Arming the rebels- why I am excited about the future of travel startups
We will travel again, and when we do, there is a new generation of startups that have set out to improve the way we discover, book, plan…
We will travel again, and when we do, there is a new generation of startups that have set out to improve the way we discover, book, plan, and experience our trips.
(originally posted October 2020)
This year has been challenging for travel startups, but I am surprised by how overlooked the category is, even with the headwinds. Bessemer’s 2020 Cloud 100 and Linkedin’s Top Startups 2020 include zero travel startups.
I felt compelled to share my view on the space, explain why the next ten years will bring about multiple breakout companies, and highlight some of the startups you might have missed that are doing exciting work- today.
Consumer online travel is a heavily fragmented space with a couple of large incumbents. From a consumer’s perspective, planning and taking a trip involves jumping across too many Apps-with communication and many transactions still occurring offline. The consumer journey is so fragmented that most people use a spreadsheet to plan their honeymoon!
To make sense of this landscape, I’ve organized the customer’s journey into five stages.
The Customer’s Journey
Where do legacy travel products live in the customer journey?
Let’s look at where legacy travel products (that began offline) serve the customer in their journey.
You can see travel agents in the pre-trip planning and booking stage. During the trip, concierges serve the customer with planning and booking activities. Travel books help the customer with discovery and planning but not with booking. Once mid-trip, travel books re-enter the customer journey serving a notable role by offering walking tours and other information that augments the experience.
Finally, you have Disney, which is much more than a travel company but looms large in the space- owning all aspects of the customer journey with their packaged vacation products.
Travel Moves Online
With the rise of the Internet, travel was one of the first industries that moved online. You can read Skift’s fascinating retrospective of the early days of online travel here. It is a long, remarkable read.
(seriously, check it out)
Let’s look at where the leading online travel products serve the customer in their journey today.
As it stands right now, most big online travel products (Expedia, Booking) hold a narrow place in the customer journey, helping customers book the large ticket items in their itinerary (flights, accommodations). Consumers are well-served during this stage, and it is highly monetized.
Recently we have seen some much-needed innovation in this stage, most notably with Airbnb and VRBO bringing vacation rentals online and-in the case of Airbnb-expanding the category’s size vs. traditional hotels.
Next, activities have been brought online and are bookable on Apps like Get Your Guide, Peek, and Airbnb Experiences. These reservations are made pre-trip in the booking stage and continue throughout the trip, as are restaurant reservations with OpenTable or Yelp Reservations. We are much earlier in the cycle here, with less consumer and business adoption and continued room for innovation.
The other stage where consumers are well-served is the discovery phase. Consumers utilize offline media properties moved online (Travel & Leisure, Conde Nast Traveler) and travel blogs to discover travel destinations, accommodations, and things to do. Many of these products are distributed through Social Media, giving Instagram a seat at the table in the discovery stage. This stage is heavily fragmented. Consumers do not have a single “go-to” application and often switch applications as they move through the customer journey.
Lastly, these Apps are still monetized mainly through advertising, so despite consumers being well-served, I believe there is room for business model innovation at this stage. More on that later.
Across all of today’s leading companies, most only have a strong consumer presence in one stage of the journey (discover, plan, book, or experience). Also, they rarely monetize successfully pre, mid, and post-trip.
From a consumer’s perspective, the journey is haphazard. A study by Expedia shows that consumers visit 38 websites before booking. While competition is typically good for consumers, in today’s world, there are too many “OK” choices (online and offline) and very few “go-to” apps that they can leverage throughout their journey.
The Future of Travel Products
Given the consumer opportunity, there is business potential- leading to Airbnb’s considerable investment in experiences and Booking/Expedia’s attempts to own more transactions in the customer journey (rental cars, activities). We can expect more companies to expand into other stages of the consumer journey to simplify the customer experience.
So let’s dig into two exciting areas of innovation and startups leading the way.
Innovation #1 — Owning the customer journey. Travel agents and concierges move online — Tourlane and Unwrapped.
The legacy OTAs have a firm grip on the booking stage of the customer journey, and if you visit their websites, you’ll see their products are optimized to drive transactions. This leaves a lack of focus pre-trip in the discovery and planning stages and mid-trip in the experience stage.
A handful of startups are building consumer products to serve consumers across these stages better and replicate proven offline services by bringing them online. Let’s start pre-trip with travel agents and Tourlane.
As we saw earlier, travel agents are firmly planted in both the planning and booking stage of the journey and often expand into discovery and experience. Working with a great travel agent is a joy — they help you plan and book your itinerary, discover the destination pre-trip, and offer support mid-trip by answering questions and offering advice. As it turns out, traditional travel agents are still in demand, with the leisure market doing tens of billions in sales annually in the US alone.
Tourlane, founded in Berlin in 2016, is building its business by bringing multi-day tours-typically booked through travel agents- online for consumers.
Here is a description of Tourlane from their series C funding announcement:
Tourlane allows individuals and groups to affordably plan and book personalized, multi-day tours online — cutting out the time and frustration of coordinating multiple bookings from various vendors or going through an offline travel agent. By visiting the site or using the app, users are connected online to qualified travel experts who will personally assist them during their first consultation, the booking process, and the actual trip. With everything from the flights to the accommodation to all on-site activities being taken care of, users have the opportunity to arrange tailor-made travel packages with their personal travel expert completely free of charge.
I have yet to book a trip through Tourlane, but I did have a free consultation call with a South Africa travel expert. I enjoyed having someone to chat with about my potential itinerary, the best places to stay, and the ideal time of year to visit. The experience was very different than today’s self-serve experience through the OTAs.
