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W13193

REDBUS: THE NEXT STEP FOR GROWTH

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Sandeep Goyal and Professors Amit Kapoor and M.P. Jaiswal wrote this case solely to provide material for class discussion. The
authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised
certain names and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the

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permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.

Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-05-15

As of August 2012, redBus operates in the niche area of the inter-city bus travel booking industry.
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The business model is very simple. We help the bus operators to sell tickets on one end and help
the bus travelers to buy the bus tickets on another end. We do it with 800+ bus operators, 40,000+
agents, and 10+ million customers by enabling a real-time technology platform, which connects
the bus operators, online travel agents (OTAs), and bus travelers in a seamless and transparent
manner. We have been pioneers in the fragmented bus transport industry and have achieved a
growth of 1000 times by FY2012 since the launch in FY2006. However, we need to evaluate the
current business model and make a decision on the future business model to achieve annual
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revenues of US$1 billion by FY2015.

Phanindra Sama, CEO, redBus

BACKGROUND
No

Until 2006, inter-city bus transport in India was dominated by the manual ticket-booking process, which
involved dependence on travel agents to make calls to private bus operators to check the availability of
seats and book tickets. The overall industry was characterized by a fragmented supply chain, which
involved thousands of bus operators relying on travel agents to fill up their bus seats. This supply-side
fragmentation posed challenges for bus travelers, who were dependent on travel agents for finding out the
available seats and booking them. The whole system lacked transparency for the bus operators as well as
the bus travelers, as both were dependent on the travel agents. From 2006 onwards, the manual ticket-
booking process was replaced by a more transparent online ticket-booking process. In online booking, bus
travelers were able to directly book their tickets by accessing the online booking web site or making a call
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to the call centre. redBus was the chief architect in bringing this disruptive transformation to the bus
travel industry.

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The launch of redBus in 2006 had an interesting background. When Phanindra Sama could not get a bus

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ticket for visiting his hometown during Diwali1 in 2005, he realized the limitations of the agent-
dominated manual bus ticket-booking process. He decided to tackle this demand-supply gap. He
performed thorough market research, sought advice from TiE2 (The Indus Entrepreneurs), and finalized
his business plan aimed at bridging the demand-supply gap in the bus travel industry. He entered into a
partnership with fellow BITS Pilani alumni Charan Padmaraju and Sudhakar Pasupunuri and launched the

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bus-ticketing company in 2006. redBus introduced a technology platform that acted as a real-time
interface between bus operators and bus travelers. At the same time, redBus ensured that there was an
alternate channel for bus ticket booking and cancellations by setting up call-centers. By 2012, it had
become the largest bus ticket company in India in almost all respects, including serving the largest
network of bus operators, most tickets sales, most distribution outlets, and highest number of booking
transactions per day. By 2012, redBus was handling a daily transaction volume of 19,000+ bus services
everyday across 20+ states, including two government regional transport corporations (RTCs).

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BUS TRAVEL INDUSTRY

Bus transport was considered one of the most accessible and affordable modes of transportation in India
across states and cities. It was fragmented and included government RTCs and thousands of small private
bus operators. In 2012, 65 per cent of private bus transportation was served by bus operators that had a
fleet size of fewer than 20 buses each; 25 per cent of the market was served by those having a fleet size of
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fewer than 75 buses; and the remaining 10 per cent of the market was served by those having a fleet size
greater than 75 buses. All these private bus operators were dependent on travel agents to fill their seats.
During the 1990s, there were two key factors that transformed the landscape of the bus transport industry.
One factor was the liberalization of the Indian economy. This transformed the overall socio-economic
landscape and resulted from the entry of multinational corporations and the expansion of manufacturing
and services. The growing demand for skilled professionals led to the migration of people to large cities,
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thereby increasing the scope and demand for inter-state and inter-city bus transportation. The other factor
was the increasing demand for adoption of Internet and communication technologies in India since 2000.
Internet penetration had increased from 0.66 per cent in 2000 to 10 per cent in 2011. This had triggered
the growth of online travel and commerce. By 2012, the overall bus travel industry in India was growing
at a rate of 25 per cent per annum, had a market size of US$2.5 billion, and comprised annual sales of
approximately 220 million tickets.
No

UNDERSTANDING THE CONTEXT — CHALLENGES AND OPPORTUNITIES

There were several challenges faced by the private bus operators and bus travelers. The key challenge was
the lack of aggregation of the private bus operators, who were operating as standalone players in different
cities across India. The fragmented supply side, coupled with the manual ticket-booking process, led to
huge information asymmetry and resulted in demand-supply issues and revenue loss for bus operators.
The ticket-booking process for private buses was driven by travel agents, who needed to be contacted to
check the availability of tickets and book them (see Exhibit 1). The process included (1) a passenger
going to a travel agent’s shop; (2) the travel agent calling up the bus operators in his network one by one
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for ticket availability; and (3) the travel agent issuing the ticket and the payment receipt, subject to the
availability of the seat.

