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Despite stalled growth in China, Brazil and Russia, a wave of newly middle-class travelers from the BRICs and beyond will start visiting international destinations in the coming decades — dwarfing the numbers we’ve seen thus far.
With only about 8% of hotel bookings in Russia taking place online, Ostrovok and its peers have epic room for growth.
Ostrovok, the two-year-old Russia online travel agency, has big plans and an alliance of American and Russian investors contributed $25 million in a Series B round to help the company achieve its dream.
In its sights, co-founder and CEO Serge Faguet tells Skift, Ostrovok aims to raise another $100 million in funding in a year or two, and to reach market share parity in Russia with current hotel leader Booking.com within around four years.
Russian hoteliers like Ostrovok’s 14.5% commission, smaller than Booking.com’s 18%, and Ostrovok’s localized marketing, tech talent and fulfillment, claims Faguet, a Russian who grew up in Silicon Valley and the UK.
“We see many ways we can beat them here,” Faguet says, referring to Priceline-owned Booking.com. He adds that 16 former Booking.com employees, including its former head of Russia, now work for Ostrovok.
The Series B round, which comes on top of $13.5 million previously raised, was led by General Catalyst Partners, with Frontier Ventures, Accel Partners, and tech investor Yuri Milner also participating. Other participating investors include Erik Blachford (Expedia), Hugh Crean (Farecast), Steve Hellman (Credit Suisse Russia), Silicon Valley investor Shervin Pishevar, and Edward Kaufman (UBS Russia).
The investor group brings together a motley crew of American venture capitalists, many with online travel expertise, with “local Russian investors who know how to win here,” Faguet says.
Faguet recalls that General Catalyst’s Joel Cutler and Hugh Crean were seed round investors, as well, and they advised Ostrovok to steer clear of packaged travel, which was its initial product, and to focus on hotels.
“They got us to go after hotels and I’m eternally grateful,” Ostrovok says.
Faguet and co-founder Kirill Makharinsky state it was equally important to attract support from top-tier investors in Russia, such as Yuri Milner, and they have also begun to impart ideas with local sensibilities.
Russian investors have been advising Ostrovok that for later rounds it will be important to address what they consider to be the unfair perception that investing in Russia is a risk, for example, Faguet says.
Ostrovok, which claims to have direct agreements with 4,800 hotels in Russia and the Commonwealth of Independent States and to attract more than 2 million monthly visits, plans to use the $25 million to build its sales force and revenue-management teams, for marketing, and to improve its technology.
Only about 8% of hotel bookings in Russia take place online, Faguet says, so the company is active in offline advertising, in addition to search engine optimization and paid search engine marketing, to build the brand. He notes that Russians tend to distrust new brands so the offline marketing push is vital.
Here’s one of Ostrovok’s advertisements and a rough translation (Google Translate):
“Imprisonment of prisoners in an institution. Prisoners have no right to change the terms. Sentence: must perform routine. Assigned to work, do not miss the freedom. Book hotels on their own online ostrovok.ru. Hotels as wanted.”