redBus: Moving India's Transportation Industry in a New Direction: India Knowledge@Wharton

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redBus: Moving India's Transportation Industry in a New Direction

Published : September 23, 2010 in India Knowledge@Wharton

Booking an inter-city bus ticket in India is fairly simple these days.

A few clicks on the Internet or a phone call is all it takes to
complete a process similar to the one used to purchase airline
tickets. The process was very different a few years ago and
Phanindra "Phani" Sama learned of its limitations the hard way.
The experience got him thinking, turned him into an entrepreneur
and changed the way bus ticketing is done in India.
This is a single/personal use copy of India
In October 2005, Sama, an engineer working with Texas Knowledge@Wharton. For multiple copies, custom reprints,
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Instruments in Bangalore, wanted to go to Hyderabad -- some 562 International: reprints@parsintl.com P. (212) 221-9595 x407.
km away -- to spend Diwali, the festival of lights, with his parents.
Sama knew the drill. He used to travel by bus from Bangalore to Hyderabad almost every alternate
weekend. But on this occasion when Sama reached his travel agent, he hit a brick wall. Being festival
season, there was heavy demand; there were no seats available, he was told. Sama was frantic. His
parents were expecting him and he didn't want to disappoint them. He went from one travel agent to
another but with no luck. He finally ended up spending Diwali by himself.
"I kept thinking that if only I had tried harder and gone to some more agents perhaps I could have
managed to get a ticket," says the 29-year-old Sama. More importantly, he wondered why (unlike with
airlines and railways) there was no centralized database of bus operators, bus routes and information on
availability of seats. Also, why was the information not available on the Internet?
Less than a year later, armed with market research and mentoring from The Indus Entrepreneurs (TiE),
Bangalore chapter, Sama set out to launch an enterprise that would fill the gaps in India's bus
transportation system. He partnered with fellow Birla Institute of Technology & Science-Pilani alumni
Charan Padmaraju (then with Honeywell) and Sudhakar Pasupunuri (then with IBM) to set up a bus
ticketing company with a centralized information database, online ticketing and an offline distribution
network. They named their company Pilani Soft Labs and their brand redBus. The firm is currently the
largest bus ticketing organization in India.
"RedBus has revolutionized the bus ticketing industry in India," notes Sanjay Anandaram, co-chair of the
TiE Entrepreneurship Acceleration Program and founding partner of JumpStartUp, an early stage
U.S.-India cross-border venture capital fund. He says redBus has found success because it offers
customers a wide range of information and choices, in addition to convenience.
Satyajit Majumdar, professor at the Tata Institute of Social Sciences (TISS) who has been studying
redBus closely, is impressed by the problem-solving approach of the co-founders. "This industry has been
a problematic sector for many years. [Sama] and his team are trying to address both the macro and the
micro issues and improve the efficiencies from a holistic perspective."
Ground Realities
The Indian bus transport industry has long been a highly fragmented and unorganized sector. Some 2,000
private bus operators run about 20,000 buses on long distance point-to-point routes. The buses are
formally known as "contract carriages" and tickets have to be bought in advance. Short-distance "stage
carriages" form the other category of buses in India; to ride these buses, commuters buy tickets on the
vehicle itself and can get on and off at multiple points. RedBus operates in the contract carriage space.
While a few contract carriage operators have large fleets of about 100 buses each, most are small players
with five to 10 buses. Some firms operate with only one or two buses each. The bus operators are all

