They largely came in in response to an Expedia statement that I cited about the tough competitive environment for "legacy online travel agency companies."
You'll find comments below from top execs like Gregg Brockway (Hotwire, Classic Vacations, TripIt), Kevin Fliess (TravelMuse), and Valyn Perini (OpenTravel); analysts Henry Harteveldt (Forrester) and Lorraine Sileo (PhoCusWright); and a slew of industry veterans from Joe Buhler to Robert Cole.
These comments are noteworthy not merely for the fancy resumes attached to their authors, but for their often-mind-blowing insights. Many of the comments could stand as blog posts in their own right.
Feel free to add to the thread, which amounts to a State of the Online Travel Industry 2009.
Kevin Fliess said ...
I do think that the OTAs suffer from what Clayton Christianson termed "the innovator's dilemma" whereby incumbent, market leaders struggle to innovate out of fear of disenfranchising their installed base. Translations: People are comfortable with the OTA experience, which makes it very hard for the OTAs to change their experience.
Yet the reality is that there are an array of vexing problems in the online travel space that are yet to be addressed:
- helping consumers discover their ideal travel experiences based on their individual preferences and needs
- helping consumers more easily organize and plan travel (the 95% of effort that comes before booking)
- providing more relevant content based on web history (think Amazon's Gold Box)
Consumers are frustrated with the booking myopia and sameness of content and UI of the "legacy online travel providers."
I came from the Enterprise Software space and there are some very interesting parallels emerging in consumer online travel. In Enterprise Software the established players (SAP, Oracle, IBM) continue to wield great power, however a whole host of new players have emerged that have created composite applications that consume data and services from the giants.
TravelMuse and and other emerging travel 2.0 leaders are leveraging the web in new ways and innovating on top of existing systems to deliver value to the market in new ways.
The new models coming to market today (focusing on discovery and planning) will, over time, become the established models of tomorrow.
May 1, 2009 11:53 PM
Henry Harteveldt said...
I agree with Kevin. I also think this issue of innovation in the online travel planning and booking process goes even further.
I don't think that it's the traveler who's holding back the OTAs or, for that matter, any online travel seller. It's the travel sellers themselves.
For whatever reason(s), travel sellers are generally unwilling to truly innovate their planning and purchase processes. Few mainstream travel Web sites offer something as basic as theme-based search (e.g., search by interest or activity such as beach, ski, etc.). Yet we see this on travel search sites, such as Mobissimo and Kayak. NWA.com offers this as well, though it's buried. Travelocity's Experience Finder and the visually-based booking engine on Hotels.com UK's site are two more examples of effective innovation.
Travel is an industry with thousands of Web sites that sell travel services and products, and yet innovation is as rare as a free package of pretzels in Economy Class. Most of the innovation we see comes from start-ups like TravelMuse, InsideTrip.com, Ruba, and others. In a way, that's good -- they're part of the continuum of change. Look at how Preview Travel, ITN.net, Travelocity, and Expedia revolutionized the travel agency business more than a decade ago. It would be encouraging to see established travel sellers, both suppliers and intermediaries, be more willing to innovate. I suspect the firms that pushed the innovation envelope would benefit from, higher traffic, improved conversion rates, more loyal customers and increased revenue.
May 2, 2009 1:58 AM
Dennis Schaal said...
Kevin and Henry: A few thoughts...Why do you see theme-based travel search as so important? Are there huge numbers of arm-chair travelers who are remaining home because the travel-research process hasn't met their needs?
Also, the OTAs seem to be in a box. Expedia's TripAdvisor came out with its Fees Estimator, a nifty, yet still-rudimentary tool. How long do you think it will be before the other OTAs copy it? A couple of months?
As you both note, the ability of smaller companies to give the established players a run for their money always has driven innovation. That's why I hate to see a huge company like Sabre use its market dominance to try to stamp out the innovative moves of Farelogix.
May 2, 2009 7:53 AM
Gregg Brockway said...
Having been in both the OTA and the start-up seats, I’m a little more sympathetic as to why the OTAs are all so similar. (disclaimer: I'm president of www.tripit.com) I think it has more to do with their singular focus on the same core problem than an inability to innovate. We start-ups will do well to beware the elephants. Here a long-ish elaboration...
The typical trip life cycle goes something like this: inspiration > planning > booking > pre-trip > trip > post-trip. The OTAs (and suppliers) own the booking phase, which not surprisingly is where the most money has been historically. The problem in this phase might be summed up “I know where I’m going, how can I find the lowest price?” Given that price is by far the dominant criteria in the travel purchase decision, it's understandable why the OTAs have stayed focused on it. I’m not saying the OTA experience can’t be improved, but the OTAs are not dummies. They have optimized the bajeezus out of the low price search purchase path.
