Elliott Ng, co-founder of UpTake, wrote a great summary of PhoCusWright’s Travel Innovation Summit. Here’s my uptake on Wednesday and Thursday’s Center Stage presentations, hallway conversations, and miscellaneous (usually unsubstantiated 
scuttlebutt.
Conflict and Opportunities Abound in Lodging Sector
If you believe Bill Carroll, Chris Anderson and Jake Fuller – and they have the data to support their hypothesis – the lodging industry’s recovery is 4 years away. There are number of reasons for this:
Lodging industry supply is increasing
Supply is still increasing. There are structural limitations (ownership and political) on why lodging rooms aren’t going to be taken out, discount expectations are hard to reverse, fragmented ownership inhibits price leadership and chain brand value and controls have been diluted. An excellent analysis that has implications for online travel ecosystem – the OTAs’ resurgence will continue, conflict between chains and franchisees will grow, and there will be interesting opportunities for businesses that can deliver enough opacity to disable best guaranteed pricing. The dynamics were similar in 2001-2003 when Expedia and Hotels.com dominated online hotel sales to propel into number one position.
OTA's reach a tipping point
What do you think of the Cornell (and Jake Fuller) analysis and conclusion that the lodging sector will be below the magical 60% occupancy line for another 4 years? And what new businesses will emerge and what other implications do you think there will be?
The Next 6-12 Months will Signal a LOT about the Health of Online Travel
The big event we were looking forward to at the start of 2009 happened – booking fees got cut. And the OTAs survived – and thrived (primarily by taking share from suppliers). Jeff Boyd, Priceline’s President and CEO has Priceline and Booking.com dominating European hotels and growing almost 50% Y/Y. Dara Khosrowshahi, Expedia’s CEO has the company growing almost 30% and well positioned given the ongoing hotel occupancy struggles. Barney Harford, CEO of Orbitz took the firm off death watch, cleaned up the balance sheet, raised $100M in cash and is driving Orbitz to finally build a hotel business. Fair to say the publicly-traded OTAs are doing well!
So why do the next 6-12 months matter? Because a number of later stage, private travel companies are primed to go public – Amadeus, Travelport have filed their S-1 and hired bankers respectively. Potentially four more have the size – but perhaps not the size AND growth – to go public: HomeAway, ITA Software, Kayak and Sabre. Will they try? Can they get public?
If they do, it certainly will help the earlier stage private travel companies. Most need to raise additional capital in the next 6-12 months, but if there aren’t some exits and some liquidity to enable acquisitions, it is inevitable that there will be a slew of travel start-ups going under. And even if there is more investment capital available or there are acquisitions as a result of some IPOs, as Brad Gerstner, founder & CEO of Altimeter Capital said, there will be a need to reset valuation expectations. E.g. Priceline and Expedia are growing at 47 and 28% and trading at 8-9X multiples. {Disclosure: UpTake is one of those earlier stage travel companies, and although we don’t need to raise additional capital until 2012, we are very aware that we will benefit from more travel companies going public and an improvement in valuation multiples}
Obviously HomeAway, ITA and Kayak don’t have control over the public markets, but they all have major initiatives underway that will materially impact their growth trajectory and perception from investors. HomeAway will start building awareness of the vacation rental category with an ad campaign – including super bowl ads! ITA is moving ahead with its new GDS and has additional search innovations (e.g. Needle) teed up. Kayak is building brand with their offline campaigns, building their hotel business to offset the cuts in booking fees, and investing to go deeper into the transaction process. Interesting times, big bets, big potential upside!
Who do you think will try and succeed in going public? What do you think will happen to the several dozen private travel start-ups that need capital in the next year?
Either Search & Discovery still needs improvement – or a lot of us don’t get it
There is plenty of ongoing investment in new search and discovery:
- Amadeus’ Affinity Shopper, the winner of the Innovation Award with their dynamic packaging search-;
- Goby with long tail search, , my personal favorite – ;
- Voyij, my favorite runner-up is filtering the Twitter stream, compiling them into emails to slow down the real time feed and enabling me to find what I need when I have time to look;
- TripAdvisor, the investment closest to my heart, Steve Kaufer discussed how TripAdvisor is investing in semantic search to deliver the gestalt of a product and save consumers the need to read 3,300 reviews on the Bellagio;
- Car Trawler on car rental comparison shopping;
- 10Best (VinePulse) on enabling hotels to search reviews from across the web about their hotel etc.