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with five to 10 buses. Some firms operate with only one or two buses each. The bus operators are all
regional players lacking a countrywide presence. Given the scale of their operations, the majority of them
do not offer computerized ticketing or reservations. Instead, the companies rely on a network of travel
agents to handle bookings. Agents are given quotas of seats from the bus operators; they inform the bus
company by phone each time a seat is sold to a passenger.
But the travel agents to not have any information regarding the status of the seats given to the other
agents. The end result: a losing proposition for the bus operators, the agents and the customers -- who
often end up seatless. The system has other limitations. In most cases, there are no provisions in place for
booking return tickets. Usually, there are no published fares and the customers end up paying what the
agents demand for a ticket. There is no standardized system of numbering seats, meaning customers are
not assured of seat preference. The bus operators often have cash flow problems because agents usually
pay them monthly. Meanwhile, the agents are at the mercy of bus operators for seat allocations. "The
whole system is non-authentic," notes Sama. "This is what we are addressing at redBus with the use of
technology and processes."
A New Paradigm
In a nutshell, this is how redBus works. For operators in its network with their own computerized systems,
redBus builds the required software interfaces and integrates their inventory of routes and seats into the
redBus server. Operators who use computers but cannot afford costly upfront IT upgrades can use a
redBus software offering called BOSS (Bus Operator Software Service) through which redBus gets
real-time access to the operators' inventory. In the case of operators who are not computerized at all,
redBus acts in the same way as a travel agent: the firm is allocated a certain number of seats and uploads
them on its server manually. Once these seats are sold, redBus informs the operators by phone. Currently,
only 150 of redBus' network of 700-plus operators have computerized reservation and route tracking
systems.
RedBus sells seats directly to consumers via its website, company-owned call centers and mobile phones.
The company also sells through a network of travel agents, post offices, mom-and-pop stores and others.
The firm has about 75,000 point-of-sale outlets across the country. The redBus.in website features
relevant details about fares, seat numbers, seat availability, routes, timings and pick-up points. The
information is also available through redBus call centers and partner businesses.
The company also offers the SeatSeller, a global distribution system that redBus uses to power the bus
ticketing applications of other travel companies and online travel agencies, including ViaWorld.in and
MakeMyTrip.com. Currently, about 50% of redBus bookings are done over the Internet, 30% through call
centers and 20% through SeatSeller. Mobile phone bookings account for less than 1% of the overall total.
RedBus is paid via commission, or for transactions such as the purchase of software; the type of payment
depends on the nature of the interaction with a particular business or customer. According to Sama,
redBus earned revenues of Rs60 crore (US$13 million at Rs.46 to a dollar) in the fiscal year ending in
March 2010. The company's revenue target for this year is US$35 million. "Last year we were focusing
on consolidating our operations," Sama adds. "We implemented an ERP [enterprise resource planning]
system and put new processes in place. We are now ready for a big jump."
The Long Journey
RedBus has already come a long way. The company launched in August 2006 with two bus operators and
a daily inventory of 10 seats covering two routes. It now has a network more than 700 operators and a
daily inventory of 500,000 seats across 2,500 cities in15 states. RedBus also offers the added convenience
of home ticket delivery and even accepts payment against delivery. But convenience, according to Sama,
is seen as a given in the redBus model. "What we are offering is information and transparency."
According to Shaheen Qureshi, director of HKB Travels, which has a fleet of 12 buses, "redBus has
introduced new concepts in our industry. It has freed us from the clutches of the agents and given us a
great medium to reach our customers." He notes that with redBus, the smallest operator can have the
same reach as the biggest. Yogesh Krishna, proprietor of travel agency Radha Tours and Travels, which
has been on the redBus network for the past three years, describes the service as an "excellent one-stop
shop."

