phani and his team presented their idea before the TiE team to be a part of the EAP. After the presentation, Kiranbir Nag, the Vice President of SVB India Advisors who attended the presentation, asked the team to get in touch with him. The team had three meetings with him after which Kiranbir, Ashok Yerneni and Sanjay Anandaram, who co-chaired the EAP at that time, became mentors to the team. TiE adopted the venture in July 2006, and the reason for its selection was the teams passion and potential to scale up the venture as they were attacking fragmented space (Tables 1 and 2). To Sanjay, this seemed similar to how online travel portals were working but felt that people were not focusing on this segment, even though it could be a much bigger opportunity. The mentors made a commitment to meet the group every week. The mentors gave the team various assignments such as carrying out a market survey, identifying customer preferences and gathering market data. Through this, the team developed a basic understanding about the segment such as the following: the number of buses, number of routes, average price of a ticket, how people bought tickets, the profile of customers and how much commission a bus operator paid to an agent. Sanjay was instrumental in getting the team to think clearly about what they wanted to achieve and what problem they wanted to find a solution for. He made them realize how difficult it would be to

Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

The Journey of Redbus


Table 1. The Fragmented Nature of Market Fleet Size Less than 20 buses Between 20 and 75 buses More than 75 buses
Source: Company documents.

175

Market Share (%) 65 25 10

Percentage (%) of Operators 91 06 03

Table 2. Market Profile (Geographic) Group Group I: Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu Group II: Delhi, Goa, Kerala, Madhya Pradesh, Rajasthan Group III: Rest of the country
Source: Company documents.

Market 55% (~11K buses) 35% (~7K buses) 10% (~2K buses)

Redbus Presence Offices in all 5 states Office in Delhi; setting up offices in other 4 states No current presence

deploy software for operators in remote areas and ask them to buy hardware to run the software. The problem was that people were neither getting tickets nor were they sure whether they had exhausted all other options to get a ticket.

The Birth of Redbus


The team went back to the drawing board: they realized that the solution was to build a portal, which would provide the facility of booking tickets online. Therefore, they decided to shelve the idea of building an inventory management system and started working on the website. That is how Redbus was born, Indias first online bus ticketing portal, founded in August 2006, by a group of three friends. The core proposition of Redbus was a centralized ticketing system, a concept that had been used for airlines and railways but no one (except Redbus) thought it would be feasible for bus travel. Redbus launched its service on 18 August 2006, with US$10,000 from the savings of the three partners. One room of their house was converted into an office where they began working. They started with one operator who gave them one week to sell tickets on the Internet, though this was too short a time for any new medium to work. The team began by visiting various bus boarding points in Bangalore, informed people about the company, distributed their business cards and asked them to call if they wanted a seat. That was how the group did their marketing in the beginning. The entire Redbus website was designed and developed by the founders, though none of them had any experience with web technology as each individual had come from an Engineering background other than IT. They purchased books to learn technology and started from the basics of computer programming. The team decided not to outsource website development even when they had no experience to build it as they felt it was too central and critical to their business, and if they had to be successful, they needed to know the core of their business.

Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

176

Rakesh Gupta and Ajay Pandit

By this time, all of them had left their jobs and were fully committed to Redbus. However, one problemwhich delayed the launch of the venture by a monthwas that none of the banks were ready to provide them the payment gateway. It was the first time the banks came across a site which would sell bus tickets and the founders did not have a running current bank account to show their financial credentials.

Testing Times
The initial days were very tough as all three friends had given up their jobs and invested their savings into Redbus. As Phani reminisced:
Those days were full of emotional hurt. We were used to being pampered in our jobs where even the smallest of our requests, like choosing a seat under the A/C vent, was catered to. Moving from this environment to visiting bus operators was a huge change. Here was a bus operator who would make you wait for hours to talk to you once. This was the real test of our ego.