Fortunately, as we all agree there are lots of other problems to solve in travel beyond price and this leaves the door open for new solutions. While it’s not yet proven is that these are hugely PROFITABLE, I believe some will be truly disruptive and change the landscape.
Many of the new travel entrants are focused on doing a better job of solving the “inspiration” problem at the beginning of the trip lifecycle. This problem is basically “I’m looking for a [insert family friendly, romantic, golf, etc.] experience, where should I go?” While this is not nearly as big a problem as “low price” (most trips are not discretionary), it is an opportunity to create differentiation. The hope is that doing a good job answering this problem when you need it will create loyalty and provide a platform for extending into other phases of travel. It may well work.
TripIt’s approach was to start by focusing on the “pre-trip” and “trip” phases of travel. At TripIt, we don’t care where you choose to book your travel. We want to help you organize and share your travel plans so that everyone gets the right information at the right time. We think this is a really big problem and relevant to all travelers and all trip occasions. Further, by giving people a booking solution agnostic “home base” for their travel information, we’re well positioned to develop unique answers to a whole range of travel problems.
To me, the most interesting question will be whether the incumbents decide that the problems we new entrants are trying to solve are relevant to them. How will the OTAs respond if the new services start to encroach on their core business or make a lot of money? While the OTAs have been slow to innovate, it’s a whole lot easier to “emulate” success, particularly for companies like Expedia and Priceline that have hundreds of millions of dollars cash to play with.
Net, online travel may be over a dozen years old, but it’s not a “mature category” by a long shot. It’s going to stay a very interesting place.
May 2, 2009 7:54 PM
Henry Harteveldt said...
Dennis, our research shows that roughly 18% of travelers do not have a destination in mind when they start to plan their trip. Our research also shows that 46% of travelers allow their budgets to dictate the destination -- in other words, if they have $500 pp to spend, and destination A is too expensive, they'll search for an alternate. So I'd say that there's a sizeable market out there of travelers who are either indecisive or budget-focused -- and I'm sure there are some travelers who are both.
Travel sellers -- again, intermediaries and suppliers alike -- can profitably capitalize on this. Theme-based search -- beach, ski, etc. -- is one solution (UpTake offers this). Budget-based search is another. The greater the utility of a company and its eBusiness offerings, the more likely it will be able to earn customer loyalty and generate the kind of revenues - and profits - it seeks.
It won't be easy, it won't be quick, and it won't be cheap, but we'll see innovative companies continue to enter the market with new, relevant, and disruptive ideas. These ideas will benefit the consumer. As Gregg said, the incumbent companies that choose to respond can then decide whether they should emulate or buy the new entrants. We've seen this happen before, we'll see it happen again.
May 3, 2009 11:08 AM
Joe Buhler said...
I totally agree with Gregg's excellent observations and the valid reasons he gives for the position the OTAs are in today. They have for quite some time been able to pick the low hanging fruit and make a success of it by offering the best deals to online travelers who consistently have given the lowest price the highest priority. For the past few years now those travelers also started expecting more in terms of overall trip planning experience and feeling increasingly frustrated at not being better served by the established players.
Having worked for two decades in the "pre-trip" sequence of the travel process of Dream - Learn - Plan - Go - and now with social media Share I have since my first involvement with online travel a dozen years ago paid more attention to that 95% of activity preceding the 5% of the actual booking.
This is the world where DMOs have traditionally been active and have tried to influence destination choice. Like TripIt, they don't care how a visitor gets to their destination, as long as he visits them and not a competitor.
The recent shift in focus on that part of the travel process has opened new opportunities for DMOs but as it isn't in their DNA to be pioneers and innovators, new start-up players have appeared on the scene to take advantage. It remains to be seen how the incumbents will react to these new entrants and whether DMOs themselves will wake up and start working together with the new innovators and offer travelers an integrated and improved trip planning experience.
It would certainly be a development benefiting travelers in their quest for a better way to find the ideal trip that best matches their personal preferences.
May 3, 2009 5:17 PM
Yes, OTAs are not nearly as innovative as they should be because of their prioritization and focus on air/car/hotel transactions and yes - DMOs are popular in the "dream" phase. But PhoCusWright's research shows that OTAs are actually MOST popular in the dream phase despite their lamer efforts. And while there are terrific innovative niche sites for trip itinerary building and personalized recommendations - the traveler seems to prefer the "all you can eat - and we'll feed you too" methods of the OTAs. So again, PhoCusWright's research points to OTAs building through acquisition rather than being taken over. We'll see.
