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Rebels and Trends in the Travel Industry
A big thank-you to Juanjo Rodriguez (founder & CEO of The Hotels Network), Andreas Schräder (Chief Strategy Officer of Fareportal), Stuart Greif (Chief Strategy, Innovation & Operating Officer of Forbes Travel Guide), Alex Bainbridge (founder & CEO of Autoura), JoseLuis Vilar (founder & CPTO of Caravelo), Phil Lolis (VP of Thayer Ventures), Mario Gavira (VP of Growth at Kiwi), Christian Watts (founder & CEO of Magpie Travel), Jessica Patel (SVP of TripArc), Katalina Mayorga (founder & CEO of El Camino Travel) and Andrew Lockhead, (founder & CEO of Stay22) for contributing to this collaborative post.
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In a recent Travel Tech Essentialist newsletter, I delved into the perils of trend-chasing and the imperative of being non-consensus in the pursuit of building a legendary company. Here's a brief rundown:
Careful with Trends
Sam Haas (Solutions Engineer at RideCo) wrote on the success of entrepreneurs who establish businesses based on founder-market fit compared to those who pursue trendy business ideas and points out the reasons why so many fall victim to chasing a trend and why businesses that are built on trends do not tend to last:
"A trending market very quickly becomes commoditized and leaves nothing to compete on except price and questionable claims to quality."
Be contrarian (and right)
Andy Rachleff says that businesses can be described with a two-by-two matrix. On one dimension, you can either be right or wrong. On the other, you can be consensus or non-consensus. You don’t make money if you’re wrong, but Andy points out that you don’t make money either if you are right and consensus because the opportunity is too obvious, and all the returns get arbitraged away. The only way to build legendary businesses is to be right and non-consensus.
How does this apply to travel?
I reached out to a few industry leaders to ask them how these two concepts apply to innovation in the travel industry.
1. Trends or consensus ideas that could undermine a travel startup's success
Mine were the following:
A better travel planning solution because travel planning as we know it is broken. I hear many startups being built on the assumption that travel planning is a huge pain point. "According to xxx report, the average traveler spends 15 hours planning a holiday, uses 38 websites to book a vacation, and uses 10 apps throughout their travel journey". This starting point makes me a bit nervous. They might be right, but so far, this assumption has probably been the cause of the largest number of travel startup deaths.
Super app. I admire and respect ambitious objectives, but I also know how incredibly hard it is to excel in a single product category, let alone in multiple.
2. Non-consensus beliefs or assumptions that might lead to building a legendary business.
Mine were the following:
New corporate travel. People have been too fast to discount corporate travel, but new business travel dynamics and habits are opening up business opportunities.
The new OTAs (as in Offline Travel Agents/Advisors). While most founders are looking online and AI, there are big opportunities on the human-to-human front. As the use of Artificial Intelligence becomes more widespread, I think consumers will place a premium on human intelligence and human interaction. Brian Chesky said that travel needs to shift from asking where and when you are traveling to who you are and what you want. Only humans can create those experiences and emotions (for now).
The growth of community-led travel empowers creators and brands with a strong community to sell tailored travel experiences.
Here are some responses from around the industry to these two questions:
Juanjo Rodriguez, The Hotels Network
Juanjo Rodriguez, founder & CEO of The Hotels Network (a leading hospitality tech company that optimizes the direct booking channel for over 19,000 hotels around the world), believes that there are many things in travel that seem promising but are not necessarily a business. An example is travel inspiration. While captivating, it faces challenges as a business. The abundance of resources for trip planning indicates a well-served market, not one lacking. Assuming users prefer an all-in-one solution is still a hypothesis that needs validation.
Travel Super Apps are a variation of the one-in-all appeal, with the additional unproven notion that something that has worked somewhere else in the world (in this case, the Asian tech ecosystem) has to work in all other geographies. Juanjo points out that both ideas share the same wrong approach: focusing on the product's structure, not on the users' needs. He does not think that these are bad ideas because they are trendy, but because they always seem interesting (so, consensus), but they never work. He proposes other potentially questionable and trendy ideas:
Crypto-based loyalty solutions that do not add much to a normal loyalty program
Reselling/bidding for non-refundable fares (too much work for little gain). Although a great feature, it's not yet clear that this can translate into a great company.
