Technology & innovation | Tourism, recreation

Marchmont’s focus on innovation: Oktogo.ru ready to book the world

15 Apr '11
Oleg Kouzbit, Online News Managing Editor

Today we are taking a closer look at St. Petersburg-based Oktogo.ru—an innovative online-booking start-up that is purposing to challenge the dominance of Russia’s offline travel agencies, now accounting for 95% of this country’s $3.5bn hotel reservation market, and has just received a $5m investment from an international VC consortium. With more than 100,000 hotels and recreation centers already in the start-up’s operational database and just a two-year payback period Oktogo.ru is a company to watch.

In early April word came of a $5m investment that Luxemburg’s Mangrove Capital Partners, France’s Ventech Capital and Russia’s ABRT had put up to build up Oktogo.ru’s innovative system of hotel online-booking. With their under 25% aggregate stake the investors say they bet on a sure thing as they “know the market well and can see Oktogo.ru has a correct strategy and the right team.” The consortium is led by Mangrove—a VC fund that focuses on Internet or software businesses and has successfully invested in internationally recognized brands like Skype, Lumension, Brands4friends or KupiVIP.

For details about the start-up and its plans Marchmont spoke to its founder and CEO Marina Kolesnik. Ms. Kolesnik has been in the software business for years; more than a decade ago she developed a business plan for Data Art, a company that then owned one of Russia’s most successful Internet-based projects, Mail.ru.

Now with a small group of like-minded people and her family she is advancing her own project, Oktogo.ru—a start-up which Mangrove says is already worth more than $10m and heading for leadership in what the investor forecasts will three-to-five years from now be Russia’s $10bn online-booking market.

Ms. Kolesnik told Marchmont her company was not only focusing on hotels but recreation and health centers and apartments as well. Oktogo’s database now reportedly includes more than 100,000 accommodation entries both in the CIS and across the globe. To run the system the company has also developed special software, the CEO said.

Looking for a tiny slice of a $3.5bn market

According to Ms. Kolesnik, Oktogo.ru has entered a $3.5bn national market 95% dominated by offline travel agencies, with international online reservation systems like Booking.com or Expedia accounting for just 5%. Online-booking of hotels and other accommodation makes up a fledgling $50-100m segment, so Ms. Kolesnik is bullish:

“We’re betting on an expansion of the tourist sector as a whole and an increase in a share of online-booking in particular. Oktogo expects the online service segment to show substantial growth over the next four-to-five years and grab 10-20% of the total market.

As a good example, I would draw a parallel with India’s market. At the dawn of their online services in 2007 this segment was an anemic 2-3% of the total; two years later the online tourism segment swelled to a reported 23%. The explosion stemmed from a raft of internationally funded local projects to stimulate their market to take advantages of online-booking.

In Russia, growth may be even stronger, as the RF is generally more advanced and its per-capita GDP is higher than that of India.”


Oktogo’s CEO believes that Russia’s online-booking segment may have two or three players, both Western and domestic, each holding an estimated 20-30% of the market. Her company will be one of them, she said.

Shaping a market

Russian customers’ current preferences and mentality for domestic travel is still booking through a standard travel agency or trying to access a hotel directly. Ms. Kolesnik thinks Oktogo offers them more choice, more quickly.

“There’s clear demand, which will be growing, and we will be shaping this budding market. Online services are still alien to many customers, but we have seen an increasing number of people come to us. After their first experience, most get ‘mentally converted’ as they can see how fast their orders are processed and how much money they save. Compared to a standard travel agency, efficiency is higher.”

The CEO emphasized that their strategy called for ongoing coaching of hotel and recreation center managers:

“We will have to do that and have already begun by holding meetings and presentations in Russia’s regions. I believe it is important as in the long run, accommodation businesses must learn how to work with online channels. Those who do will have a huge competitive advantage both in pricing flexibility and staffing efficiency.”

Focusing on the 15%

At one of Oktogo’s online competitors, Russia’s Ozon.travel, online hotel reservations barely account for 1% of its business; it spends a reported 99% of its effort on airfare booking.

“Companies like Ozon have chosen the well worn path; all agencies traditionally started by selling air tickets—a product that is easy to sell online. Airfare booking has been a dominant segment across the globe, and Ozon just follows suit. With hotel reservation, however, the profit margin averages 15%, making it the most lucrative of all online services. So we have decided to depart from the trodden track and focus on this largely untapped product, and make it good.”

Marina Kolesnik is projecting sales of $10m this year and to be debt-free by 2013. With online travel booking dominant in all developed countries, and sophisticated Russian travelers comfortable with Booking.com and other major players, the real issue facing Oktogo is whether or not the ‘average’ Russian traveler used to working face to face will want to go online. And with Russia’s declining population, will there be enough of a base to grow Oktogo outside Russia?
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Locations: St. Petersburg

Tags: Oktogo.ru (2) / Mangrove (1) / online booking (0) / Marina Kolesnik (0) /

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