Digital Booking Sites

Russian hotel-booking giant Ostrovok tries to find its footing after slashing staff

@denschaal

Jun 18, 2013 6:56 am

Skift Take

Don’t write off Ostrovok yet, but clearly the Russia hotel site faces some huge challenges from Booking.com and the nature of the Russian market.

— Dennis Schaal

Report: Social Media Customer Service in the Travel Industry

Serge Faguet, co-founder and CEO of Russia hotel-booking site Ostrovok, concedes that the company didn’t always manage its growth efficiently, leading to its announcement this week that it was firing about one-third of the staff.

That’s not the greatest signal to be sending to the world just three months after raising $25 million in a Series B funding round.

The three-year-old company, which is left with a staff of around 130 after the bloodletting, clearly will be drawing down on some of its growth plans.

Faguet tells Skift that one focus will be on developing direct relationships with hotels in cities inside and outside the former Soviet Union that are important to Russian travelers instead of taking a broader geographic approach.

In addition to downsizing its staff, Ostrovok is trying to make its marketing spend more efficient.

Faguet labels the recent steps Ostrovok has taken as “very difficult” and “a tidying around the edges to a certain extent.”

The company isn’t giving up on growth, which is an imperative, but it is facing stubborn competition not only from Booking.com, but from offline travel agencies, as well, Faguet says, adding that about 90% of Russians still book their travel offline.

Part of the shift to online will take place “naturally,” Faguet says, but Ostrovok has also increased its brand awareness through a recently ended TV campaign on “prime-time channels,” and the company is currently analyzing the advertising’s impact.

Faguet concedes that Ostrovok’s overly ambitious project timetable and large burn rate forced management to spend an inordinate amount of time on fundraising, and this was a “huge distraction.”

Ostrovok has raised about $38.5 million in Series A and B rounds, and a few months ago was talking about trying to raise another $100 million in a year or two.

That timetable may have been pushed back a bit.

Faguet says Ostrovok needs to identify more opportunities for profitable growth, and that the next time it hits the fundraising trail, the company will have to be on a more solid financial footing to attract quality, equity investors.

Ostrovok’s growth story took a negative plot twist this week, and it will have to work hard to alter those perceptions.

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