On the question of non-consensus ideas that might lead to great companies, Juanjo offered:
Travel Subscriptions (when executed correctly)
Curation: how to monetize the obvious user need of "too much choice" in everything in travel (too many hotels, too many activities, too many restaurants)
Andreas Schräder (formerly at Fareportal, eDreams, Thomas Cook and Lufthansa)
Andreas Schräder does not think Andy Rachleff’s matrix is suitable for predicting a start-up's success level. He refers to Peter Thiel’s tenant from his book Zero to One: you have to do something unique to get something like a monopoly to be extremely successful. So if your business is mainstream or even based on a wrong assumption or conclusion, it will be hard to be very successful over long. However, he notes that plenty of OTAs prove that you can maintain a profitable and even growing business without being unique or special.
Andreas thinks that there are non-obvious opportunities in mainstream trends and a lot of money is earned not on the front but on the less visible and harder-to-understand back end of several industries:
For example: AI is mainstream, but most people are focused on generative AI these days. AI-based pricing is complex and hard to master, there is virtually nobody doing it well. If a business specializes in this discipline, there are good chances of being outrageously profitable and growing, even if probably few will take notice. Or even if you look at AI based language models: if you use them as everybody to run chatbots that give travel advice, that is probably the next commodity. But if you use the language models to understand what makes your best call center agents particularly successful in cross- and up-selling, it may allow you to unlock profit opportunities at large scale and train all your agents accordingly. Again: this would not catch much spot-light, but it’s an uncommon application of a mainstream technology.
Andreas further elaborates on how success can be achieved by excelling in a niche specialty, regardless of whether it’s consensus or non-consensus. He emphasized that it’s probably more important to excel in a non-trivial specialty rather than solely aiming for an unconventional approach. And when you excel in a specialty that becomes consensus, that may be when you hit the jackpot (like Apple, AWS, Tesla…).
Stuart Greif, Forbes Travel Guide
Stuart Greif (EVP, Chief Strategy, Innovation & Operating Officer of Forbes Travel Guide) notes that the right idea could be too early given technology, society, enabling ecosystem dynamics, etc. He mentions how someone was a bit early on inventing the modern helicopter…about 500 years too early :-)
Of course, Leonardo da Vinci was quite non-consensus and right about a lot of things, but that alone is insufficient.
Stuart emphasizes that once a player that is non-consensus and right prevails- Apple, Tesla, Airbnb, Uber, Amazon, Steve Wynn – Vegas, etc., they create entirely new ecosystems and economies:
Think about everything that came from the iPhone that likely would not exist today without it- Uber would be hard to succeed if everyone didn’t have a smartphone in their hand. Airbnb didn’t invent home sharing, taxis existed for a long time before Uber- often times the model existed and non-consensus players levered existing tech and capabilities to redefine existing categories as opposed to wholly new products or services. Think about how much of the STR space exploded and all the companies that now exist- consensus and non-consensus because of Airbnb. So in some ways, these innovators create their own trends and unleash much broader innovation and disruption and economic growth.
Stuart suggests that non-consensus entails adjusting risks and rewards. While ventures following this path have a higher likelihood of failure, the few that do succeed have the potential for significant success. However, he cautions that being an early entrant does not guarantee becoming the next Amazon, Airbnb, Uber, or Southwest Airlines. And even if an entity attains such a position, it is not immune to disruption or competition.
In the later stages, Stuart argues that consensus can lead to a saturation effect, where an influx of participants fragments the opportunity, preventing any one player from gaining enough traction. This scenario can result in a situation where no participant emerges as a clear winner, whereas a few players pursuing the same idea might have better chances of success. He cites historical examples, such as the early automobile industry:
In the early 1900s there were over 100 companies building gasoline, steam, and electric automobiles, often in very small quantities. The number of automakers peaked in the 1910s. By the 1930s, many small manufacturers had folded, unable to compete with low production costs at Ford, General Motors, and Chrysler.
Alex Bainbridge, Autoura
Alex Bainbridge, founder & CEO of Autoura (tech platform designed for autonomous vehicles for tourism & hospitality real-world experiences), adds incumbent defensibility as a third requirement to build a successful company. He says that as a startup today, you must innovate at industry scale rather than simply at MVP scale in order to defend whatever you have built from attack by incumbent competitors. He remembers that when he started as a digital entrepreneur 20-25 years ago, this wasn't a concern at all, as the incumbents were slow-moving non-digital companies.