May 3, 2009 7:35 PM
Dennis Schaal said...
Gregg: I wonder what signs you see that the new services have any potential to encroach on the OTAs' business. I guess we'd at least be a couple of years away from seeing anything like that, no?
And, Lorraine: I guess your research shows that consumers want simplicity -- a one-stop shop -- even though the OTAs are doing a lame job on the inspiration front. I guess the likely scenario is that the OTAs will acquire some of the start-ups if the OTAs see the money in it. I wonder how you view Travelocity's ExperienceFinder in terms of its contributions on the pre-trip inspiration front.
May 3, 2009 8:08 PM
Valyn Perini said...
The discussion about ‘legacy OTAs’ (I love that term!) gives me flashbacks to the days when OTAs and GNEs were ascendant and the GDS’ were smeared with the ‘legacy’ and ‘non-innovative’ descriptions (I remember panels at industry events with the term ‘smackdown’ in the titles). The argument then was that the GDS’ had lots of content but no good way to present it, much less shop for comparison pricing. The OTAs stepped into the breach, offering content and a way to much more easily shop for pricing, and to buy.
It seems to me we’ve just moved into the next stage, and not because we can now apply the non-innovative and legacy terms to a new group of companies, but because the OTAs have shown the consumer what’s possible, and the natives have become restless.
At OpenTravel, we recently published schema in a series of projects led by companies in the adventure travel space, and that segment is a microcosm of this discussion. Buyers of adventure travel tend to be sophisticated internet users and are well-traveled, so they are used to buying travel online for their non-adventure trips. They are no longer content to look at a brochure with a photo of someone kayaking down the Colorado River; they want to see a video, they want to see the kayak’s specifications, see which operators are offering what kind of trip, see if there was any availability over spring break, and possibly actually book the trip.
The OTAs have not so far presented this type of complex product so several small start-up companies stepped into this new breach to offer consumers a full range of shopping, comparison and buying. In that space, some M&A is now going on amongst these segment-specific companies, but none of it involves the OTAs because they either think the market is too small, or it’s too much work to re-tool their technology, or it’s not within their scope.
These small companies in this niche market are doing what the OTAs can’t or won’t do. Gregg might be right; perhaps the OTAs are just waiting for the dust to settle in this market then they’ll scoop up the winning company, but that’s not a particularly innovative response to an obvious consumer need.
May 4, 2009 8:23 AM
Dennis Schaal said...
Valyn: I agree with you that some OTAs "either think the market is too small, or it's too much work to re-tool their technology, or it's not within their scope."
In fact, one OTA CEO told me the other day that pre-trip inspiration is not his priority right now because the "inspiration" issue doesn't impact enough customers. Understandably, the OTAs have bigger fish to fry at times, but it will be their loss if others move in.
May 4, 2009 9:02 AM
Let's not forget that technology limitations are still very real in our industry, particularly around air search. When I was at Hotwire, we were very well aware of the stats Henry mentioned above -- travelers, especially price-sensitive ones, are often flexible with regard to their destination. So we wanted to show them alternative destinations that had lower pricing, but the costs of doing air searches for many different O&D pairs was prohibitive given low conversion rates.
Take the simple example of Hawaii. I bet most Americans (especially those in states that don't border the Pacific) think of Hawaii as just a single place -- they aren't really aware of Oahu versus Kauai, and so on. And they certainly don't have a clue what the airports are on each island. Yet you go to Expedia and you can't just search for air to "Hawaii" and you can't even search for hotel that way. Why do we make it so hard for the consumer? I don't really care if it's the big island, Oaho, Maui... I just want warm and tropical with pineapple drinks and ocean waves.
Until we can solve even those simple problems, I think it's premature to talk about offering *real* travel advisory and planning tools that offer an array of alternatives and appeal to the inherent flexibility in many travelers. And to get there, I think we need to figure out a way to make air search just like a Google search: fast and free.
May 4, 2009 1:51 PM
Elliott Ng said...
I wanted to give some thought to this post and the questions that both Dennis and the commenters have raised. The core question is: why aren't the OTAs innovating as rapidly as they could? It seems like a more difficult question to answer than "they just don't get it"--people are rational and these companies are smart. I want to understand the underlying causes to see how the "mice" like UpTake can survive in an industry filled with "elephants" like the OTAs.
