Wednesday, April 29, 2009

Will Travelzoo's Fly?

I was set to say that Travelzoo's strategy is ill-conceived -- and it still may be -- until I took a new look at the two-month-old site.

Travelzoo CEO Holger Bartel explained the strategy behind the company's unit during the first quarter conference call.

Travel Weekly reported that Travelzoo scratched out a modest profit for the quarter on a significant revenue increase, which highlights the hunger for deals in the current market.

Bartel noted that contributed -- not surprisingly for a fledgling metasearch site in beta -- negligible revenue to the company in the quarter, and attracted about 1 million searches since its Feb. 9 launch.

"So while we are very happy with the revenues overall for Travelzoo, there's not much that came from," Bartel said, according to the unofficial transcript. "I think, for us, is really an opportunity to link it up with Travelzoo to showcase deals on the website. It will also allow us to make the deal content on Travelzoo better. That's the main strategy behind, not so much as a completely brand new business activity that is by itself."

In other words, it sounds like the metasearch effort merely serves as a platform to get more eyeballs for Travelzoo's core deals' business.

So, is that a winning strategy, given the complexity of flight metasearch these days and all of the disruption, ranging from the online travel agencies' booking-fee wars to the advent of airlines' optional services, in the market?

If Travelzoo views metasearch as an after-thought, as a way to dress up Travelzoo's deal advertising, will get the requisite commitment from management and plentiful development resources?

The wisdom of the strategy remains to be seen, but so far it looks like Travelzoo is providing adequate development resources and is creating an alluring product in

Although the layover-duration and flight-time filters on the flights' results pages almost look like Kayak clones, has added other interesting features.

I particularly like the way some airlines on have been merchandising themselves in some markets with graphical displays about their in-flight entertainment options, for instance, and a "calendar best price" pop-up, showing consumers the cheapest day of the month to travel, works for me, too.

However, it sounds from Bartel's comments during the call that Travelzoo may be hedging on its timetable to launch a U.K. version of in the third quarter.

During yesterday's conference call, Bartel said: "Regarding specific timing of when we launch in Europe, there's no concrete time planned yet. We really hope we can do this sometime in summer, but nothing is concrete yet."

There also were a couple of other points in the financial gabfest yesterday that should elicit some concern.

Bartel noted that Travelzoo predominately uses a flat-rate model for deal advertisers, and with some travel companies "more risk-adverse" in the current climate, it means that "some advertisers are more hesitant to spend the money upfront."

He said Travelzoo therefore needs "to be very active in communicating" the value it delivers to suppliers and intermediaries.

But, Travelzoo's flat-rate model goes against the grain because advertisers are clamoring for performance-based models, a factor that could hurt Travelzoo unless it changes its way of doing business.

Also, Travelzoo, which launched in China in October 2007, posted a $1.7 million operating loss overall in Asia-Pacific during the quarter, and Bartel noted that "revenues were still very slim."

"So it's obvious that we need to think about what are we continuing to do," Bartel said. "How much are we continuing to invest? What other options do we have? It's a very natural and a very smart thing for a company like ours to do."

It looks like Travelzoo will shift some focus toward Japan, and views China as a target that may ripen for its efforts in a more protracted timeframe.

And, that may be a cautionary note for TripAdvisor, which announced April 21 that it launched a site in China.

Will TripAdvisor succeed in China when other U.S. e-commerce giants have failed, and where Travelzoo has found the going so slow?

TripAdvisor opened an office in Beijing, but if it fails to build an adept technology team in China and a platform suited for that burgeoning market, it too may find the market a tough sell.

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