If a current generation startup shows any success executing an MVP this will be immediately copied by the incumbents and all you will have done as a startup is help them with their market research. Now you have to be right, be non-consensus in your approach and hold some advantage that works when the incumbents start chasing you down. Startups now have to focus on innovating new industry structures. An example of that could be working on using Self-Sovereign Identity (SSI) to enable traveller service personalisation at scale, or replacing tour buses with autonomous vehicles like I am working on. Give the incumbents a challenging transition and you have a chance to build a legendary startup. Still only a chance though.
Founder of a European unicorn
The founder of a European unicorn noted that many travel-related startup ideas follow trends and common ideas, leading to their inevitable failure. He also highlighted the issue of frequency:
Maybe it's the frequency illusion of working in travel, but I feel travel startups have a higher failure rate than most other industries, mostly because people underestimate the customer frequency problem (no pun intended)
The founder emphasized the significance of non-consensus beliefs in driving innovation. He pointed out that major breakthroughs tend to arise from combining elements of different industries. For instance, he highlighted Airbnb's success, which resulted from merging accommodation (travel) with community (adjacent). He also noted historical examples like GDS companies, which combined traditional airline operations (travel) with the computational power of mainframes (adjacent at the time). Speculating on the future, the founder suggested that identifying the next adjacent industry remains uncertain.
JoseLuis Vilar, Caravelo
JoseLuis Vilar, cofounder and CPTO of Caravelo (travel tech company that powers subscription solutions for airlines and other players in the travel industry), considers that subscriptions are a blend of trendy and non-consensus. The media might be creating hype around travel subscriptions, but the sales process is complex and lengthy, which hints at non-consensus. He adds a couple of other non-consensus and high-potential areas in travel:
Blockchain and smart contracts is the next big thing to happen. We've been hearing about legacy rules, paper, workflows, etc to be disrupted by smart contracts. Take, for instance, travel contracts whereby in the event of flight cancellations or significant delays, compensations are automatically activated without necessitating any formal request or claim from the involved parties.
Identity management across the travel journey is a real pain and challenge. Sharing your travel details with the OTA, then again with airline check-in, then airport security, then again with 3rd parties (rent a car). The idea would be of a centralized ID vault where the user can query and detokenize the info as required.
Phil Lolis, Thayer Ventures
Phil Lolis, VP of Thayer Ventures, reminds us that great businesses can be built without relying on VC financing or the need for hyper-scaling. He thinks this is particularly relevant in travel tech, where the fragmented yet interconnected nature of the industry can limit hyperscaling:
In the startup world, there is an unhealthy obsession with being a venture-backed business. It has gotten to the point where, at least from my seat, it seems that so-called lifestyle businesses are anathema. This is dumb. Venture capital is great for hyperscaling but it’s also expensive. It’s not for every business. There is something to be said for growing efficiently and profitably.
Think about it. VCs want you to be growing 100% a year, or its not interesting. But if you are a $2m ARR business growing around 20% a year efficiently and consistently, by year 15, you are at ~$30m ARR, which at current (bear) market multiples makes you a $150m+ business. That time horizon is probably too long for a traditional VC fund, but it’s an incredibly impressive, if not legendary, outcome in my book.
Mario Gavira, Kiwi
Mario Gavira, VP of Growth at Kiwi, sees that Buy Now Pay Later (BNPL) services have been gaining popularity in the travel industry, driven by the gradual expansion of partnerships between fintech and travel players. While the BNPL trend has been praised for its ability to diversify the revenue stream for OTAs, he argues that its revenue potential has been overhyped for the following reasons:
The service of payment installment has been offered by Credit Cards for decades, and most consumers will keep relying on their old and trusted payment methods.
The more aggressive BNPL services are targeting a customer segment with low bargaining power and limited financial education, which are not great customer segments to build a sustainable long-term business.
The revenue potential of BNPL is heavily dependent on customers overlooking the fine print, which includes hidden fees and high-interest rates - which ultimately does not build long-term customer trust.
He also points out how the firesale of Hoppin (sold for $15 million after raising $1 Billion) is bringing online events - all the rage during and in the aftermath of the pandemic- into closer scrutiny.