Phani always valued his personal space and lived alone in Bangalore, even though all his friends lived in a shared apartment. However, as they gave up jobs, Phani moved in with Sudhakar and Charan to save money. This was a time when they cut out all extra expenses. As the website was being built, it was important to get more and more bus operators on board. It was like walking the thin line between acquiring inventory from bus operators and pulling in customers to buy tickets as one would not come without the other. The task required extensive networking and meeting with bus operators and convincing them to sign up. The team unanimously decided that Phani would look after this aspect of business while the other two would focus on technology and website-building. The idea was new and it took time for bookings to start and the sales were slow to pickup. A typical day started with taking calls from customersthis was another humbling experience for the founders as many times people would call up, harass and sometimes even abuse. The team started delivering the tickets themselves as well. Once, they had to deliver tickets at the IBM office but Sudhakar refused to go inside fearing someone would recognize him as he used to work at IBM. The founders stood outside the gates of big companies handing out pamphlets to young professionals who were their target audience. They would also distribute pamphlets at bus stations to educate people about the venture. Customer by customer, operator by operator, the Redbus team built their business. Finally, one journalist, impressed by the venture, interviewed the founders and profiled Redbus giving the company initial visibility. It took a while to take bookings to a significant level where bus operators started realizing their capabilities. Slowly and steadily, more and more operators signed up. Almost every bus operator who signed up with Redbus during the initial days believed that the venture would shut down in a few months. However, it worked and none of the bus operators withdrew from the partnership till date. Initially, the operators thought of Redbus as just another channel to sell their tickets. Phani said, We were just another agent for them. They paid us commission, just as they paid other agents. We didnt add any mark-up because the reason we started the venture was to help customers find tickets, not to raise prices for them. Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

The Journey of Redbus

177

Even though the operators saw them just as an online distribution channel, the founders were very clear about Redbus value proposition, which was superior customer experience. Even though most agents thought of Redbus as a rival, the agents started using their service as a last resort to get tickets for their customers. The whole idea behind the venture was to create an efficient and professional player in this unorganized segment, which could make bus travel, especially the ticket-buying process, a smooth and hassle-free experience for the customer. Their idea was to partner with the operators and agents by way of providing a wider reach and choice to operators to sell tickets, and make available a larger inventory for the agents to sell. Therefore, Redbus wanted to create a win-win equation for all of its stakeholders. As Sanjay had stated:
There was consumer demand for quality customer experience with bus travel, which had been an unsophisticated and messy experience. We thought if we could drive a consumer brand that promised a good experience, operators would eventually become part of the system and would give access to their inventory.

Industry and Competition


Indias road travel segment was estimated to be around US$3 billion in size by 2008; it was highly fragmented and was dominated by small operators and could hardly boast of any technology-enabled services (Indian Brand Equity Foundation 2011). There had hardly been any change in this industry since its major growth in the 1970s and 1980s. The segment was highly unorganized with more than 2,000 private bus operators running around 20,000 buses on the long route. The buses on the long route were called contract carriages for which tickets had to be bought in advance. The buses on the short route were called stage carriages where commuters bought tickets in the vehicle itself. There were very few operators who had a large fleet of a hundred buses or more, whereas a large number of small operators had five to ten buses. Most of these operators were regional players who did not have a country-wide presence, and given the scale of their operations, it was no surprise that they did not offer computerized reservations. With the roads getting better and increasing income levels, the coach segment (air-conditioned bus) was witnessing a rapid growth since 2008 and players like Volvo, Mercedes and other luxury bus manufacturers estimated an annual growth rate of 40 per cent for this segment in the next ten years (Sachitanand 2010). As Phani pointed out, The per capita consumption of air-conditioned buses in India is 1 per 100,000, compared with 10 per 100,000 in China, 60 per 100,000 in America and 180 per 100,000 in South Korea. The trend of E-ticketing in India was catching up and had experienced tremendous growth in the last few years; it accounted for 40 per cent of airline ticket sales and 30 per cent of railway ticket sales, whereas regarding bus travel, it had only just begun. Online channels had outpaced the total travel market growth and constituted 23 per cent of the total market. Within the online segment, the big players like airlines, railways and large operators (direct channel) dominated the online reservation with a market

Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

178

Rakesh Gupta and Ajay Pandit

share of 65 per cent, while online travel agencies had increased their share to 25 per cent from 7 per cent. This growth was at the expense of traditional travel agencies whose share had declined from 32 per cent to a mere 10 per cent. The traditional agencies neither had the scale and financing nor the brand equity and know-how to compete with the venture fund backed start-ups and subsidiaries of the multibillion dollar international conglomerates. The rapid growth of Redbus was too glaring to be missed and competition started making its entry. However, Redbus founders did not see this as a threat as there was a huge untapped market and that the entry of professional players would further organize the market. Redbus faced competition from Ticketvala.com and Indiabusticket.com and a few other players but it had the first mover advantage. Ticketvala.com was initiated by the former Chief Technology Officer (CTO) of World Span, a well-known name in the travel industry. The company raised five times as much venture funding as Redbus but soon realized that it was a tough proposition. The companys model was to provide software to operators, integrate them into an online platform and then launch a front-end and make money. They and others had to spend lot of capital to build software and convince operators to get it installed and offered tickets for free to get consumer traction but this model has not worked for them yet. Operators were more concerned about selling tickets than having an efficient back-end, though the scenario might just change in future. Traditionally, in this segment, due to the huge network effect, Redbus being the largest player gained a lot of traction from consumers and suppliers. The operators were coming in at competitive rates because Redbus had the largest number of consumers, whereas none of the competitors had this much consumer traction. Earlier on, Redbus invested and worked on the consumer side by launching their website to attract customers, which in turn helped them in building their inventory. This was how they built huge traction in the market, which would be very difficult for the competitors and other start-ups to gain (Table 3).
Table 3. Redbus and Competition Pan India Presence Yes Yes Yes No No No No Approximate Ticket Inventory at Anytime 500,000 50,000 25,000 6,000 5,000 5,000 5,000 Percentage Share of Web Traffic (%) 70 15 7 2 2 2 2 Distribution Partners Maximum Minimal No No No No No Provide Software to Operators Minimal Yes Yes No No Yes No

Company Redbus.in Ticket Vala.com Via world Abhi bus Ticket goose Customer Needz Ticket Karan

Source: Company documents.

As Prof. Majumdar from the Tata Institute of Social Science had pointed out:
At the surface level, the Redbus model seemed to be very easy to replicate but getting this scale of operations was very difcult. The aggregation capabilities and operational efciencies of Redbus were their competencies.

Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

The Journey of Redbus

179

Redbus had always focused on excellent customer service and lower costs; therefore, the operators were satisfied working with them. It would be difficult for competition to replicate Redbus success because Redbus had kept its business model simple. It would have been easy to complicate the model by trying to add more avenues to it such as value-added services, but Redbus has consciously tried to avoid these temptations. Redbus did not work with the State Transport companies even though it would have given them more visibility and helped them build inventory because these companies offer very little commission. As stated by Phani, The competition may have been able to imitate our business model, but they couldnt copy our DNA.

Fund-raising
Once TiE selected Redbus as one of the three ideas out of three hundred for mentoring, it became a major discussion issue within the investor community in Bangalore. This led to various Venture Capitalists approaching Redbus to fund their venture as the online travel segment was a very hot option. Redbus mentors advised them to go with an early stage fund that would not only invest money in their venture but also guide them in building the venture; so they selected Seedfund, which invested US$500,000 in Redbus, and partner Bharati Jacob (of Seedfund) became a member of the Redbus board. The initial ambition was to build a company worth US$2 million, which Phani attributed to an Indian TV series Kaun Banega Crorepati.2 During discussions with Seedfund about how much capital was really needed, their initial calculation was US$60,000 to grow the business to US$2 million. In the meeting where Redbus presented this proposal to Seedfund about the funding requirement, they asked the Redbus team to come up with a realistic plan. After the revised plan was prepared where one of the partners from Seedfund worked with Redbus, they realized that they needed US$500,000 to execute the plan. Phani was sceptical whether they really needed that much money and consulted Sanjay, who advised them to take the money. Even though Phani was half convinced, he decided to go ahead but thought they would never spend that much money. The plan was to spend this money in the next three years but the entire amount was in actuality spent in one and a half years as Redbus saw robust growth; therefore, the money was used in scaling up the operations, increasing the employee base and the setting up of regional hubs and call centres. This led to another round of funding in July 2008, where Inventus Capital, Helion and Seedfund participated. Seedfund showed its confidence in Redbus by injecting an additional US$700,000 in capital in the second round, in which Redbus raised US$2.5 million. The funds were used to scale up the hardware and software to make the system powerful to handle increased traffic and to expand Redbus physical presence; Bangalore was the companys first office and corporate headquarters. A few months later, a second office was established in Hyderabad. Soon after, offices came up in cities like Chennai, Mumbai, Delhi, Pune and Ahmedabad and three more cities in the South. This aided Redbus to further increase the number of bus routes and tickets on its platform while expanding its geographical footprints. The infusion of funds led to further scaling up their capabilities and Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

