Saturday, April 28, 2007 speaks and I agree a lot, a little and not much (all at the same time)

Travolution has just concluded its annual conference and awards. I was reading with great interest the blow by blow posts on the Travolution blog. I was particularly drawn to the comments of CEO Ian McCaig in the final session (also carried by e-tid). In edited form he said the following:
1. that the online travel space, despite being only ten years old, was mature;

2. scale and/or niche are the only way to succeed, he insisted, and that, as in any mature market, the middle ground will get squeezed; and

3. that sites such as Friends Reunited and MySpace were now less influential among certain demographics than Facebook, WAYN or Second Life...he asked, rhetorically whether a business should be trying to tap in to a group of friends who use WAYN to meet up in Barcelona before going to the Benicassim festival, or whether they should focus on trying to win or retain the business of high spending individuals.
I agree completely with the first, mostly with the second but not with the conclusions in the third.

No question the online travel market is mature. The US has a big three that dominate (with Priceline on the side) and online travel will hit 51% of the market this year. Europe's growth is now outpacing the US, consolidation is in full swing (Lastminute bought by Sabre, Bookings and Active bought by Priceline, Laterooms bought by First Choice, eBookers and Flairview part of Orbtiz WW/Travelport etc) and the majority of airlines have online sales as the number one channel.

However I think he is being hasty in claiming that the winners will be either scale or niche. While traditional analysis would say that the middle is dangerous ground for most, there are some that can succeed in online travel. I see two types:
  1. The market specialist - the Veneres, Wotifs, HRSs, Hotel.des, Asiarooms of the world that can hold out against the "scale invaders" because they have carved a customer, SEO traffic and supplier middle ground that will be very hard to shift. Some would argue that this is a sort of scale in itself but given that most are focused in only one inbound market it is fare to call them the middle ground. The difference and reason that each will likely stay and succeed in that middle ground is because they all have kept their supplier relationships strong (well really all except Asiarooms), technology simple and costs relatively lean. While I think these middle grounders will survive it will be a challenge for new entrants to join them as the market factors that allowed them to grow initially (mainly first mover advantage in their markets) do not exist any more; and
  2. The adaptive content/SEO player - the creative, traffic generating, SEO magic weaving players like (now part of Sidestep) or Gusto that, like online traffic remoras, are able to suction traffic off Google and out of the path of the shark like TripAdvisor. They are very low cost and usually able to withstand any offline marketing blitz. Their challenge of course is to maintain relevance in a culture of constant changing tastes as I discussed here.
On the final comment I disagree with the implied conclusion that companies must make a choice between chasing transactions or connecting groups of people with content and networking. In a mature market (as we all agree) scale players have to do both. If a large player focuses only on the transaction processing elements of travel (Phases 1 & 2 of online travel as I describe in this post) and not the content and community efforts then they risk being flanked in the battle for traffic. This is not to advise shutting down the transaction product team and shifting them to building community engines . No - it means having people in the organisation devoted to building traffic, content and community. Not for its own sake but to drive customers to the site, brand interaction and loyalty and protect yourself from new models.

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