It’s Time for Travel Companies to Get Over the Whole Zero-Retention Thing

Ever since Garry Tan of YC famously quipped that travel planning startups fail because people “won’t ever remember to use them”, it’s become a sort of industry mantra that retention is impossible in travel. And because retention is impossible, the only way to win is to acquire users more cheaply and charge a higher commission.

If you can optimize better than the next guy, you can get a slightly better margin, spend more on acquisition, and buy your way to the top. It’s certainly seemed to work out that way for the duopoly of Expedia and Priceline. It sometimes seems like the whole travel industry is one big, messy, affiliate sales network competing for hotel commissions.

Even Hotel Tonight, once considered the knight in shining armor, appears to be in trouble.

But thankfully, I believe that period of the travel industry is coming to an end.

Firstly, the hotels have woken up to what a bad deal this setup is for them. Due to rate parity agreements with the online travel agencies (OTAs), hotels can’t compete on price for their own customers. And now the OTAs are keeping the hotels from even getting their customer’s email addresses. And the Flags (Marriott, etc.) are, ironically, not that different from the OTAs: they don’t own the properties either—they’re a marketing company selling rooms for the actual property owners.

All of this means two things:

  1. The property owners are getting squeezed
  2. There are a lot of inefficiencies in the market

Nothing beckons to entrepreneurs like a little guy in distress and an inefficient market. Companies from Olset to TripTease to ours are all finding ways to help property owners (especially independent ones) make more money. And many of those strategies are based on personalization, better experiences and loyalty programs—not cheaper acquisition costs and higher commissions.

Secondly, it seems like only a matter of time before the rate parity agreements start being dismantled. They already appear to be in Europe. And that will train consumers to start looking to hotels for better prices. As the independent hotels start to manage their own prices, the OTAs will need to figure out new ways to acquire and maintain customers than Google ads.

Which brings me to my next point: hotel and activity bookings have been dominated by SEO and SEM for the past 10 years because web traffic started and ended with Google. But nobody quite knows what search on mobile is going to look like when it grows up. Will it be Siri or Google Now? Or Apple’s search bar? Or, like we believe, will it be Facebook or some other messaging app? The one thing that does appear clear is that it’s not going to mean opening a browser app, typing a search and sifting through lots of little blue links.

Finally, and probably most importantly, the consumers are the ones getting screwed in this whole mess because travel companies haven’t been incentivized to build great experiences. It’s like those over-priced restaurants in tourist districts: if nobody is coming back anyway, why bother getting a great chef? Or doing that extra customer service training? Luckily, technology brings transparency, and just like Yelp has undermined the tourist traps, it’s only a matter of time until somebody sideswipes all the acquisition-over-experience players. In fact, Airbnb may have already done it with hospitality. And flights and activities are up next.

All of this is to say that the travel industry is in a time of enormous flux. The retention-is-impossible mantra hasn’t done anyone—especially consumers—any favors. The sooner that we start to create experiences that respect the user’s preferences and address their problems, the sooner we’ll find out what changes are really coming.