Henry's been issuing the call for greater innovation in travel and that "innovation is as rare as a free package of pretzels in Economy Class." But what are reasons why this is the case?
1. Difficulty of segmentation on the Web.
What have the "legacy OTAs" built? They have built a highly-efficient site experience to monetize the richest, most ready-to-convert traffic available on the Web. Everything they have done is optimized on the customer that is furthest through the purchase decision funnel and closest to buying.
Lorraine's point about the OTA's being heavily utilized by people in the inspiration phase just show how locked in they are. If they cater to their "inspiration" customers, isn't it quite possible that their more motivated "price-shopping" customers would leak away and reduce the overall conversion rate on their site?
This highlights what is very counter-intuitive - that customer segmentation is much harder on the Web than in other channels: whether that be direct mail, email, contact center, or at any other customer touchpoint. The Web must handle *all* user segments and the needs of these segments are much broader than what you find in other touchpoints (e.g. at the front desk, via call center).
2. resultant "channel" mentality vs. a "content" mentality.
This difficulty of Web segmentation is then further reinforced by OTAs embracing a "channel" or "distribution" mentality. Developed in part through being successful and selling seats and rooms to people that most want them, it becomes extremely difficult to think more broadly about providing "content" to people who are not decided on their destination, for example. Take Expedia or Travelocity. I would contend that the skills sets (and technology platforms) at TripAdvisor or IgoUgo are very different from those at the OTAs themselves.
Separating the "content" businesses from the "distribution" businesses seem like one way to create space for innovation that serves customers that are earlier in the purchase decision cycle and not currently being helped by the dominant OTA booking model.
3. inspiration and the early stages of travel planning are harder to monetize
Finally, I think the dirty little secret is that inspiration (and content) is just much more difficult to monetize. Part of that is the need to retain visitors through a longer decision making period, and part of it is that people have different preferences for ways to be inspired...hence the long tail of travel sites that receive a massive 10 billion search queries/year in Google and Yahoo!
Where is the future going?
Not mentioned by anyone is the extreme power of the search engines, both as a source of paid leads and also of organic search traffic. At UpTake, we've been extremely sensitive to the fact that we expect a large majority of our traffic to come through hundreds of thousands of "side doors"--pages that are optimized for a specific set of what the customer is looking for as expressed through their search intent at Google or Yahoo! In this way, we are accepting Google and Yahoo!s role in segmenting customers by need, theme, destination, and intent.
We also think content businesses (including DMO sites) will continue to be rewarded by the increasing power of search.
UpTake's point of view is to be a channel to hard-to-discover content and aggregate information in one place so people can move through the decision process faster. If we do a good job, we can take difficult-to-monetize inspiration traffic and turn it into monetizable leads that get sent to OTAs. While OTAs have this challenge of web segmentation, "channel mentality", and fear of losing good traffic chasing after "bad" traffic, this opens opportunities for all players in the marketplace without these constraints (including UpTake, other travel planning startups like TravelMuse, DMOs) to be complementary to the core OTA offering.
If I were an OTA, I would try to imitate Expedia's strategy -- buy up a bunch of content businesses, run them separately, and use them as a strategic asset to drive traffic to my booking businesses.
May 4, 2009 5:13 PM
Joe Buhler said...
Interesting thread here with good insights into what will be major shifts in the industry. What's pretty clear to me is how early we still are in the process of offering travelers a seamless experience to complete the various task related to how travel is researched, planned and bought using the web. Despite the seemingly dominant position of the major OTAs due to their high brand recognition, bought at great expense over the past ten years or so, it's not a given that they will be the ultimate winners.
They will need to move fast to capture that still undecided traveler or risk being left out of the loop as non-brand keyword search directs those people to different sites that in future might not longer just pass them on to a third party site for the actual booking but decide to get involved in the transaction themselves. Sure, some might be acquired but others will survive and develop supplier relationships of their own to satisfy the demand they create.
Exciting times ahead, it seems.
May 4, 2009 8:28 PM
I agree with many of the previous comments, but there are some additional forces at play.
First, the size and investment profile of the OTA's applies pressure on the organizations to chase quarterly profits and defer innovative projects that require greater development effort or longer time horizons. As a result, product and development teams are driven to find the proverbial "low hanging fruit" and progress becomes evolutionary instead of revolutionary.
A dozen years ago, when running the hotel line of business at Sabre, I had the pleasure of working closely with a Terry Jones funded team headed by Bob Offutt called Sabre Labs. The group did exceptional work, developed a number of great prototypes and secured several patents.