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shop."
"There are a lot of inefficiencies in the bus industry in India and there is tremendous scope for
improvements and value additions," says Aurvind Lama, co-founder of Travelyaari.com. Vasudevan
Ramasamy, co-founder of Ticketgoose.com, another bus ticketing portal, agrees. "The Indian bus
industry is still very immature and there is a lot more that can be done. Right now all of us are only
scratching the surface."
Travelyaari and Ticketgoose are among several businesses that have joined redBus on the bus ticketing
bandwagon. Most have remained regional players, however. Travelyaari, which Mantis Technologies set
up in 2008, has a network of 75 bus operators and operates primarily in Gujarat and Maharashtra.
Ticketgoose was launched in August 2007 by software company Efficsys InfoTech India. It has a network
of 150 operators and offers service only in Karnataka and Chennai. Ticketvala.com, set up by Travis
Internet in June 2009 and funded by Footprint Ventures, was acquired by MakeMyTrip.com in February
this year.
"At a surface level, the redBus model seems to be easy to replicate but getting this scale of operations is
very difficult. The aggregation capabilities and the operational efficiencies of the redBus team are their
core competencies," notes Majumdar of the Tata Institute. JumpStartUp's Anandaram suggests that the
"key value" of redBus is in the relationships it has built. "They have been able to successfully and
respectfully negotiate with the bus operators and the agents. If the chemistry had not been there, the
arithmetic would not have worked. That is the greatest entry barrier for anyone else."
Speed Bumps
In the early days, walking the fine line between acquiring inventory and pulling in customers was the big
challenge for the redBus team. One would not come without the other. "Our pitch to the operators was
that the Internet was the medium of the future. But there was tremendous resistance to change and we
were also new kids on the block," says Padmaraju, a redBus co-founder and head of engineering. The
team would spend hours waiting to meet with bus operators to convince them to sign on to the service.
Their persistence paid off and eventually two operators agreed to give them their inventory.
To rope in customers, the trio and the three employees redBus had hired at that point would take turns
standing outside various corporate offices and distributing business cards with the details of their website,
phone numbers and what the business was offering. Sama says redBus chose business cards over
pamphlets because they are easier to handle and typically receive better attention. The first few seats were
sold over the phone and the co-founders went personally to deliver the tickets. In between wooing the
operators and the customers, the team was busy developing their software.
When Sama and his team first started working on the project, they developed inventory-management
software for the bus operators. But they found it difficult to convince them of its usefulness. On
Anandaram's advice they changed direction and built the consumer-focused website. "The operators'
main interest was in selling more seats. We realized that if we had to win their attention and confidence,
we had to first prove to them that by using our technology they could increase the sale of their seats,"
notes Padmaraju. Once they got the operators on board, the team refocused on their first product and
re-launched it as BOSS.
According to Bharati Jacob, managing partner at venture capital firm Seedfund -- the first VC fund to
invest in redBus, "given the amount of capital it has used and the scale it has achieved, redBus is the most
capital-efficient company in the Indian travel industry." Jacob points out that redBus has built an
"excellent brand," but has spent only US$250,000 on marketing till now. That's a fraction of the
marketing spending of some of the other online travel brands, she says.
Helion Ventures Partners and Inventus Capital Partners are the other investors in redBus. Out of the total
VC funding of some US$2.5 million, redBus still has US$1.5 million left. Going ahead, the main areas of
investment will be to scale up the current operations, says Sama. Plans include increasing the 200-plus
employee pool, setting up regional hubs and increasing the number of call centers. Getting operators
hooked into the company's software offerings, strengthening marketing and brand building will also be
key focus areas. Sama is also exploring endeavors including setting up bus lounges for passenger
convenience and comfort.

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convenience and comfort.

Although other players have entered the sector, the growth potential in the bus transport industry is
enormous, Sama points out. "The per capita consumption [use] of air-conditioned [buses] in India is
estimated to be one per 100,000. Compare this to 10 per 100,000 in China, 60 per 100,000 in America and
180 per 100,000 in South Korea. We have a long way to go." Jacob of Seedfund agrees. "With
improvements in road infrastructure and increased Internet penetration, this industry will only grow."
Jacob suggests that the redBus team now needs to focus strongly on increasing its geographical footprint,
strengthening the brand and mining the existing customer base. "They need to get into customer analytics
and come out with segmented products," she says. Anandaram of JumpStartUp notes that bus
transportation is a very transaction-heavy business and "one big challenge is to ensure that the relentless
focus on execution and service quality continues even as operations expand." TISS' Majumdar says that
as redBus moves into the next orbit of growth, "its leadership capabilities and management bandwidth
will determine its success."
Not everyone is convinced that the redBus model is viable in the long run. Travelyaari's Lama
says offline distribution is not a viable strategy since "it increases the operational costs." Sama
agrees that managing offline services is challenging, but says that redBus is trying to serve a
diverse consumer base. Pointing to the Nasdaq-listed Chinese travel company C-Trip, which has
call center operations with more than 4,000 people, Sama says, "as long as we can remain
profitable we will offer the offline booking and home delivery service to customers. We want to
rewrite the rules in the Indian bus industry."
This is a single/personal use copy of India Knowledge@Wharton. For multiple copies, custom reprints, e-prints, posters or plaques, please
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