1
Diwali is known as a festival of lights in India. The word “Diwali” means “row of lighted lamps.” It falls between mid-October
and mid-November. It is celebrated as a victory of good over evil, light over darkness, and knowledge over ignorance.
2
TiE refers to The Indus Entrepreneurs — a global non-profit setup to foster entrepreneurship.

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This booking process had its limitations and challenges. There was no information symmetry among bus

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operators, travel agents, and bus travelers. Each travel agent was operating in standalone mode with
access to few bus operators. The system provided no flexibility to travelers in booking tickets directly on
their own. Also, due to the lack of visibility in the available options, travelers had to pay the premium fare
demanded by the travel agent. Bus operators suffered from payment delays, as they were dependent on
travel agents to get their payments and also had to bear losses due to vacant seats.

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Sama understood these pain points of the bus travelers and bus operators and decided to convert them into
an opportunity by leveraging the technology and processes to aggregate the inventories of seats in real-
time and providing a direct booking facility (web-based and telephone) to travelers. From redBus’s
perspective, entering this space had its own set of organizational challenges in the beginning. The first
challenge was in building the social acceptance among bus travelers to move beyond the travel agents,
pay online, and book tickets directly. This required walking the thin line between acquiring the available

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inventory of seats from bus operators, on one end, and bringing the travelers to book those seats, on the
other end. One did not come without the other. The company managed this challenge by embedding the
customer orientation and problem-solving mindset in its organizational culture. The second challenge
faced by redBus was to convince the bus operators to embrace technology and adopt redBus’s software
application for uploading the inventory of seats in the centralized server. The bus operators were hesitant
in shifting to an Internet-based booking process. To win their confidence, redBus proved the business
model to the bus operators by selling their unbooked seats online. The third challenge faced by redBus
was to ensure customer service excellence by managing the operational complexity resulting from the
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increase in volumes. The company built a reliable and scalable cloud-based infrastructure complemented
by a network of 25 regional offices across India to ensure customer service excellence.

COMPETITION
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Since 2000, the online travel market in India had witnessed strong growth with the entry of a large
number of national and international players. The industry grew from INR62.5 billion in 2007 to INR
378.9 billion in 20113 (see Exhibit 2). IRCTC (the Indian Railways online train-booking portal) was the
leader in train bookings. Other online travel agents (OTAs) like MakeMyTrip and Yatra focused on
bookings for air travel, hotels, cabs, and tours. Few of these large OTAs offered online bookings for bus
tickets. During 2012, online travel bookings were segregated into rail travel (20 per cent market share),
air travel (60 per cent), and other (20 per cent). The latter 20 per cent market share belonged to online
bookings for hotels, cabs, buses, tour packages, travel insurance, etc.
No

redBus had three main types of competition. The first category of competitors included big players like
Indian Railways (IRCTC online) and OTAs (MakeMyTrip, Cleartrip, Goibibo, Yatra, and Expedia).
These companies held more than 80 per cent of the market share of the online travel market. redBus
partnered with a few OTAs by providing an application plug-in (Seat Seller) to enable them to offer bus
travel booking services. However, Sama believed that OTAs were not the direct competitors of redBus.
He said, “We are uniquely positioned to serve the middle class. It is a very non-overlapping thing with the
other OTAs, which serve airline consumers. It is not the same consumer.”
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The second category of competition comprised individual travel agents, who were using a manual ticket-
booking process. Most of the bookings in smaller towns and cities were done with the help of these travel
agents. redBus competed with them by using a three-step approach. The first step involved building a
technology platform to enable the real-time booking online. This booking process provided add-on
3
US$1 = INR41.21 average (2007), http://fxtop.com/en/historical-exchange-rates.php, accessed April 22, 2013. US$1 =
INR46.68 average (2011), http://fxtop.com/en/historical-exchange-rates.php, accessed April 22, 2013.

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options for the bus passengers like choice of seat and comparison of buses. This was targeted at

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populations who were comfortable making online transactions. The second step involved setting up
offices across locations in India for telephone bookings. This was targeted at populations who did not rely
on Internet-based transactions. The third step involved commission-based partnerships with travel agents
for enabling the use of the redBus platform for the booking of bus tickets.