Despite what I recall as ongoing calls by Sabre's development establishment to kill the unit, significant consumer facing solutions like parallel search, drive pathing, dynamic packaging, budget based flexible date search, collaborative filtering, mobile apps and destination resolution were researched and prototyped.
There was true innovation taking place - I recall the CEO of MapQuest (pre-merger w/AOL) enviously asking "How did you do that?" after a demo of a mapping application.
Much of the innovative work was well ahead of its time, and as a result, was eventually shelved due to extended payback periods or development resource prioritization. Some products, like the flexible air search and Dream Maps were ultimately released, but what I see on Travelocity today still looks a lot like the proofs of concept a decade ago.
These days, it looks like Sabre Innovation Labs has been focusing on internal expense reduction initiatives as opposed to customer facing revenue generating applications.
One should remember these firms often look at cutting $1.00 in expense as adding $1.00 to the bottom line, where adding $1.00 of revenue drops only $0.15 (if they are lucky) to the bottom line.
The squeeze on development resources has also made build v. buy decisions more straightforward. Building from scratch presents business risk and resource scheduling challenges, where buying an existing technology limits risk to the cost of integration - normally a lower risk scenario if the purchase price works.
In short, the OTA's have been "innovating" through acquisition for over a decade and list is impressive (and I am sure I missed a few…)
For Travelocity (Sabre), the list includes: Preview Travel, GetThere, site59, IgoUgo, lastminute.com, World Choice Travel, SynXis, nexion, Virtually There and moneydirect. On the back-end Sabre has also acquired , TRAMS, Gradient, Flight Explorer, E-site Marketing.
Orbitz,itself an acquisition and subsequent spinoff from Travelport (the successor of Cendant Travel Distribution Services), has an acquisition portfolio that includes CheapTickets, Neat Group, Lodging.com, travelwire, , Flairview Travel (HotelClub and RatestoGo), asia-hotels, ebookers, away.com, GORP, OutsideOnline and Trip.com. On the Travelport side, Wizcom, THOR, Shepherd Systems, Galileo, Worldspan, Gullivers Travel (gta), Octopus Travel, needahotel.com, and Travelbound were also acquired. This list excludes assets that were acquired and later divested by Travelport such as Travel 2/Travel 4, TRUST, Wizcom, and Travelbag. It should also be noted that the Orbitz fare matrix is based on technology externally developed and licensed from ITA Software.
Expedia, since being spun off from Microsoft has acquired Hotel Reservations Network (now Hotels.com), Travelscape, Hotwire, TripAdvisor, Classic Vacations, TravelNow, VacationSpot, Metropolitan Travel, Newtrade, CruiseCritic, SeatGuru, IndependentTraveler, smartertravel, bookingbuddy, Travel-Library, CarRentals.com, VirtualTourist, Venere, and eLong (investment).
priceline.com’s pace of acquisitions has been slower than the others, perhaps because all other travel transaction models were not wiped out by the reverse auction method as originally predicted by founder Jay Walker. Once they diversified into mainstream booking processes, priceline also acquired other travel assets – lowestfare.com, TravelWeb, Bookings.com, BreezeNet, and RentalCars.com.
There are a lot of innovative companies and technologies covered in the list above. It seems the majority of the companies were purchased post-launch after establishing some degree of market awareness and/or commercial success. It appears OTA investment activity has been predominantly M&A based and it does not seem that there has been any material degree of angel, early or late stage venture capital participation by the OTA's.
Based on the large number of acquisitions, a considerable amount of development effort would be required to integrate the technologies and business processes from these operating businesses into the parent. One could also conclude that these integration efforts, with pressure to quickly gain synergies and eliminate operational redundancy, would gain access to resources that might have otherwise been dedicated to organic development projects.
With recent competitive fee cuts designed to gain share from competitors and supplier sites putting pressure on OTA earnings, the environment for allocating R&D funding to organic development or seed investment are likely to remain constrained. Strategic acquisitions able of drive increased traffic, retain existing customers, reduce costs or eliminate competition will inevitably be continued by the OTA’s.
The more interesting question is if the challenges presented by the global financial crisis will constrain access to sufficient capital for small, innovative travel technology companies to launch and gain enough attention or volume to attract the attention of the OTA’s.
Private capital will determine if innovation continues in the travel industry. Based on the global nature and fragmentation of the travel business, I bet it does.
As a matter of fact, if any angels out there have $3-$5 Million in seed money available, I would be happy to discuss a couple ideas I have...
May 5, 2009 2:50 AM