Travel Tech Essentialist #67: Hill Climbing
Web3...Vacation Rental direct bookings...OTA results...lesson from a postmortem...metaverse...airline ancillary revenues...hill climbing...large funding rounds
People should learn from computer science: explore in your walk, randomly drop yourself into new parts of the terrain, and when you find the highest hill, don’t waste any more time on the current hill no matter how much better the next step up might appear — Chris Dixon
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1. Web3’s stakeholder economy
If you’re interested in learning more about the current and growing uses of Web3 and NFTs, I recommend that you listen to this podcast (summary here) with Chris Dixon (General Partner of Andreessen Horowitz’ crypto fund) and Naval Ravikant (cofounder of AngelList). A consequence of Web3 is that it expands the ownership opportunities for creators, builders and contributors. That’s a better future than, as Chris Dixon puts it, Web2 companies convincing you to give away your creations in exchange for little hearts. Here is how they summarized the the evolution from Web1 to Web3:
Web2 →Read & write. Owned by centralized applications that get most of the economic value and can censor/deplatform you.
Web3 →Read & write & own. Owned by builders and users, orchestrated with tokens which also serve as the ultimate viral marketing tool.
2. Vacation rental direct bookings
Alex Caravitis of Syncbnb published direct booking stats from several thousands of its vacation rental global clients. The results show consistent increases in the direct booking channel in the US and even more across Europe. Read more.
3. OTA quarterly results: travel demand is roaring back
Booking Holdings, Airbnb and Expedia all reported better-than-expected 3rd quarter results. Their share prices jumped 7%, 13% and 16% respectively on Nov 5th on the news.
Expedia’s net income and adjusted EBITDA for Q3 nearly matched its pre-pandemic Q3 2019 levels, driven by Vrbo and domestic travel. Compared to Q3 2020, revenue climbed 97% and EBITDA 181%.
Airbnb’s Q3 revenue of $2.2 billion was its highest ever, 36% higher than Q3 2019. The company had $834 million in net income, making Q3 the most profitable quarter ever, nearly 4x larger than in Q3 2020.
Booking Holdings' total revenues for Q3 were $4.7 billion, a 77% increase from the Q3 2020.
4. Stock price performance of publicly traded OTAs and metasearches
European leading OTAs eDreams Odigeo and Lastminute are having a stellar year for investors, with eDreams doubling in price in the first 10 months of 2021. Despegar and Trip.com are the only two in negative territory.
Comparing current stock prices to pre-Covid (Jan 1 2020), eDreams again leads the pack, with an 82% appreciation, followed by Expedia at 67%. Lastminute, Despegar and Trip.com are still below Jan 1 2020 prices.
5. Lesson from a postmortem: a better mousetrap is not enough
Ian McHenry founded Beyond Pricing in 2013 and was its CEO until December 2019. Beyond Pricing is a B2B SaaS solution for optimizing pricing for vacation rental managers and owners. It has raised over $45 million and has double-digit millions of ARR. In May 2020, Ian founded In Stock to make buying products locally as easy as buying on Amazon. Last week he announced that he was shutting it down and wrote an insightful postmortem. Early on, In Stock identified the key problems it needed to solve in order to succeed: aggregating inventory, bringing down delivery costs to under $4, getting a take rate of at least 10% of each transaction and an order frequency of at least 2x per month with an AOV of $40. In Stock was able to deliver on most of these objectives, but it still failed because they didn’t focus on THE key driver for a consumer company: how to be 10x better. In Stock was better, but not 10x better. It’s not enough to simply build a better version of the same thing when competing against a much bigger, better-financed rival who already has the mind-share and the money to maintain the mind-share. Read more.
6. What the metaverse is
Not even Steve Jobs could predict the business implications of mobile technology when he introduced the iPhone in 2007. For him, it was all about building an iPod that made phone calls. "What’s the killer app?" he asked. "The killer app is making calls!" Anything that detracted from the core experience of making and receiving phone calls was a huge failure. Jobs nor anyone else could foresee that mobile technology would enable multi-billion dollar businesses such as Uber, Snapchat, or Instagram. So, anyone writing about how the Metaverse will impact the travel industry in the next 5 or 10 years is one thing for sure: wrong. Better to start with the basics. To understand what the metaverse is and isn’t, I highly recommend that you read this short twitter thread (unrolled for easier reading) by Shaan Puri.
7. Airline ancillary revenues
The 136-page 2021 Yearbook of Ancillary Revenue describes ancillary revenue and results for 75 airlines. The average ancillary revenue as a percentage of total revenue for the world’s 75 largest commercial airlines was 14.6% (in 2019 it was 12%). Four airlines had ancillary revenue represent more than half of total revenue: Wizz Air (56%), Spirit (56%), Viva Aerobus (53%), Allegiant (52%).
8. What if you’re climbing the wrong hill?
This Chris Dixon post from 2009 continues to be great advice on making decisions. A classic problem in computer science is hill climbing. Imagine you are dropped at a random spot on a hilly terrain, where you can only see a few feet in each direction and the goal is to get to the highest hill. The simplest and incorrect algorithm would say that you should take a step in the direction that takes you higher. With this method, if you happen to start near the lower hill, you’ll end up at the top of that lower hill, not the top of the tallest hill. A better algorithm is to repeatedly drop yourself in random parts of the terrain, do simple hill climbing, and then after many such attempts step back and decide which of the hills were highest. There is a natural human tendency to make the next step an upward one. We tend to fall for the trap of systematically overvaluing near term over long term rewards. Chris writes that we should all learn from computer science by randomly dropping ourselves into new parts of the terrain, and when we find the highest hill, to not waste any more time on the current hill no matter how much better the next step up might appear. Read more.
9. Fundraising rounds
San Diego-based Cloudbeds raised $150 million in Series D funding led by SoftBank, bringing the company’s total funding to $253 million. Cloudbeds provides integrated solutions for hospitality operations, revenue management, distribution, guest experience and marketing.
Hotel payment software startup Selfbook raised $25 million at a $125 million valuation in a Series A round led by Tiger Global. The valuation represents a nearly 16x increase from the company’s valuation when it raised a $2 million seed round last quarter. Founded in September 2020 as a pivot from a consumer travel app to a B2B company, the New York-based startup describes itself as the “Shopify for travel”, operating at the intersection of hospitality and fintech.
Plug and Play will be holding a virtual Travel & Hospitality Expo on November 18th at 8:00 AM US Pacific time. Register (for free) to see the pitches from their latest batch of startups. Notable travel startups that have gone through Plug and Play’s accelerator program include FLYR ($187 million raised to date), Beyond Pricing (mentioned earlier on this newsletter, $46 million raised to date), Umapped (acquired by Flight Centre Travel Group), Synapse Technology (Acquired by Palantir).
We have 10 free tickets for the FutureTravel Summit that will take place online on November 24 at 3:30 PM CEST. The event will include a 10 startup pitch competition and industry speakers (see the agenda here). If you’re interested in a ticket, please reply to this newsletter and let me know. The tickets will go to the first 10 replies.
On October 21st, I had the pleasure of speaking at Google’s Think Travel conference. If you’re interested, you can watch the recording here.
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