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The third category of competition included direct competition from online bus ticket-booking companies
like Travelyaari, Ticketgoose, AbhiBus, SimplyBus, Nomorequeue, Busticketvala, and Mybuswala. Most
of these were regional players who did not possess the scale, reach, and network enjoyed by redBus.

redBus had a market share of more than 65 per cent in online bus ticket-booking during 2011. As per
redBus’s estimates, 50 per cent of bookings on the redBus platform were done via the Internet, 30 per
cent were done via call centres, and 20 per cent were done via OTAs using the Seat Seller network.

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ABOUT REDBUS

Overview

During 2006, redBus was launched in Bangalore, India, as a format-independent bus-ticketing company
with a centralized real-time inventory database, online and offline bookings, and a distribution network.
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When asked to comment on the medium for ticket bookings, Sama replied, “We are always telling
ourselves that we are a bus ticket company independent of the booking format. That means we will have
equal investments on our call centre team as we have on our Internet team.”

It defined itself as a bus-ticketing company that served bus operators by providing an online platform to
display their real-time inventory, and served bus travelers by providing an efficient online and offline
ticket-booking and delivery network. The key focus was on enabling a technology platform supported by
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a physical network to bridge the technology gap between demand and supply in the bus travel industry. It
operated in both the business to business (B2B) and business to consumer (B2C) segments, with the B2C
segment contributing 80 per cent of total revenues.

For bus operators, the company offered an application plug-in called BOSS (Bus Operators Software
System) to upload the inventory of available seats into the redBus system. This enabled redBus to acquire
real-time access to the available seats on different routes. For non-computerized bus operators, the
No

company took the inventory inputs by phone and uploaded them manually into the redBus system. All the
information about routes, seat availability, price, etc. came to redBus in real-time.

For bus travelers, the company provided multiple options for booking tickets. This included the company
web site (www.redBus.in), call centres, franchisee outlets, and through other OTAs who used redBus’s
Seat Seller application plug-in on their web sites. The customers had access to multiple search options
regarding fare, quality of service, route, seat number, etc.

For the OTAs, the company offered the Seat Seller plug-in (a global distribution system) to embed bus
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ticket bookings on their respective web sites. Sama commented, “We have redBus, which is a consumer-
facing travel agency where all the information is put for consumers. We realize the same information is
also useful for travel agents so we take the same information and put it on Seat Seller for travel agents.”

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Customer Segments

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redBus defined its customer segments across five categories. The first category included the private bus
operators. The company built an integrated network of 800+ bus operators and sold a cloud-based variant
of the BOSS software application to those who had an online presence. This was used by the bus
operators for uploading their seat inventory to the redBus server in real-time. The offline bus operators

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used alternative means for sharing the inventory of their seats with redBus. The second category included
the bus travelers, who used the redBus web site and call centres for booking bus tickets. This segment
included men and women in Tier I and II cities, in the age group of 20-40, who had access to credit cards
and were Internet savvy. The third category included OTAs like Expedia and Yatra. These OTAs were
primarily doing online bookings for air travel, hotels, cabs, and package tours. redBus powered them to
undertake bus ticket bookings via an application plug-in called Seat Seller. The fourth category included
state government RTCs. Most of these RTCs were unprofitable due to vacant seats on return routes from
different states and needed help in increasing customer volumes. The company started working with two

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of these RTCs for different routes. The fifth category included bus manufacturers. As ticket sales and the
number of routes increased, bus manufacturers like Volvo and Daimler started expanding their
manufacturing base in India. They looked to redBus for getting statistics regarding consumer preferences
with respect to choice of buses, potential business volume, and so on.

Customer Value Proposition

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redBus realized very early on that the main entry barrier in this business was a customer value proposition
driven by an ecosystem of trust and transparency for bus operators and bus travelers. The value
proposition included a suite of three different products (see Exhibit 3) comprising (1) the BOSS
application for bus operators; (2) the web site (www.redBus.in), offline call centres, and franchisee
contact points for bus travelers (B2C); and (3) the Seat Seller application for online travel agents (B2B).
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redBus defined its business as enabling access to a reliable and transparent ticket-selling and -buying
system for bus operators and travelers. For private bus operators and RTCs, the value provided by redBus
included (1) increases in revenues by reflecting the real-time inventory of available seats to travelers; (2)
timely payment for ticket sales; (3) standardized commission rates; (4) sharing research and analytics-
based information on new profitable routes; (5) providing equal visibility to all operators, small or big;
(6) eliminating the dependency of the bus operators on travel agents for seat bookings and payments; and
(7) online ratings of the bus operators on the basis of quality of service.
No

Regarding the benefits derived from building a relationship with bus operators, Sama replied, “Our
customers basically come to us and tell us if there is some unfair trick happening on the ground. It is just
because of the relationship that we have developed with them. Our operators tell us how we should
operate, etc. They come to us for counseling as well as what should be done by us on the ground. This
kind of relationship gives us a competitive advantage and becomes very, very difficult and takes a lot of
time to develop.”

