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Travel Tech Essentialist #127: Risk
Risk is unfair and unforgiving - Morgan Housel
There is a thin line between praising someone for their inspiring boldness or accusing them for their foolish recklessness. It’s all a matter of what the outcome was. That’s the thin line that entrepreneurs walk every day. Most fail, but society gets to enjoy the benefits of the tail-end few that succeed.
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0. The most clicked link in the previous newsletter
The most clicked link in Travel Tech Essentialist #126 was McKinsey’s The Promise of Travel in the Age of AI.
1. Kayak's innovation engine fueled by startups
Jason Calacanis interviewed Steve Hafner, founder and CEO of Kayak (and Opentable) about the current state of the travel industry. Hefner said that Kayak keeps a close eye on the startup world because a lot of these companies are innovating features that Kayak can easily copy and scale: “As we see good ideas start to get traction, we pounce on it, we improve on it, and then we scale it. That's how the big keep getting bigger. They're able to do that and we’ve fortunately reached the point in our life cycle that we can do that as well." (40 second clip here). Other highlights from the interview.
He’s not overly enthusiastic about GenAI in travel but is closely monitoring it. Kayak introduced a ChatGPT plugin that gets 3000 daily queries, a small fraction of their 60 million daily queries. The focus is on allowing developers to experiment with new toolkits and acting on the signals from consumer usage.
Opentable's revenue primarily comes from two sources: restaurant SaaS subscriptions ranging from $79 to $350 per month and a performance fee of $0.5 per person. A razor-thin margin which makes for a great competitive moat at scale. In its pursuit of further growth, Opentable aims to establish a third revenue stream by introducing payment options at the time of booking, designed to incentivize, reward, or influence specific user behaviors.
2. Generative AI's transition from tech-centric to customer-centric
Sequoia (the most active investor in GenAI, including OpenAI) recently published an article discussing the journey of GenAI. This technology has achieved remarkable initial success, surpassing $1 billion in revenue from startups, a milestone that took the SaaS market years to reach, not months. However, most companies have not found product-market fit, sustainable competitive advantages, customer retention, and value delivery.
Sequoia calls GenAI’s first year as a technology-centric “Act 1”, in which we discovered a new “hammer”—foundation models—and released a wave of novelty apps that were lightweight demonstrations of cool new technology. Sequoia believes that the market is entering a customer-centric “Act 2”, where the focus will be on solving human problems. In this new phase, foundation models will be used as a piece of a more comprehensive solution rather than the entire solution. Similar to how large companies are increasingly using AI, as Steve Hafner pointed out in the previous story.
3. AI is not a competitive advantage for startups
In the Y-Combinator Winter 2023 batch, more than 40% of the 282 companies are AI or ML-related. In this article, Serge Vasin (partner at Flintera, a startup studio and private equity with a focus on SaaS, blockchain, AI, and EdTech) argues against founding startups solely reliant on AI as their competitive advantage, particularly in fields like email applications, web design, language learning, search, chatbots, and code generation. He also highlights the advantages that bigger technology companies have in AI. He advises startups to differentiate themselves by creating unique and innovative products that solve real-world problems rather than banking on the "AI startup" label. A good time to remember Y Combinator's motto: "Make something people want."
A couple of weeks ago, I attended the Thayer Ventures Annual Meeting. I took note of a few statements by Alex Dichter (Senior Partner at McKinsey that leads the Firm's travel practice) that serve as good reminders:
A high percentage of the "experts" that are expounding on the potential impact of Gen-AI hadn't heard of it a year ago.
Rushed attempts to "do something" with new technologies, usually fail.
4. You’ll need AI when driving in certain cities
Speaking of s solving real-world problems, Jared Alster, Co-founder of Dune7, finally discovered AI's best use case 🙃
5. The thin line between “inspiringly bold” and “foolishly reckless”
Sometimes we say that the customer is always right. Other times, we quote Steve Jobs or Henry Ford and say that customers don’t really know what they want. We praise Zuckerberg for turning down Yahoo’s $1bn acquisition offer and mock Groupon for turning down Google’s $6bn offer. We praise Uber for not letting outdated laws get in the way of innovation but criticize Enron for doing the same. It’s a matter of 20/20 hindsight.
This article by Morgan Housel (Partner of Collab Fund) explores the complex relationship between risk-taking and entrepreneurial success/failure. The fine line between “inspiringly bold” and “foolishly reckless” can only be visible with the benefit of knowing what the outcome was. Once we know the outcome, we have no problems with either passionately criticizing or praising the same behavior that led there.
Morgan Housel suggests that instead of focusing on extreme case studies, entrepreneurs should seek broad patterns and learn from those who navigated risk and survived, emphasizing the importance of resilience, adaptability, and humility. The article underscores the ever-changing nature of strategies and the need to evolve with the times.
If success requires taking risk that could easily turn into failure, and the line between the two is nearly invisible in real time, I want to learn from people who accidentally stepped over the line and lived to tell the tale.
6. The three sides of risk
Another piece by Morgan Housel provides a different angle on the concept of risk. In The Three Sides of Risk Morgan Housel reflects on a near-death experience while skiing with friends and how the loss of two friends in an avalanche shaped his perception of risk. He identifies three sides of risk: the odds of getting hit, the average consequences of getting hit, and the tail-end consequences. The first two are easy to understand. It’s the third that’s hardest to learn, and can often only be learned through experience. Only once you experience them do you realize that these tail-end events are the ones that truly matter. The story highlights the importance of focusing on the tail-end consequences as these rare events can have a significant impact, and it shows how our perception of risk can change through experience.
7. Innovation in aviation: shifting from 'Better' to 'Different'
In a recent newsletter, I wrote about the difference between pursuing innovation by creating new categories (the "different" game) versus competing for incremental improvements in existing areas (the "better" game). Building on this concept, Iñaki Uriz Millan, CEO and co-founder of Caravelo, wrote an article addressing the unique innovation challenges faced by airlines. He emphasizes that airlines should shift their focus from solely seeking 'better' solutions and should instead explore 'different' and potentially disruptive approaches. He categorizes airlines into two types: those that stick to traditional best practices and those that maintain a separate track for innovative and potentially game-changing projects. Iñaki remains hopeful that aviation can overcome its innovation challenges and offers examples of airlines making strides in this direction. Read +
8. Booking and Expedia join forces
Booking.com, Expedia, Tripadvisor, Amazon, Glassdoor, and Trustpilot have come together to establish a global coalition dedicated to combating review fraud. The coalition members will convene in Brussels on December 5th-6th for the second Fake Reviews Conference, an event meant for humans, not bots ;-) Read +
9. The impact of one week spent with Booking in 2012
Ora Levit, Head of Growth at LinkedIn, shared valuable insights from her one-week experience with Booking in 2012 and how that week impacted her leadership style. She highlights how Booking fostered an exceptional culture that emphasized bottom-up data-driven leadership and a culture of innovation and experimentation. While some of the most advanced players in the market back then (outside of FAANG) ran a handful of A/B tests in a quarter, Booking was running hundreds of multivariate tests in parallel. Read +.
10. The appeal of “second cities”
Traveling to a country’s second or third city instead of the major tourist city offers a refreshing and more immersive experience, according to The Wall Street Journal's travel editor. Cities like Marseille, Medellin, Montréal, Johannesburg, Fukoka, Osaka or Girona offer an opportunity to engage with locals and break away from the tourist crowds. These second cities often allow travelers to feel like locals. Travel trend reports consistently reveal that tourists are seeking authentic experiences that give them a taste of local culture and let them explore hidden gems. Alternative cities could be a way to fulfill these desires. Read +
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