Regarding non-consensus beliefs with high success chances, Mario believes there is room for building a next-gen multimodal transportation OTA with a core value proposition offering in a seamless and transparent way the widest choice of door-to-door transportation combinations, including flights and ground transports. It sounds like he is bullish on Kiwi.com :)
Christian Watts, Magpie Travel
Christian Watts, founder & CEO of Magpie Travel (content management platform built for the tours and activities industry), believes that when you step back, it becomes apparent that the entire Experiences sector has been quite trendy. Booking technology and OTAs emerge as two key focal points for startups in this sector. Interestingly, these areas can be classified as trendy and driven by consensus, which explains the sheer number of players within each category. As a result, this saturation of the market necessitates either consolidation for survival or a large number of failures.
Christian sees Hopper as a trendy (gamification / fin-tech) example that previously was non-consensus. He feels like Hopper could end up becoming an Airbnb-type of success but with some chances of also becoming a Hopin.
On the travel planning front, Christian says there has been so much failure that startups in this sector could now be seen as non-consensus. Most would still argue that they are still wrong, though. With the addition of AI, Christian still believes that something big may work in this space.
Jessica Patel, TripArc
AI-driven Personalization/Curated Trips. While we know that travelers spend a lot of time researching trips and looking at multiple websites during the planning process, automation hasn’t managed to replace this approach. It’s because this kind of personalization is very nuanced, and travelers often find it hard to trust a new tech to know what’s best for you and your vacation.
Travelers will prioritize Low Price: While there will always be some travelers who are price-conscious, the segment seeking high-touch luxury experiences with a reliable level of service is continuing to grow. Today’s booking ‘innovations’ are mostly a Gen AI wrapper on an existing OTA model that favors discounts to service.
She counters with a non-consensus beliefs that she considers high potential: Travel Advisors.
The primary case for ChatGPT for travel has been anchored in the ability for travelers to use human language to make the query. It's an indicator that the tech-enabled model has taken away the service and personalization that travelers crave.
Jessica believes travel advisors are best poised to understand the traveler’s nuanced needs, learn their preferences and provide differentiated value, especially for complex trips and itineraries. This leads to long term relationships and repeat business. She points out that technology like OpenAI best serves travelers when it supports the experts to serve their customers more effectively. Additionally, technology can be an enabler to help advisors to reach customers, provide service and improve their margins so they earn the value they deserve for the service they provide.
Katalina Mayorga, El Camino Travel
Katalina Mayorga, Co-Founder & CEO of El Camino Travel (specializes in off-the-beaten-path travel advice and experiences focused on women travelers) has some insights into the opportunity and potential pitfalls of AI:
There is a huge opportunity for our industry to leverage AI, especially on the consumer side, but I already see the recent "products" being developed falling into the same pitfalls of the before times (pre-ChatGPT). Here are two big takeaways 1) Do not build a Chat GPT wrapper and call it AI 2) Not every next big company needs to be the next big AI company. There will be plenty of opportunities for AI enabled companies to win big.
Andrew Lockhead, Stay 22
Andrew Lockhead, cofounder and CEO of Stay22 (offers mapping technology revenue generation opportunities for events, ticketing and travel media publications), believes that the hype around the Experiences sector is way ahead of the technology. In terms of opportunities going forward, he believes that travelers will increasingly find their travel answers on Bard and ChatGPT, and the big winners are going to be the players with great SEO that the Gen AI upstarts will refer to.
The cautionary tale of businesses built on trends serves as a reminder that sustainable success demands more than just riding the wave of what's popular. Startups that dare to be different, that seek not just to follow but to redefine, are the ones that will most likely carve out their place in the travel industry's future.
Many of today's trends are the consequence of yesterday's contrarian thinking. Take Airbnb, Uber and OpenAI, for instance. Airbnb disrupted the hotel industry and created a new accommodation category by allowing people to share their homes with travelers. Uber revolutionized transportation and ignited the gig economy by leveraging private vehicles. OpenAI redefined the possibilities of AI by developing advanced language models that are reshaping business innovation and how humans interact with technology.
The different perspectives on this post show that the path to success is as diverse as the destinations the travel industry helps people discover, and it's paved with the initial courage to stand out rather than blend in.
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