While consolidation is good for investors and entrepreneurs, it reduces competition. Mergers of large consumer internet startups often become detrimental to consumer choice and fair-market pricing.
If you ever happened to scout for budget stays across India – in the last 18 months – rarely you would find quality and cheaper rooms on any other site, cheaper than GoStays, a brand owned by Naspers-funded Ibibo Group.
Earlier this year, one could find quality rooms on GoStays in most Central Business Districts of India’s major cities for as low as Rs 1500. Couple it with a 60 percent cashback discount that GoIbibo was offering, the booking amount came to as low as Rs 750, the cost of a lunch meal at a decent restaurant in any metro.
OyoRooms was offering rooms starting Rs 999. In city centres, it cost about Rs 1200 for a decent room.
MakeMyTrip launched its Value+ budget rooms segment, last year and it blocked smaller aggregators. However, it faced an onslaught of price war with GoStays, OyoRooms and the now defunct Zo Rooms.
Heavy discount wars between OTAs
For the same quality of rooms, priced higher on MakeMyTrip, a customer would often chose the Naspers funded Ibibo or the Softbank funded Oyo Rooms.
However, with the Ibibo Group and MakeMyTrip merger, it has been announced that there would be ‘rationalisation’ in the discounts and cash-backs being offered by the group.
“It is fair to imagine that there will be a rationalisation in marketing spend for both brands and in the kind of competitive scenario we have been seeing. It had led to competition by both brands,” said Deep Kalra, MakeMyTrip Group founder and chairman. “It is something fair to imagine that within the realms of keeping fast growth we will rationalise it,” he added.
However, GoIbibo founder and CEO Ashish Kashyap said that his consumers should be not be worried about the merger.
"I can assure you that GoIbibo for now will run as a separate brand and the discounts including cash-backs will continue," he assured consumers through Moneycontrol.
OyoRooms had further dropped prices further in last few months, to compete with GoStays. It is offering a 25 percent discount on current rooms pricing it at often equal or lower than GoStays for same properties. But how do the aggregators make money? The simple answer is - often they do not.
Here is it how it works – Hotel or guest house owners end up giving capacity to multiple Online Travel Aggregators. Often you would find the same property available for a higher price on one OTA but lower on the other. Thus the hotel room price is often subsidised by venture capital coffers of the OTAs. For listed companies such as Yatra and MakeMyTrip, it’s difficult to justify the bleeding price war.
But as a consumer, it makes me happy when the service providers compete against each other, either for quality or on price. However, when consolidation takes place, cartels emerge which can move prices up or down, as per the whim of large businesses. This has started to happen in the online taxi aggregation space.
The acquisition of TaxiForSure by Ola and the infusion of large capital by two big firms - namely Uber and Ola, have led to other VCs backing off. Smaller taxi aggregation startups have virtually died in the sector.
Last week’s simultaneous increase of fares by both Ola and Uber are an example. While Deep Kalra said that the deal has got a clearance from Competition Commission of India. It is fair to say that governments across the developing world have not been able to control cartelisation in the online space. CCI had earlier exonerated Uber and Ola.
Competition ensures choice
Earlier the travel aggregation space in India was dominated by MakeMyTrip and Yatra. Then came GoIbibo, IxiGo, and other VC funded startups such as OyoRooms, FabHotels and Treebo. Other firms such as Stayzilla and Wudstay which earlier were doing aggregation business have now however shifted their focus towards alternate stay segment.
While OYO runs more of an aggregation business along with few flagship properties, Treebo and Fab are based on franchise model wherein they lease a property, get it renovated and then sell them on their platform. These start-ups mostly target budget travelers.
Interestingly, online travel agencies including MakeMyTrip, Yatra and Goibibo had delisted OYO last year. The companies went ahead and launched their own budget hotel business. This was good for the consumer who saw a variety of choices in the sector and prices which varied across spectrum.
While MakeMyTrip plans to keep GoIbibo and MakeMyTrip as separate brands, ultimately the prices across the spectrum which a consumer pays will not vary.
We have seen it in the airline or pharma space, where prices are regulated by the government. However in the sectors such as hospitality, when investors look for exits and consolidation takes place, it’s the consumer who loses.