180

Rakesh Gupta and Ajay Pandit

the company experienced positive growth. The Redbus business model ensured that money was coming in everyday, which built their financial strength. The founders had no qualms in admitting that Redbus would not have grown as fast as it did without the funding. In all, Redbus raised US$3 million so far from Inventus, Seedfund and Helion but since they had become profitable from December 2009 onwards, they had not used the entire money raised in the second round and still had US$1.5 million left in the bank. As per Bharati Jacob, the Managing Partner at Seedfund, and the first Venture Capitalist to invest in Redbus:
Given the amount of capital it had used and the scale it had achieved, Redbus was the most capital efcient company in the Indian travel industry. The company had built an excellent brand with a marketing spend of only US $250,000, which was a fraction of the marketing spend of other online travel players.

Inventory Aggregation
To start with, Redbus adopted an old practice that had long predated computers: block booking. Phani started signing up bus operators, and initially to encourage the operators to get on board, would ask them to reserve five seats on a route for Redbus and their site would show these seats as open tickets. They asked operators to reserve inventory until three hours before departure time, just as offline travel agencies reserved a fraction of a hotels rooms in advance. Everyday they would call up the operators at a designated time to tell them whether the seats had been sold or not and in case they managed to sell the seats, they would call them for additional seats. Then operators were encouraged to sell 20 per cent of their tickets through Redbus as buses selling tickets through traditional channels usually ran at 80 per cent capacity. This model helped Redbus scale up much faster in terms of the number of operators they got on board in a shorter time span than any system-based model would have. This is because the system-based model would have required operators to invest in software and hardware which might not have been feasible for the operators. Recalling the challenge of building inventory in the initial days, Charan said, Our pitch to operators was that the internet is the medium of the future but there was tremendous resistance to change, and we were the new kids on the block. After proving the efficiency and effectiveness of Redbus services, the team negotiated a contract to sell a greater percentage of tickets. The companys technology team aggregated ticket inventory into the Redbus server. The inventory aggregation process differed depending on the type of bus operator, as most of the bus operators had not computerized their ticket reservation systems. Redbus could not simply tap into their existing systems to put seats online. To ensure a consistent increase in inventory, Redbus business development team developed a strong relationship with bus operators and while doing this, they distinguished their services from travel agents. In return for establishing a partnership with them, the operators were given enhanced customer service, transparency and the benefit from Redbus extensive distribution network, yielding greater sales. Further, working with Redbus allowed the operators to easily alert customers of any changes (for example, fare and timetable changes, cancellations, additional seats available, etc.). Overhead costs for

Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

The Journey of Redbus

181

the operators were reduced (simplified logistics) through working with a single player with wide reach as compared to working with numerous travel agents. Currently, Redbus works with close to 700 operators, out of which 300 have fully automated their ticketing systems. Some operators now rely exclusively on Redbus to sell 100 per cent of their inventory. The Redbus server directly connects to the servers of these operators and continuously updates its inventory. These operators account for 60 per cent of the Redbus inventory, whereas the other operators rely on manual ticketing systems. Redbus holds in between 20 per cent and 100 per cent of tickets from these operators to sell until three hours before departure, at which point it releases unsold tickets back to these operators. Redbus plans to capitalize on the first mover advantage by increasing their penetration further. Recently, they have tied up with the Raj National Express and now the entire fleet of Raj National Express is open to them as their bus tickets are available on their network. In contrast to the ventures early days when they had to persuade operators, one by one, to provide inventory, today, operators contact Redbus and show keenness to join their network because Redbus has become Indias largest bus ticketing company. By February 2011, Redbus had sold 3 million tickets.

