In any burgeoning online travel market, as in any e-commerce category, scaling up and ensuring continued growth is a tricky issue. The rapidly growing Russian market is no exception, as Ritesh Gupta finds out in this exclusive interview with the chief executive of Oktogo.ru

One of the big challenges for any online travel agent is to assess the willingness of the target audience for online transactions. In doing so the OTA has to decide whether it should position itself as a pure online player or support a hybrid approach by going for a mix of online plus offline presence. Once an industry sees growth - and with the OTA market doubling in 2012 Russia certainly has - the fight for driving traffic to transaction-oriented sites becomes intense. While there are lessons to be had from traditional players like Expedia and even relatively new entrants such as Google, Russia needs to tailor its offerings to the requirements and profile of their customers.

Russia is showing signs of steady progress but the battle is on, however, for building the best brand and product or service for the mass market. “The risk for the industry is an early emergence of hotel meta-search and aggressive price competition,” says Marina Kolesnik, CEO and co-founder of Russian online hotel booking and travel company Oktogo.ru. “Acquiring customers effectively and showing a sustained path to profitability will, therefore, be critical.”

Oktogo.ru has focused on both the online travel agency model and merchant model, catering to both sets of consumers - with and without credit cards.  EyeforTravel’s Ritesh Gupta hears from Kolesnik who says there are too many ‘copycats’ particularly in the transactional model.

EFT: How is the online market evolving in Russia?

MK: Hotel meta-search will continue to prove itself in Russia. Based on the Western experience, the meta-search category will become successful only after OTA market has matured.

In Russia, a host of international hotel meta-search engines entered the market at the end of 2012. Others arrived at the beginning of this year or are planning their entry soon. These include the likes of Trivago, Hotelscombined, Kayak, Holidaycheck and TripAdvisor (meta-business).  It remains to be seen how successful they will be and some may scale back.

If meta-search becomes successful in the Russian online segment, the market may face premature commoditisation and aggressive price competition, which may destroy profit margins and make the hotel business less profitable than it is in Europe and the US.

Also, mobile is emerging as a channel, though its not yet relevant for the mass market audience.

EFT: We are seeing strategic alliances like Expedia-Trivago and Priceline-Kayak for synergies. Do you see the coming of age of meta-search as an opportunity or a threat?

MK: It is an opportunity as represents a new channel for OTAs. It is a threat as meta-search channel emphasises price competition and destroys margins.  

EFT: How are you trying to learn from entities like Expedia and Google?

MK: One of the key priorities for us was building a great customer experience and a solid brand among our customer audience so that we become a customer entry point. As a result, today we have close to 40% direct traffic to Oktogo.ru. While working extensively with search engines (the leading search engine in Russia is Yandex), we focus on reducing our reliance on search engines. Superior expertise in working with Yandex and other local marketing partners is a key success factor for us.

We also learn what not to do. For example, for us accommodation was a critical business focus and we wanted to do only one thing very well.

As we are working on a rapidly changing market environment, it is critical for us to move fast and introduce business and technology innovation. For example, in 2012 we have pioneered a hybrid agency and merchant model for the Russian market.

EFT: How have travel planning, buying and post purchase behaviour evolved in Russia? And how has the industry responded? 

MK: When it comes to planning over 70% of people already use Internet for parts of their travel planning. Personal recommendations of friends play an important role. With a large offline component, travel agents play a significant role in vacation planning. TripAdvisor is today is also a popular travel-planning tool for independent travellers.

When it comes to buying some strong trends emerged in 2012. There were a growing number of people switching from package to individual travel, which leads another big move from offline to online. In the airline segment, the online buying pattern is first meta-search and airline direct followed by booking via OTA. In the hotel segment, however, hotel-focused OTAs showed best traction with customer. Airline OTA’s have not yet shown ability to up-sell hotels to their airline customers.