Disclosure – no surprise on this (gasp!) UpTake is a search engine! We have aggregated content from over 5,000 local, travel and professional sites and done the ontology-driven attribute – e.g. ‘6 year old’ indicates a family related fact – and sentiment analysis – e.g. ‘loved the pool’ indicates a positive feeling so we can recommend products that best fit consumers trip preferences. For example, we return different hotels if you are looking for family hotels versus romantic hotels}
Are Goby, Voyij, Car Trawler, TripAdvisor, UpTake all search ‘hammers’ looking for search ‘nails’, or is there a real problem for the search & discovery companies to solve? What do you think they need to do to succeed?
TripAdvisor and Google are the 800 and 8,000 pound Gorillas (respectively)
Expedia has to battle Priceline, Orbitz and Travelocity and vice versa.
But up the travel funnel, there is less competition.
Google has crushed Yahoo Search. Bing is battling valiantly, but Bing’s pick- up 200 basis points of search (from Yahoo) to get to 9% market share hardly shifts the market dynamics (when Google has north of 60% market share). The three most successful online travel CEOs – Dara, Jeff and Steve (Kaufer – sorry Steve Hafner 
all mentioned their concern about Google (or Troogle – Google + Travel) and their dependency on Google (given 73% of travelers search and search an average of 10-12 times before they book). Even though Google has publicly said they aren’t entering ‘vertical search’ like travel, Google continues to extend their lead in related categories – e.g. maps, photos, video, the ‘local modules’ – and therefore increasingly influences online travel. A benign 8,000 pound gorilla (generating over $2B a year in lead generation revenue from travel), but growing larger as each PhoCusWright comes and goes.
TripAdvisor is as dominant as the ‘second click’ for travel research as Google is as the starting point for travel research. Already dominant domestically, they have quietly launched localized versions globally over the last two years and are estimated to generate over $300M in 2009 revenue and $200M in operating income. And they too, are extending their lead. In the last year, the TripAdvisor Media Group has expanded into China further with the Kuxun acquisition (already owning DaoDao), launching flight metasearch, getting into deals (via SmarterTravel), and driving into the vacation rentals sector. Fortunately, TripAdvisor continues to be collaborative with the rest of online travel, but like Google, they continue to extend their lead.
In an industry where size (of market share) matters, Google and TripAdvisor are dominant. What does that mean for the long term health and balance of the online travel ecosystem?
- If you enjoyed this post, make sure you subscribe to my RSS feed!
- Share
- Prev/Next
16 Responses
Nice post, Yen.
I agree that the most interesting developments going on right now in Travel are around semantic search and discovery. All of the major players have built vast repositories of content, either aggregated through their consumer facing sites or from other sites around the web. What is now missing are mechanisms to mine that data and present it to time-constrained travelers in a reasonable format.
We see a few intriguing plays around social search or commenting, as well as personalization on the long tail. But for the foreseeable future, everybody has to play with Google (and Bing) – any of these other tools are still niche markets for early adopters. It’s probably going to be a few years before we see which bet pays off and a number of these startups don’t have that kind of financial runway.
Excellent points, Yen. The battlefield keeps shifting and fast reaction time is necessary for players to stay in the fight for both market share and revenue growth. Personally, I’m glad to see the focus on the trip planning phase happening nearly ten years after I thought it would based on my background in that part of the industry. Transactions ultimately have to happen and a sale made but how to get to that point is a whole area in need of improvement and it finally seems to start happening. Exciting times to follow the developments from the bleachers!
Great article Yen. The data on occupancy is remarkable. I definitely agree that industry dynamic shift dramatically depending on whether hoteliers are focused on occupancy or average room rate. With a renewed and per-longed focused on occupancy, there are very likely for new pricing and distribution models to emerge.
great article and a good summary of phocuswright from my perspective. obviously there seems to by lots going on in search and the social media space especially as it relates to better filtering technologies. i think one thing that seems to be missing is a real push toward brand trust. i think the trust issue will start to drive a lot of innovation in the next few years and create opportunities for product owners (like hoteliers) to create better relationship with customers.
I guess this bodes well for last minute travel, something I am not personally super comfortable with. If you can get up and go, sounds like there will be deals to be had. Surprised that it will take another 4 years to recover, wonder if we will see any big changes in the lodging industry?
I’ll be curious to see what HomeAway can do for awareness of the vacation rental category. An add during the Super Bowl, you say? Has an internet site attempted this or is this breaking ground?!