Revenue Model
Tickets were sold online, through call centres and various sales channels (for example, post offices, convenience stores, online travel portals and brick and mortar travel agents). The revenue model of the company was fairly simple; Redbus received a commission on the value of tickets sold. Historically, bus ticketing had been a cash business and operators were used to being paid in cash, on the spot, by their agents. Once the customer purchased a ticket and made a payment to Redbus, the company deducted 10 per cent commission and paid the bus operators the remaining money. When tickets were sold through a third party, they shared 5 per cent of commission with its partners. On an average, Redbus sold 5,000 tickets daily and out of this, the company website sold close to 3,000 tickets. The Redbus software had a provision for real-time tracking of online bookings through its portal. A user entered a queue maintained by the system as soon as he/she initiated the process of booking tickets online. In case the transaction was not completed within twenty minutes of the customer entering the queue, a call centre executive would call the user to find out if there were any issues and provided support required to close the transaction. Redbus had seven physical call centres, with twenty to twenty-five staff members in each call centre and three satellite call centres. The main reason behind starting these call centres was to provide superior customer service to customers and to provide them with information about their travel needs. The call centres operated from 7:00 a.m. in the morning to 11:00 p.m. at night and received about 10,000 calls a day. Though most of the calls were routine enquiries, many of them were about the purchase of tickets on an average, about 1,500 tickets were sold through the call centres. Redbus recently deployed a call-log software, which enabled the generation of reports to monitor the performance of the call centre as well as the individual employees working there. These reports, along with recorded calls, were used for training purposes to ensure a higher level of service quality.

Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

182

Rakesh Gupta and Ajay Pandit

Today Redbus has about 5,0006,000 of their own travel agents and by using networks such as Suvidha, Sugal and Damini, Itzcash, etc., they are able to reach out to more travel agents. Through all these partnerships, Redbus has 75,000 point of sales outlets. Ticket cancellations and fare refunds were delivered through the companys various sales channels. Most cancellations were reimbursed with coupons for Redbus bookings for a later date as they discouraged cash refunds (though it could have been provided under exceptional circumstances). Redbus provided the option of tickets delivered at home, for an extra charge of US$0.5, and gave customers the option of paying via cash, cheque, credit card and debit card. Customers could book, select a seat, book roundtrip tickets, as comprehensive information on bus schedules, destinations and price options across operators was provided by Redbus. The contribution of online mode, call centres, partner channels and mobile phones was 60 per cent, 30 per cent, 9 per cent and 1 per cent, respectively, in volume terms (Table 4).
Table 4. Data for Each Channel of Sales of Redbus Website Tickets sold/day Percentage of sales Commission Costs associated Home delivery Regional Language support 3,000 60% 10% Minimal Yes No Call Centres 1,500 30% 10% Operator salaries, telephone bills, rental of facilities Yes Yes Channel Partners 450 9% 5% 5% commission paid to channel partners No Dependent on channel partners Mobile Phones 50 1% 9% 1% commission paid to telecom partners Yes No

Source: Company documents.

Building a Company with Distinct Culture


Even though the company had grown rapidly and was able to raise a lot of capital, the founders kept constant focus on low costs. They decided very early that the company would have a distinct culture, which would be built on the principle of low cost operations, professional integrity and better customer service. Phani described Redbus as a conservative Indian company that kept a strong focus on low cost operations and tried to reduce costs wherever possible. The founders decided that their offices would be low frill, to the extent that even today, they do not have air conditioners. The founders still travel by bus to meet operators even on long routes like BangaloreMumbai, which takes twenty-two hours. The three partners started taking a minimal or survival salary starting February 2007, and even though the company had grown manifold, they still receive the same monthly salary. The founders recruited people for their call centres who know the vernacular language of the region in which it is located rather than English-speaking executives. This resulted in recruiting employees at lower salaries. One conscious decision that helped the founders gain respect and trust from the operators was the decision not to raise commission even when they were filling 90 per cent of bus seats which made the bus operators work with them as partners. Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

The Journey of Redbus

183

Though the company had not come out with a formal code of ethics, but the founders believed that to be a successful organization, it needed to portray transparency, integrity and honesty to elicit trust. This focus on transparency and honesty helped them in building a strong relationship with various stakeholders including Venture Capital firms, bus operators, employees and others.