Regarding bus travelers, the company focused on building trust and transparency by undertaking ongoing
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actions aimed at improving efficiency, accessibility, and availability for bus travelers across India. For
bus travelers, the value provided by redBus included (1) transparency in the booking process; (2)
reliability of service; (3) real-time access to the available tickets on requested routes; (4) transparent
pricing; and (5) choice on the bus, seat number, payment mode, ticket delivery, pick-up point, etc.

For OTAs, the value provided by redBus included access to the mass customer segment travelling by bus.

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Organizational Structure and Leadership

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The leadership comprised a group of young, passionate, dynamic individuals with technical expertise and
a common focus on service delivery excellence. The leadership team built an entrepreneurial culture
characterized by a focus on problem-solving approaches and responsive behaviour. redBus used a
decentralized organizational structure that offered flexibility and empowerment for employees to share

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their input on anything from technology to strategy.

Value Network — Collaborations and Partnerships

redBus realized the importance of technology and capital in scaling up its business venture. It leveraged
the technological capabilities of Amazon by using Amazon Web Services to build a reliable and scalable
cloud-based infrastructure that could handle all its operational complexities that resulted from a huge

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number of online queries and transactions. The company was one of the earliest adopters of Google Big
Query.4 This enabled it to provide a seamless online experience to customers who accessed the
company’s web site for search, evaluation, and booking transactions. Regarding capital, redBus gained
the trust and support of venture-capital investors like Seedfund, Inventus Capital Partners, and Helion
Capital Partners. These investors had complete faith in the business philosophy of the company and
considered it one of the most capital-efficient firms in the travel industry. Regarding mentorship, redBus
received tremendous support and insight from TiE during its formative years. TiE helped the company
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establish and fine-tune its business model based on findings from market realities after the launch.

The demand-supply network created by redBus led to a huge network effect. The integrated network of
bus operators and distribution channels became a huge entry barrier for competitors. The increase in
booking transactions on the demand side motivated the bus operators to increase their capacity, and the
subsequent increase in available seats pulled more traffic to the redBus web site. This created a win-win
opportunity for all the actors (bus operators, redBus, and bus travelers).
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Performance Indicators and Metrics

redBus focused on technology and customer satisfaction benchmarks as criteria for performance
assessment. The company functioned in a complex operational environment where the online interface to
travelers processed large numbers of transactions simultaneously. Apart from the number of transactions,
No

the nature of transactions was very complex, unlike those in air and rail travel bookings. The server up-
time, transaction response time for customer queries, friendliness of user interface, load balancing, and
real-time inventory upload time were some of the critical performance indicators for the company.

Experimentation and Learning

redBus realized the importance of experimentation and analytics quite early during its inception. At that
time, the company started with the creation of the software application BOSS for bus operators to enable
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them to upload their inventory to the redBus servers. The thinking behind this was that information about
available seats was a prerequisite for selling them. The founders of the company took that software to
different bus operators, but failed to sell the whole business idea. After discussing it with TiE, the
founders realized that rather than focusing on software to access the inventory of available seats, they
needed to showcase the inflow of revenues as a starting step to gain the confidence of bus operators. They

4
Google Big Query was a web service that allowed one to do interactive analysis of massive datasets.

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went about proving the business model first. They blocked two of the unsold seats each with few bus

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operators and sold them online after manually uploading them on the redBus website. This convinced the
bus operators of the viability of the business model and they started adopting the BOSS application for
inventory upload. The key lesson learnt by the company during this exercise was that a working prototype
of the business model was necessary to gain the trust of other stakeholders. The company also realized
that it was important to align the business model with key stakeholders rather than pushing for drastic

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change at the stakeholder end.

Technology and Innovation

The company leveraged technology to enable a seamless experience for customers. It started with three
product offerings — BOSS, the redBus online platform, and Seat Seller. This plugged the demand-supply
gap by integrating the bus operators, bus travelers, and travel agents in real-time. Also, the company

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focused on developing analytical tools to understand the market trends from current ticket-booking
transactions. The output from these market research and analytical capabilities helped the company to
strengthen the relationships with bus operators by educating them on new profitable routes and with bus
manufacturers by sharing customers’ preferences on types of buses.

