The trials and tribulations of the online travel industry –  Part 1

After nearly 7 months working for a travel startup, I have concluded that this industry is a notoriously tricky one. While the concept of travel itself is glamorous, creating a successful travel-centric product is more difficult than it seems. Here are a few reasons why:

Monopoly:

The most common revenue model for online travel companies (also called OTAs or online travel agents) is to earn commission from properties on every booking that happens on the site. The properties could range from hotels to flights, and in some cases even car and bus rentals. The formula here is quite simple — more bookings equals more money. For larger companies with deep pockets, this simply means acquiring targets that are eating into their share of booking revenues.

Therefore, most websites that we use to make online travel bookings are actually owned by the same parent company. To illustrate that point, let’s say you’re trying to book a hotel room. You would probably check Expedia or Hotels.com and then you might even go a step further and check Orbitz. You compare prices across all three websites and you notice that they’re the same. Convinced that you’re making a good decision, you use one of them to make a booking. But here’s the kicker: they are all owned by the same parent company.

Expedia, Inc. is an American-based parent company to

  1. Expedia.com
  2. Hotels.com
  3. Hotwire.com
  4. trivago
  5. Travelocity
  6. Orbitz

The Priceline Group is a provider of online travel & related services through six primary brands:

  1. Booking.com
  2. priceline.com
  3. agoda.com
  4. KAYAK
  5. rentalcars.com
  6. OpenTable

Of the top 25 travel sites as ranked by Alexa, 5 are owned by Expedia (3 within the top 10) and 3 are owned by The Priceline Group. And the best part is that most people don’t know! While this certainly makes things difficult for consumers, it makes it harder for smaller competitors in this space to break through this intensely competitive, monopolistic market. With TripAdvisor also entering the booking game, the competition has only become stiffer. You either find yourself facing an early demise, or you get a relatively small but significant share of the market and then get swallowed by one of the giants. It’s a dog eat dog world.

Google:

Most travel planning starts with Google. You look for terms like “best hotels in Paris” or “cheap flights from London to New York” and take your pick from the results that show up. In the early days, Google was the gift that kept on giving. If your website showed up somewhere on the top, then the heavy lifting was already done. But Google being Google decided to take advantage of this huge opportunity. The search engine is slowly moving towards becoming a booking agent. As Google’s Head of Travel, Oliver Heckmann said in an interview with Skift:

Our philosophy is really: We’re in the travel space, we’re a search engine, we have users who are interested in travel. We want to be a really good in assisting the user, we want to partner with the industry for that. We have no ambition, no plans to become an online travel agency or an airline or a hotel or any of that. So we want good partnerships with the industry; it has worked very well for us.

Google entering the fray with its “Book on Google” option is a severe blow to the other players in this industry — even more so because of the kind of power Google has over search results. The CEO of TripAdvisor took to Twitter to accuse Google of pushing TripAdvisor search results down to the bottom of the page while trying to leverage their own products.

Nevertheless, Google’s entry into the travel space is proving to be a serious roadblock for most competitors, and rightfully so. With the sheer amount of information and clout that Google has, I can see it demolishing all the incumbents in a few short years. The less said about new players in the field, the better.

– Part 2 of this post coming soon

Image credit: http://www.sparksheet.com/

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