People
As they were building the company, the founders persuaded Abey Zacharia to join as Head of Business Development while Mayank Bidawata joined the Marketing department. Both were MBA graduates Abey from the University of Madras and Mayank from the Asian Institute of Management, Manila. Mayank had worked in direct marketing at Lintas, and before that, handled retail banking products at ICICI. He gave up his job in Mumbai, relocated to Bangalore and took a salary cut to become part of the Redbus venture. The Head of Alliances, Aditya Swaroop, an MBA from IIM Kozikode, worked in Corporate Strategy at Airtel in Delhi, also took a salary cut and moved from Delhi to Bangalore to join Redbus. They all came together because of the latent opportunity in the online bus ticket segment and belief in Redbus (Table 5). Today, Redbus has an employee base of 250, and this year it is expected to increase by an additional 100. Redbus growth has led the company to start introducing various systems to help manage the organization better, such as the recently introduced appraisal management system. They have been continuously working on increasing the scalability of their team and increasing their capability to handle new load, traffic and traction. As the company was expanding and in the process of scaling up, Redbus hired a few experienced professionals to get the required skill sets; therefore, they employed a Chief Financial Officer (CFO) and heads of Technology, Marketing, and Operations.
Table 5. The Team
z

Phanindra Sama, Co-founder, B.E. (Hons) Electrical Engineer from BITS, Pilani. Previously worked with Texas Instruments, Bangalore, for four years. Sudhakar Pasupunuri, Co-founder, B.E. (Hons) Engineer from BITS, Pilani. Previously worked with IBM, Bangalore, for four years. Charam Padmaraju, Co-founder, MSc (Hons) Physics and B.E. (Hons) Engineer from BITS, Pilani. Previously worked with Honeywell, Bangalore, for four years. Abey Zacharia, Head, Business Development. Previously worked with Standard Chartered and Citibank, Masters of Business Administration, University of Madras. Mayank Bidawakta, Head, Marketing, MBA, Asian Institute of Management, Manila. Previously worked with ICICI Bank as Product Manager. Aditya Swaroop, Head Alliances, MBA-IIM-Kozikode, previously worked with AIRTEL.

Source: Company documents.

The Growth Story


Over a period of time, the companys value proposition had started appealing to people and Redbus started generating more buzz. Customers started using their website increasingly as consolidated Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

184

Rakesh Gupta and Ajay Pandit

information about departures and fares was not available anywhere else. Nobody knew how many buses went from X to Y, at what time and what the price of the ticket was. Once the customers started using the Redbus website, it was relatively easy to build the network. The company established itself in August 2006, with a single bus operator, with an inventory of ten tickets, covering two routes (Tables 6 and 7).
Table 6. Major Milestones
z z z z z z z z z z z z

August 2006: Launch of the Redbus website and the Bangalore office. December 2006: Launch of the Hyderabad office. February 2007: Launch of the Chennai office. April 2007: Launch of the Mumbai office. May 2007: First round of funding. June 2007: Launch of the Pune operations. August 2007: Launch of the Delhi operations. December 2007: Launch of the Ahmedabad office. July 2008: Second round of funding. December 2008: Launch of the Coimbatore office. August 2009: Launch of the Vijayawada office. September 2010: Launch of the Visakhapatnam office.

Source: Company documents.

Table 7. Company Details Company: CEO: Year founded: Website & email: Mission: Redbus Country: India (Bangalore) Phanindra Sama Industry: Bus Ticketing 2006 Employees: 250 www.RedBus.in To solve the inefficiencies in the Indian bus industry by making ticketing more transparent to the customer.