Financial Performance — Revenues, Costs, and Sales Growth

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The company developed multiple revenue streams. The first stream included revenues generated from the
sale of the BOSS application to bus operators. The second stream included revenues generated from the
sale of the Seat Seller plug-in to OTAs. The third stream included revenues generated from the
commission charged to bus operators for the sale of tickets through the redBus ecosystem.

The company invested lots of capital (CAPEX) in setting up its infrastructure, comprising regional more
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than 25 offices, the technology platform, product suites, and seven call centres. Subsequently, the
company had ongoing costs (OPEX) in terms of monthly salaries, payment gateway costs per transaction
(18-20 per cent), taxes (10-12 per cent), etc.

Company revenue increased steadily from INR0.4 million in 2007 to INR345 million in 20125 (see
Exhibit 4). The company had the unique advantage of operating on a negative working capital cash flow
due to the availability of advance money from booking transactions. This money remained with the
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company for six to seven days from the date of transaction before being paid to the bus operators. redBus
was considered one of the most capital-efficient organizations in the transportation industry in India. It
expected a profit of INR10 million in 2012, followed by a cumulative growth in profits during the
subsequent years.

THE CURRENT SITUATION — PROBLEM, OPPORTUNITY, OR BOTH?

redBus had become a well-known brand name in India by 2012. The company had created a large
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technology-based ecosystem to enable transparency in ticket bookings for bus travel. It had an impressive
growth rate (see Exhibit 4) and controlled a majority of the market share in the bus ticket-booking
industry. At the same time, it knew that there was great untapped potential in the bus travel ticketing
industry. The socio-economic trends pointed to a high-growth scenario for redBus, considering the future
demand-led growth in the capacity of bus operators in India, the setting up of a manufacturing base by

5
US$1 = INR53.42 average (2012), http://fxtop.com/en/historical-exchange-rates.php, accessed April 22, 2013.

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global bus manufacturers, the growth of jobs in services and manufacturing sectors, the entry of

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multinational corporations, the migration of skilled people to large towns and cities, and the increase in
adoption of Internet and mobile technologies. These positive trends in the social, economic, political, and
technological landscape, coupled with the competitive strengths of redBus, made it necessary for redBus
to formulate the future course of action for scalability and sustainable growth. The company identified
multiple possible options for future growth. It had to make a choice regarding the best possible option.

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Vertical Integration — Operate the Buses

One of the options contemplated by redBus was to launch its own private buses. The requirement here
was to extend the value chain backward towards the supply side. The company had developed strong
capabilities in analytics and data mining. This was a great advantage to redBus in identifying the most
profitable routes and launching its own buses on these routes. Moreover, the demand for inter-city and

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inter-state bus travel was growing at a rapid rate due to the opening up of the services and manufacturing
sectors. See Exhibits 5 and 6 for the cost economics and demand projections for the buses.

Go Global

Another option before redBus was to extend the online bus ticket-booking operations beyond India across
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international geographies. Unlike air travel, hotels, and tour packages, extending the reach in bus travel
beyond India required a totally different approach and mindset. Most countries in Asia had local travel
agents who managed the needs of local bus travelers. When asked about going global, Sama shared some
interesting insights, such as:

We get a lot of requests from other countries like USA and Europe asking us to set up a similar
online ticket-booking platform in their country. They have so many buses, but they don’t have
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such a strong online infrastructure for bus booking. We need to think about the globalization
approach carefully. Consider the case of countries like Malaysia. It has a very interesting
geography, as it is probably half the size of Karnataka, with a population of approximately 28
million in 2011. One person who is operating in Malaysia has talked to us and he says that even if
all the people in Malaysia book their bus tickets with him, still he will not be able to make enough
money to invest in development of technologies like ours. I believe we are very uniquely
positioned that way because we have a huge population in India, which gives an opportunity to
No

generate high revenues for scaling up, as well as for investing in creating a robust technology
platform including products.

Sama further said:

When we landed in Kolkata, we realized that a lot of people travel by bus between Kolkata and
Dhaka. We have a branch operator in Kolkata and he has a branch office in Dhaka. So he said he
would use the same and sell the bus tickets using the redBus ecosystem there. So, this seems to be
a good way to enter the connecting countries first. We are still not sure on the approach and just
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doing some kind of market testing here and there.