It’s worth pointing out that similar innovation is happening in business travel with TripActions and EU competitor TravelPerk. The corporate travel industry is hugely lucrative, with legacy firms like American Express Global Business Travel and BCD Travel doing tens of billions in annual revenue. Also, there are countless companies without a simple business travel system whose employees follow travel guidelines posted on an Intranet and then make their booking through the OTAs. As business travel begins to return, TripActions and TravelPerk should be well-positioned.
The second blind spot for the OTAs is mid-trip. Here, companies such as Unwrapped are innovating and bringing the concierge experience online.
Unwrapped is an App from the team behind Cool Cousin. Interestingly, they’ve designed the product for hotel and vacation rental owners/managers, who distribute it to their guests via text and email after booking.
Unwrapped describes the product:
Our tailored solution for hotels and rentals combines a dynamic, curated city guide with a comprehensive local guide to eating, drinking, and exploring the area surrounding your property….experiences, attractions, and services your customers want, when they want it.
There is tremendous consumer value in providing a go-to app for local recommendations, activities, and local transport to travelers- and many have tried (most successfully — Tripadvisor). I like Unwrapped’s approach because they offer an additional layer of curation and personalization through recommendations that are unique to the property’s location and the traveler. Their ability to pull content from Cool Cousin and their experience building that app shines through Unwrapped.
The average American traveler spends more on entertainment, activities, and dining during their trip than is spent on accommodations — this is a vast market with startups attacking it from many angles. Oaky builds “up-selling tools for hotels.” Hostfully, Guesty, and Mews offer property management systems that provide a mix of recommendation tools and integrations with products like Unwrapped.
There is a consumer need for companies to become the travel expert in your pocket and the customized concierge during your trip. If they do, they will then have an opportunity to drive your next trip’s discovery and planning (and will have a growing set of data about the consumer to do so). This approach could enable them to bypass today’s market leaders and own a large share of the customer journey.
Perhaps most importantly, they can partner directly with hotel and activity companies, bypassing the large OTAs and Google. If done correctly, they align themselves with the local providers who will help drive their product adoption and loosen Expedia, Booking, and Google’s grip.
Unwrapped makes this pitch to hotels on their site “Direct bookings is the name of the game. We fuel your email marketing, social media and content marketing channels with inspiring destination content that drive awareness and bookings.”
Innovation #2 — Selling pickaxes, arming the rebels and, building the infrastructure for tomorrow’s travel companies — Impala and …?
The current state of the travel industry is in a precarious position. Let’s look at the facts.
There are two massive incumbents, Expedia ($13B Market Cap) and Booking ($78B Market Cap). Google has them both in a chokehold, collecting 30–40% (!) of their revenue in ad spend while also competing with them. Even before COVID, Expedia was going through a transition after abruptly firing the CEO and CFO.
On the flip side, you have tens of thousands of passionate travel bloggers who struggle to make ends meet through a combination of running ads on their sites, sponsoring products, and selling e-books. Sadly, the best way to monetize a travel blog is to teach classes to other travel bloggers about “how to make money through a travel blog.”
Meanwhile, amazing people on the ground in Tuscany, Melbourne, Hanoi, Cape Town, and Crete are excited to share their homes and culture with us. They host cooking classes, walking tours, nature activities, history lessons, and music performances. They share a story or a favorite restaurant while driving from the airport to the hotel. They mention their favorite local bookshop as they check us into our room. These passionate locals hold the keys that unlock our perfect trip and the moments we will remember forever.
Something’s got to give.
I believe there is an opportunity in the example of companies like Shopify, Stripe, and Twilio. They have made it easier for developers to build new products and entrepreneurs to build new companies. Suppose travel infrastructure can be rebuilt, and the supply side opened up to thousands of passionate entrepreneurs. This change would enable the creation of new products and services and, over time, redistribute the demand side.
The Shopify/E-commerce example feels most apt. Non-technical travel entrepreneurs need a platform to sell their products and services (activities, walking tours, accommodations, packaged trips, travel recommendations) directly to consumers while still distributing their products through multiple channels.
Who will “arm the rebels” against Google and the OTAs?
One exciting startup making headway in this space is Impala, building a universal Hotel API and describing their product as “Twilio for Travel.”
In Fred Destin’s investment announcement, he describes the company in this way.
So what does Impala do: Impala makes accessing hotel data insanely easy. Who cares? Well, everyone. WiFi and streaming services providers, guest experience software vendors, keyless access folks, the PMS themselves, the booking engines who are currently plagued by manual processes. And most of all: hotels. With a universal API, they can connect to whoever they want. Ultimately it’s the guests who care the most, for it will enable the delivery of highly personalised experiences that will enhance their experience.
One can imagine a world where travel bloggers and local experts can drive direct bookings to hotels vs. getting pennies on the dollar from clicks on affiliate links directed to Expedia.
Hopefully, we’ll see this trend play out in activities, flights, restaurants, and other new areas. It would be a win for the entire ecosystem.
The beauty of the travel space is it is as big as the world itself. Perhaps the path forward isn’t mining for gold alone, but instead selling the locals pickaxes, who will find the gold for us all.
Ten years from now, do you think we’ll still watch hotels.com TV commercials and use the same old websites? I doubt it.
We will travel again, and when we do, I hope we take the time to support new startups working to connect us more directly with the local people and communities we visit.
If you have a recommendation for an interesting travel startup, email me here!
Originally published at https://www.petehancock.me on October 12, 2020.