Source: Company documents.

Today, Redbus has a network of 700 operators on more than 10,000 routes with an inventory of 500,000 tickets covering 2,500 cities and towns in sixteen states. Redbus has seen positive growth since its inception, selling an average of 5,000 bus tickets per day with ticket sales experiencing 20 per cent growth on a month to month basis. The first year was not a full year and they did business worth US$100,000, but by the second year ending March 2008, the revenue reached US$1 million. In 2009, the revenue grew six times and touched US$6 million and Redbus turned profitable from December 2009 onwards. By March 2010, the turnover crossed US$14 million and had touched US$30 million by the current year ending March 2011, which they expect to reach US$200 million by 2015 (Table 8). With 250 employees, ten offices (in Bangalore, Hyderabad, Chennai, Coimbatore, Pune, Delhi, Visakhapatnam, Ahmedabad, Mumbai and Vijayawada), seven physical and three satellite call centres and home delivery of tickets in ten cities (Figure 2), Redbus has come a long way. From just the birth of an idea a few years ago, Redbus today has established a strong brand and is the first and the fastest growing online bus ticketing company in India (Table 9). Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

Editors Introduction

Table 8. Redbus Growth 2006 2650 2 Less than 50 US$0.1 million Break-even Own capital 51100 5 100 US$0.5 million Losing money Venture capital 10160 1 150 US$1 million Losing money Venture capital 161210 1 300 US$6 million Making money Venture capital 2007 2008 2009 2010 21130 1 600 US$14 million Making money Venture capital 2011 250 Nil 700 US$30 million Making money Venture capital & internal resources

Number of Employees Launch of Offices Number of Operators Turnover Profit Source of Capital

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

Source: Company documents.

185

186

Rakesh Gupta and Ajay Pandit

Figure 2. Location of Corporate Head Office and Branch Offices


Source: Company documents.

Table 9. Compiled Summary of Redbus First Press Coverage Exclusive interview with Redbus.inIndias first vertical for online bus tickets Written by: Madhur from I-leher On Oct. 18th, 2006 Online ticketing is big. Its clearly leading the ecommerce industry in India. IRCTC (online railway ticketing) is the biggest player followed by air tickets. Not surprising that there are so many travel portals funded by the biggest VCs in India. We had a chat with the three co-founders (Phanindra Sama, Charan Padmaraju and Sudhakar Pasupunuri) of Indias first vertical for online bus tickets called Redbus.in. They launched the site just a couple of months back in August 2006 and have already partnered with few bus operators in India and are doing great in terms of sales. Below we share their experiences, insights and thoughts on business, industry and consumer trends. 1. What inspired you to start this venture? This venture has come out as a result of a necessity. Last Diwali one of the co-founders was looking for bus tickets to travel home and missed the bus because of getting too late in buying the ticket. Thats when the idea struck that it would be really useful to have a service where people can buy bus tickets online. 2. Overview about how the company evolved from idea to live state? Started off with talking to travel operators to understand how the industry works. Surveyed the bus operators and travel agents to figure out the logistics. Convinced the bus operators about advantages of online tickets sales. Provided the software needed to maintain their tickets inventory. While some operators signed up for real time tickets inventory update to Redbus, most of them agreed for providing tickets to Redbus on a quota basis. 3. How does your team look like? 3 business development and marketing people, 2 software developers and 3 customer support agents. All currently based in Bangalore. (Table 9 continued)

Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

The Journey of Redbus


(Table 9 continued)