The decision to enter global markets was quite complex and required careful analysis of country-specific
indicators like socio-economic trends, population density, population growth, gross domestic product
growth, existing bus infrastructure, available means of travel, connectivity with other countries, and

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penetration of Internet and communication technologies. See Exhibit 7 for an overview of the population

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and Internet usage statistics across the globe and within Asia.

Increase the Portfolio of Service Offerings

Another option for redBus was to diversify into add-on service offerings like online bookings for air

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travel, hotels, cabs, and package tours. The online travel industry had grown from INR62.5 billion in
2007 to INR378.9 billion in 2011. The industry in India was growing at an annual rate of 50 per cent and
was expected to continue at this rate in the coming years due to socio-economic indicators, technological
advancement, and customer needs of convenience (see Exhibit 2). The top web sites in the travel category
in terms of Internet traffic in April 2011 were Indian Railways, MakeMyTrip, and Yatra Online. redBus
was ranked ninth, which was a significant achievement considering the niche status of online bus travel
bookings (see Exhibit 8). The majority of players in online travel commerce generated revenues from

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online bookings for air travel, hotels, cabs, tours, and packages. Many large OTAs partnered with Indian
Railways and redBus to offer online bookings for rail and bus travel. The logic behind this was that
people making bus and train bookings would also be interested in the core service offerings (air travel,
hotels, cabs) of these OTAs. So rather than revenue generation, the key objective behind this was to
increase customer traffic to their web sites by offering a wider basket of services. Despite the high-growth
trends and demand potential, the online travel market had high entry barriers and was dominated by five
or six large OTAs. The competition was very substantial and required continuous innovation in
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technology, end-user interface, and service offerings. The profit margins were razor-thin and customers
looked for the best online deals while making a purchase.

These growth trends were influencing redBus to diversify into online bookings for air travel and hotels. It
already had a strong technology platform and infrastructure in place to integrate these add-on value
offerings with the bus ticketing. All these offerings carried high-value transactions, which translated into
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higher revenues and commissions. Regarding diversification into air travel bookings, Sama replied:

One very strong reason, which is tempting us towards air-travel bookings, is the continuous
feedback from people. The people keep on saying that if we can aggregate so many bus operators,
we can easily launch air travel booking services where there are only five to six airlines in the
domestic market. All we need to do is to create a tab for the same on our web site. Even if 10 per
cent of our customers start buying airline tickets from the redBus web site, we will have 10 times
the revenues as compared to the revenues from the online sales of a similar number of bus tickets.
No

This should double our top line with minimal expenses and effort. This looks like a tempting
proposition, but I believe this will put us in direct competition with big players of online travel
and will thereby require a lot of management and operational bandwidth. I fear that this may shift
our focus from the core business of selling bus tickets, where, we know, we are the best.

Focus on the Core

Another option for redBus was to continue doing what they did the best. Despite being a market leader,
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redBus tapped into only a fraction of the bus travel booking business. The macro environment showed
positive socio-economic trends resulting from a high gross domestic product growth rate of greater than
seven per cent. There was a high rate of adoption of Internet and communication technologies, and the
online commerce market was growing at a rate of 45-50 per cent per annum. Online travel comprised 80
per cent of the total online commerce market size (see Exhibit 2). The bus transportation industry was
growing at 25 per cent per annum. During 2012, the overall market size for bus transport was

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 Page 10 9B13M048

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approximately US$2.5 billion, which translated into approximately 220 million tickets per annum. All

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these healthy trends signaled great potential for the companies operating in different categories of online
travel commerce within India.

THE DECISION

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The company realized that it had reached a stage where it needed to decide on its next course of action for
scalability and growth. Sama said:

We have done very well since inception in 2006. We have been growing at a very fast pace and
we intend to continue the same momentum in times to come. We aim to reach a turnover of US$1
billion by 2015. However, we do understand and realize that we have to make a transition from a
young and growing small company to an experienced and mature company. How do we plan the

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next growth strategy? How do we introduce the new revenue streams, especially from
information emerging from analytics and data mining? Should we extend the value chain by
operating chartered buses or by extending our offerings in other countries, or by diversifying into
related value offerings like bookings for air travel, trains, hotels, cabs, tour packages, etc. or by
maintaining the focus on what we are doing the best? That is, penetrate the India market further
for bus ticket bookings. These are some of the loose ends which I want to weave together to
formulate a strategic direction and action plan for the year 2015.
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Sandeep Goyal, Professor Amit Kapoor and Professor M.P. Jaiswal are from MDI, Gurgaon, India.
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No
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 Page 11 9B13M048

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EXHIBIT 1: BUS TRANSPORT BOOKING PROCESS (BEFORE REDBUS)

