I have re-read the Tnooz predictions for 2010 to confirm but as best I can tell none of the online travel punderati mentioned online private sale companies in their predictions for 'what's hot 2010'. But if the buzz around Jetsetter, Voyage Prive, Kayak Private Sale and more is anything to go by then clearly we should have. After I wrote a post on Tnooz called "Non-transactional travel sites are chasing the online agents on unique product hunting" I decided to do some more investigating into this area. From that I had a chance to talk last week with Jetsetter CEO and ex-Kayaker Drew Patterson.As a reminder, Jetsetter offers a selected list of limited time deals at high end travel product to a member only list. To get on the member list you have to be referred by another member.
My view on the business model is that it is interesting, exciting but niche. Has the potential to carve a luxury/targeted space in the online world (like Abercrombie & Kent have done offline). But it is not right to view this move as an "OTA killer". Much like boutique clothing stores have a place in the market but will never beat malls in terms of turnover and scale.
Priceline's Jeff Boyd seems to agree with me. He is quoted in a Dennis Schaal Tnooz post as saying that it believes it is "hard to see how they [private sale companies] will scale".
The clothing analogy is particularly apt case of Jetsetter as they are an offshoot of high end fashion private sale company Gilt. Jetsetter appears to be more than a division of Gilt but an independent but related company. Patterson put it this way "Gilt has capitalised Jetsetter". As well as money, Gilt has set up an "intercompany agreement regarding access to customers".
A number of benefits come from the Gilt relationship for Jetsetter. Firstly they get an insta-database of high end customers (Patterson says more than 1 million). Next they have insta-funding in that they (presumably) are getting their funding from Gilt via the $43mm raised from General Atlantic and Matrix Partners. Finally there would be some technology synergies in Gilt providing Jetsetter with insta-merchandising through a common content management architecture.
These point towards solving a lot of the distribution and establishment challenges that face a travel start-up. Leaving Patterson and team to focus on getting product/supply on the shelves.
Patterson has a clear cut vision for his supply strategy. He is not out to replicate the OTAs with the need to manage "10,000 partner, many with low volumes. We much prefer to focus on 8-9 live sales 0n the site." Hotel selection has to be very tight and controlled according to Patterson. They use a combination of "editorial judgement" from a "group of people from within the industry" and post- stay survey responses from members. Patterson says that the survey response result in partners being discarded and new ones selected.
He stuck to the consistent line that I saw in the TravelTrends post on Jetsetter of not disclosing the margins that are being charged to hotels. He confirms that it is not the standard 20-25% of the OTAs but is "more than healthy enough to run a business". It matches his Gilt customer base to target a limited number of high end products. With a focus as much on descriptions and content as rate.
The spot that Patterson and Jetsetter are targeting has parallels with some of my EveryYou posts and discussions on how to help consumers answer open ended questions in online travel search.
He sees editorial content as the key to helping consumers to discover and book high end product. Wants to be compared to publication and information sources Daily Candy and Urban Daddy rather than shopping sites. To be a "lifestyle publication as much as a travel company". He believes that "Consumers want an editor to help point them in the right direction." To be provided with "a sense of what is interesting in the world of travel. What places to go to . What is distinctive." Jetsetter what their role to be to tell "a very different story to 'here are deals in vegas'" that is market of the OTAs. He did not give much away on performance but did say that traffic in Feb 2010 was 40% up on Jan which was 40% up on Dec. With "revenue per member holding constant".
Patterson and Jetsetter have spent time and energy thinking through the business. They have money, a targeted niche and a customer base. All point towards potential success. To get to success I see two challenges for them to address.
Challenge 1 - turning retail customers into travel customers
The bad experiences of Amazon, eBay and Pricegrabber in travel have shown that that a retail database does not translate easily to travel sales. Patterson's view on this is that there is "enough congruence in the basic business model and customers" between Gilt and Jetsetter to provide Jetsetter with an advantage. That the high end product seeking customers of Gilt will transition from buying expensive clothes to expensive holidays.
Challenge 2 - generating scale (in sales and data)
The first of these (scale in sales) is not that big a deal. While targeted sales will never be as big as mass market, there is plenty of money to be made trying to be the Abercrombie and Kent of online travel. High per booking values make revenue per transaction healthy and customers can be very loyal. Keeping supply numbers tight means that per hotel volume should be high enough to keep suppliers interested. However scale in data could be more challenging. As I discuss in a number of my EveryYou posts the future of online travel is not just making targeted recommendations, it is adjusting those recommendations based on the different 'version' of the traveller that is making a request at a particular time. One person can be many different travellers depending on the trip (ie business travel vs leisure v VFR). To do that you need lots of data on a customer. More than I suspect you get in the tight supply context of Jetsetter. To move to a more powerful recommendation architecture will require Jetsetter to tap into other sources of data from Gilt and other places.
The biggest asset that Jetsetter has to overcome these challenges is the 1 million member Gilt database to start things off.
4 comments:
Nice post, Tim. I agree with Drew's claim of "congruency" with the rest of Gilt's business units, especially in contrast to Amazon, eBay, etc.
Another potential advantage - beyond the deep database - is Jetsetter's NYC location, which could be advantageous while pursuing partnerships & distribution with similar lifestyle sites. I believe they recently inked something with CN Traveler and will likely focus further in this area for growth.
Have a look at this article from the weekend's NY Times about the city's tech scene, which also reference Gilt Group - http://www.nytimes.com/2010/03/07/technology/07reboot.html?ref=technology
niche is the operative word here. successful online businesses tend to be focused on doing one thing right. you're either a supermarket with tons of brands (Amazon) or a narrow focused channel (Booking.com). Gilt does clothes well -- but how many clothing stores have been successful selling travel?
@Pete =- thanks. Good point about link with conde nast.
Yes nice post Tim, these models seem to be in flavour at the moment.
I do think there is a place for the type and they have some legs but as always the scale issue is the ah ha but given the database of 1million as a base and Pete's mention of the CN tie they have a good start there. Kayak Private Sale has to be the gorilla in the room if your looking at scale?
I must add the invite only join wasn't the case in my experience as I managed to sign up very easily in Dec with no invite, something I've heard elsewhere too.
Their newsletters are well produced, magazine feel but I do agree for stellar growth they will need to get a good handle on an EveryYou type recommendation process to deliver more value to more travellers... and perhaps in the process widen their customer base beyond just luxury and hopefully as they grow beyond just the US.
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