187

4. What is your business model? Commission from booking tickets and ads on the site. 5. How is Redbus doing so far? Any feedback from customers? There has been a growth rate of 100% every month since inception. Ticket sales for this month as of today (October 17) are already more than double the sales from the complete month of September. Customers have given very positive feedback. 6. What are some of the key challenges in your business? Making sure that assigned seat (during e-booking) remains when passengers board the bus. There is a lot of travel on weekends, but on other days occupancy is less. 7. What are the marketing strategies that you have been using? Email distribution lists, pamphlets on bus stations, posters inside the busses, Google ad words (surprisingly number of clicks resulting from that is not very significant). 8. What is the payment method most used by users? There is a 5050 split between credit and debit card. Plan to introduce mobile payment soon. 9. What are the challenges of running a business in India? Other than the obvious issues of Internet penetration and customers being hesitant of doing credit card transactions online, evangelizing and educating the customers is a big task. Things do not always get done as fast as you would like. Coding gets done fast, but there are lot of other variables and things can get delayed to them. 10. How has TIE-EAP program helped you? TIE was really helpful from day one. It was a source of continuous mentorship and direction. It provides a great network of relevant and useful people in the industry.
Source: Company documents.

Future Challenges
Today, Phani is certain of that fact that whenever a young engineer would like to spend Diwali with his loved ones, he would not have to fret about the uncertainty of getting a bus ticket. Over the passage of time, Phani had won various awards, is ranked number three amongst Indias Most Promising Entrepreneurs by Business World and was awarded the Star Entrepreneur of the year at the 3i summit. Redbus is among Forbes top five start-ups to be watched in India in 2010. It is only the second Indian firm to be part of an international network, Endeavor, which is a non-profit organization initiated by Harvard alumni. Endeavor identifies high-impact entrepreneurs and assists them in scaling up their businesses. The company has changed the nature of road travel as travellers can now buy tickets online, and the concept of advance booking, return tickets and seat selection has emerged in this sector. Phani believes this segment is nowhere near getting saturated and that there would be an explosion in growth powered by higher Internet penetration, urbanization, better roads and liberal government policies. The passion of the founders to work in this segment, transform the nature of this segment, and make an excellent experience for consumers is strong. This has prevented them from considering the option to sell off Redbus even when they received excellent offers to sell the company. But the founders resisted the urge because of the passion and belief they have in the offering. As Phani said, We have no personal goals and targets from Redbus and just want to build a great company. Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012

188

Rakesh Gupta and Ajay Pandit

Phani has mulled over the future direction of the firm as players such as Ticketwala.com and others have begun to sell bus tickets by automating the operators inventory system. Ticketvala.com is a software provider that would charge a transaction fee for every ticket sold through its platform. The company considers itself a software vendor and a platform operator first, and second as a consumer ticketing brand. Redbus is planning to launch an inventory management system targeted at bus operatorssomething that was their initial business model. The founders sensed a higher probability of success this time because more and more operators have bought computers. Already 300 out of the 700 operators that Redbus works with currently have fully automated their ticket reservation systems and Phani thinks that in the next few years, most of the operators will computerize their ticket reservation systems. Regarding this option of launching the inventory management system, the issue concerning Phani was that the majority of the market was occupied by small operators with a fleet size of less than 20 buses. Phani was still not very sure about how these small operators would respond to the proposal. This may affect the growth of Redbus or at least slow it down in the near future, as this was the segment they are set to tap into to increase their inventory as they have already covered most of the large- and midsized operators. The other issue was the entry of major travel portals like Yatra.com and Makemytrip.com, as they were expanding into this space as well. These were very big players in the travel industry and offered a basket of services rather than the standalone player like Redbus. They enjoyed excellent brand equity as well as huge consumer traction in the market and Phani was not very sure whether to compete or coopt with them. Phani was planning to discuss these issues at length with Sanjay in their next interaction before chalking out his future course of action. Notes
1. Internet Worldstats by Miniwatts Marketing Group. 2. An Indian game show based on the UK game show, Who Wants to be a Millionaire?

References
Indian Brand Equity Foundation. 2011. Industry Report on Tourism and Hospitality. Available at http://www.ibef. org/industry/tourismhospitality.aspx, accessed on 1 August 2011. Sachitanand, Rahul. 2010. Rush for Coach Class, Business Today, 21 March. Available at http://businesstoday. intoday.in/story/rush-for-coach-class/1/5353.html, accessed on 1 August 2011.

Asian Journal of Management Cases, 8, 2 (2011): 171188

Downloaded from ajc.sagepub.com at V I T UNIVERSITY on January 31, 2012