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Trav el Agent 1 / Branch
Pas senger 1 Bus Operator 1
Office 1

Phone Phone

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Trav el Agent 2 / Branch
Pas senger 2 Bus Operator 2
Office 2

Trav el Agent 3 / Branch

Pas senger 3 In Person Bus Operator 3
Office 3

Travel Agent N2 / Branc h

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Pass enger N1 Bus Operator N4
Office N3

1. The tick et-book ing proc es s is manual and has a dependenc e on trav el agents.
2. The pass enger contac ts one or more trav el agents in pers on or by phone for book ing the bus tick ets .
3. The travel agent c alls one or more bus operators as per his choic e, c heck s the av ailability of the tick ets , and informs the pas senger.
4. If the tic ket is available, the tick et agent takes the payment from the pass enger, does the book ing with the bus operator, and is sues the
receipt. The bus operator collec ts the pay ment from the trav el agent.
5. If the tic ket is not av ailable, then the pass enger c onnects with different travel agents and they try different bus operators. This manual process
sk ips thos e bus operators who have vacant seats .
6. Pass enger s uffers being unable to trav el and bus operators suffer being unable to fill up the vacant seats .
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Source: Created by authors based on interview with Sama on August, 17, 2012.

EXHIBIT 2: ONLINE COMMERCE MARKET SIZE IN INDIA

Online Commerce Market - India

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Market Size (INR Dec. 07 Dec. 08 Dec. 09 Dec. 10* Dec. 11*
billions)
Online Travel Industry 62.50 105.00 149.53 252.58 378.90
Online Non-travel Industry 18.96 35.30 47.35 63.40 86.30
Total Market Size 81.46 140.30 196.88 315.98 465.20
Growth Rate (Per cent) 72.23 40.33 60.49 47.22

Market Size (Per cent) Dec. 07 Dec. 08 Dec. 09 Dec. 10* Dec. 11*
No

Online Travel Industry 76.72 74.84 75.95 79.94 81.45

Online Non-travel Industry 23.28 25.16 24.05 20.06 18.55
Total Market Size 100 100 100 100 100

* approximate figures.
Source: “Digital Commerce,” IAMAI, 2011, www.ccavenue.com/downloads/ecomm21_47.pdf, accessed December 19, 2012.
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 Page 12 9B13M048

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EXHIBIT 3: BUS TRANSPORT BOOKING PROCESS (AFTER REDBUS)

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Bus Operator 1 Passenger 1
Online /
Technology Phone
Bus Operator 2 Platform Passenger 2

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www.redbus.in
Bus Operator 3 Phone Call Centres Passenger 3
In Person
Franchisee
Setups

Bus Operator N1 Passenger N2

Application Plugin
for

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Offline Travel Agents
and
Online Travel Agents

Source: Created by authors based on interview with Sama on August, 17, 2012.

EXHIBIT 4: SOCIO-ECONOMIC PERFORMANCE

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FY2007 FY2008 FY2009 FY2010 FY2011 FY2012
Gross Market Value (INR million) 3.5 41.0 260.0 540.0 1330.0 3450.0
Annual Revenue at 10 per cent (INR 0.4 4.1 26.0 54.0 133.0 345.0
million)

Bus Operators Network 800+

Regional Offices 25+
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Number of Employees 450+

Sales and Distribution Outlets 40,000+
Coverage 19,000+ bus services per day across 20+ states

Note: Data are as of August 17, 2012.

Source: Interview with Sama on August, 17, 2012.
No
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EXHIBIT 5: ECONOMICS FOR PRIVATE BUS OPERATORS

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Economics for Private Bus Operators
Volvo Percentage Luxury Percentage
Cost Component
INR/km Cost INR/km Cost
Fuel 12.6 44.06 8 46.51

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Personnel 2.1 7.34 2.5 14.53
Maintenance 2.8 9.79 1.75 10.17
Depreciation 5.6 19.58 1.85 10.76
Interest Cost 3.4 11.89 1.5 8.72
Misc. 2.1 7.34 1.6 9.3
Total Operating Costs 28.6 100 17.2 100
Earnings Per Km 36 21
Profits Per Km 7.4 3.8

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Assumptions:
1. Capacity utilization is 70 per cent.
2. A Volvo bus will run 500 km / day and a Luxury bus will run 350 km / day.
3. The cost overheads do not include marketing offices, credit cycle costs, etc.
Source: “Revitalization of Passenger Road Transport Sectors,”
http://cistup.iisc.ernet.in/Urban%20Mobility%208th%20March%202012/Report%20on%20reforming%20STUs%20in%20indi
a/ASRTU%20Final%20Report/Final%20ASRTU%20Report.doc, accessed December 21, 2012.
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No
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 Page 14 9B13M048