Excellent post! Of late, I have been hearing predictions that hotel rates would begin to creep up after the first of the year, but could not reconcile that with all the excess inventory, with more coming on line all the time (i.e.: Vdara Resort & Spa at the new destination CityCenter in Las Vegas opened Dec. 1, and that’s only the first phase or that behemoth project). Good to have confirmation of what I believed to be true.
As for IPO’s and the like, I suspect that we will begin seeing more and more merger & acquisition activity. That is already ramping up in the financial world, following a couple of years where M&A activity was truly non-existent. Despite the lingering lack of commercial financing, many companies have significantly increased their profitability by trimming costs and inventory and they have money to burn. Even though Google SAYS they are not entering vertical search, it would make total sense for them to acquire an already successful OTA to enhance it’s powerful market share in the travel search category…just a thought.
And finally, I believe that companies that collaborate will thrive, while those that jealously guard their data and resources will struggle. Of course, I am just a little fish in a big pond, so I could have a very distorted view. In any case, it will be most interesting to watch how it all shakes out over the next couple of years.
Google may be that 8,000 lb gorilla by leveraging on its search prowess over any competitor or even new businesses that enter, but when’s the last time Google did something on its own that was truly Google noteworthy aside from its proprietary search? It appears Google is a great suit to acquire strategic companies and labeling/leveraging Google resources than innovating well within; not saying Google isn’t innovating, but now that Google is pervasive and ubiquitous as iPhones. As a capitalist who likes to hear about the entrepreneurial success of start-ups, it’s always refreshing to learn about David taking on Goliath (or David becoming a Goliath and later to be taken down again by another David).
But regardless how the market changes and whomever enters the online travel space with their respective secret sauces, TripAdvisor seems to be that 800 lbs gorilla going on 900+ lbs (and mostly muscle weight). Perhaps TripAdvisor had the first mover’s advantage and managed to continuously innovate, while intelligently acquired complimenting companies have them ahead of the curve. With a healthy margin and an operating income of $200 million in 2009 (not mentioning how well its acquired companies are doing), it’s hard to dispute the facts of TripAdvisor’s success.
I hope travel lodging doesn’t take four years to recover. I am not sure the hotels can weather that storm. Maybe we can get a bail out for the travel industry. If not, this will only hurt the consumer, as hotels fail, lodging options decrease and prices will rise. We better take advantage of the deals now.
TripAdvisor’s concern about losing the ‘second click’ to Google isn’t that far-fetched. Google now has a ton of its own reviews for map based searches, which are offered alongside those from TA. Hopefully, Google will continue to preserve the balance and keep their own pages out of the search results.
Thanks for the article Yen. I am a bit disappointed to hear that lodging could take four years to recover. I had also heard that rates could start to go up at the beginning of 2010, but simply don’t see any way that that is feasible. I agree with Pat that I don’t think this is a hit the travel industry could afford to take.
Just chiming in to say I’m always pleased to read your thoughtful analysis, Yen. Look forward, perhaps, to an update in 6 to 12 months to see if outlook has changed?
Thanks for the in-depth analysis, Yen. A four-year forecast of continued lodging downturn is discouraging. Like Kara, I’d like to see an update of the situation perhaps this time next year. We can always hope for an improvement.
I live in Tucson where the resort industry has been suffering. It will be interesting to see what happens to the luxury lodging sector in Tucson as the new Ritz Carlton at Dove Mountain comes online.
As a travel agent, it’s a little depressing to see the onlines growing. Just as big box retail crowded out the independent stores in most cities, this DIY trend will leave a lot of travel customers without an option for the personal touch.
On the other hand, this is capitalism, folks. Compete, improve, adapt or go home! You can’t love it when it’s going your way and hate it when it isn’t.
Oh, my. Four years is much too long for the smaller, more unique inns and hotels to survive in a deficit. It would be a shame to see these B&B’s and such have to close up shop while only the behemoths limp on.
I’m not an economist, but I don’t think a bail out would be well received by the public. Continued incentives to travel and stay away overnight must be the answer. People vote with their pocketbooks, as the saying goes. I wonder what other aspects of travel – besides deals and packages – can appeal to people worried about their own bottom lines these days.
Hi Yen – thanks for the insights on lodging, and mentioning Goby. We very much agree with you that discovery is an area still ripe for innovation on any number of fronts, including semantic web search as well as integrating social media and social networking. As many have noted, our challenge is reach a wide audience quickly. The more services like Uptake and Goby and others that provide a rich discovery experience, the more consumers will demand something more than the “search box + 10 results”. A rising tide lifts all boats here.