EXHIBIT 6: DEMAND PROJECTION FOR BUSES

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Private Bus Operators (Market Share)
Bus Transport - Service Private Operators (Per cent) State Transports
Type Minimum Maximum Average (Per cent)
Urban Operations 10 20 15 85
Intra-district and Rural 20 30 25 75
Services
Inter-district Services 40 50 45 55
No
Interstate Operations 50 60 55 45

Buses Required per Million Population

Population Range Buses per Million
>4 million 50
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2-4 million 40
1-2 million 20

Bus Fleet Requirements in India

Total Private Operators State Transports (SRTUs)
Type of Service Percentage Percentage
2006 2011 2016 2006 2011 2016 2006 2011 2016
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Market Share Market Share
Urban Operations 55,166 68,958 79,301 15 8,275 10,344 11,895 85 46,891 58,614 67,406
Intra-district and
198,327 202,484 206,998 25 49,582 50,621 51,750 75 148,745 151,863 155,249
Rural Services
Inter-district

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92,605 101,895 112,194 45 41,672 45,853 50,487 55 50,933 56,042 61,707
Services
Interstate
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35,287 40,413 46,284 55 19,408 22,227 25,456 45 15,879 18,186 20,828
Operations
Total
381,385 413,750 444,777 118,937 129,045 139,588 262,448 284,705 305,190
Requirements
Growth Rate
8 7 8 8 8 7
(Per cent)
rP
Source: “Revitalization of Passenger Road Transport Sectors,”
http://cistup.iisc.ernet.in/Urban%20Mobility%208th%20March%202012/Report%20on%20reforming%20STUs%20in%20india/ASRTU%20Final%20Report/Final%20ASRTU
%20Report.doc , accessed December 21, 2012; www.cirtindia.com/index.html, accessed December 21, 2012
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 Page 15 9B13M048

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EXHIBIT 7: INTERNET USAGE STATISTICS — GLOBAL and ASIA

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Internet Usage Statistics - World (As on June 30, 2012)
Proportion of
Internet Internet
Population Global Internet
Regions Users Penetration
(millions) Users
(millions) (Per cent)
(Per cent)

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Africa 1,073.38 167.33 15.59 6.96
Asia 3,922.07 1,076.68 27.45 44.76
Europe 820.91 518.51 63.16 21.56
Middle East 223.61 90.00 40.25 3.74
N. America 348.28 273.79 78.61 11.38
Latin America 593.69 254.92 42.94 10.60
Oceania / Australia 35.90 24.29 67.66 1.01
Total (World) 7,017.84 2,405.52 34.28 100.00
Internet Usage Statistics - Asia (As on June 30, 2012)

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Proportion of
Internet Internet
Population Asia Internet
Regions Users Penetration
(millions) Users
(millions) (Per cent)
(Per cent)
China 1,343.24 538.00 40.05 49.97
India 1,205.10 137.00 11.37 12.72
Japan 127.37 101.23 79.48 9.40
Indonesia 248.65 55.00 22.12 5.11
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S. Korea 48.86 40.33 82.54 3.75
Rest of Asia 948.79 205.12 21.62 19.05
Total (Asia) 3,922.01 1,076.68 27.45 100.00

Source: Internet World Stats, www.internetworldstats.com/stats.htm, accessed December 19, 2012

EXHIBIT 8: INTERNET AUDIENCE STATISTICS FOR INDIA (APRIL 2011)

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Travel Category - Internet Audience (in April 2011 versus April 2010)
Online Site No. of Unique Visitors Per cent Change
Indian Railways 8,399,000 8
MakeMyTrip 3,864,000 63
Yatra Online 3,520,000 82
ClearTrip 2,147,000 80
Expedia 1,832,000 12
No

Travel And Network 1,456,000 78

MustSeeIndia 1,049,000 138
IndiaRailInfo 922,000 42
redBus 807,000 99
HolidayIQ 725,000 60

Note: The total Internet audience in the month of Apr 2011n India was 43,269,000 (+13 per cent compared to April 2010).
For the travel category it was 18,517,000 (+32 per cent).
Source:
www.comscore.com/Insights/Press_Releases/2011/6/Online_Travel_Audience_in_India_Jumps_32_Percent_in_Past_Year,
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accessed December 21, 2012.

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Permissions@hbsp.harvard.edu or 617.783.7860