The Case For Travel Planning Startups And Why You Should Never Ever Start One

…this post was first published on tnooz.com

Having founded WorldMate and Desti (which also swallowed plnnr.com), not a week goes by without me being approached by an entrepreneur who has started / is starting / is contemplating a travel startup. The vast majority of these follow the following pattern:

  • The pitch will start with “online travel planning for X is so hard…” where X is any of a dozen classes of trips / travelers — from garden-variety leisure travelers to vegan millennial honeymooners who want to do all their planning on their iPhone
  • The solution is an app / site that has some combination of: curated content / strong search capabilities (e.g. semantic, natural language understanding, meta-search…) / workflow for collecting & “planning” / social inspiration or collaboration features / reviewing, reporting and photo publishing
  • The business model is a “affiliation + some advertising” because “the average hotel booking is hundreds of $ and we can get 10–15% affiliate fees”
  • The premise is that “because this is such a better experience for consumers this will spread like wild-fire”. Therefore customer acquisition consists of a PR campaign followed by word-of-mouth or outright virality (“everyone will share their pictures / questions / trips”)

Now, this having been more or less the business plan for Desti, I have to empathize. Having said that, all-too-often I proceed with a rude awakening. This post is meant to save some time and grief by pointing out some of the wrong assumptions / key blind-spots of most entrepreneurs entering this space. If you don’t tl;dr — I’ll also suggest some tactics that may work.

The Premise: Travel Planning is Broken and We Can Fix It (Right?)

Here’s how digital travel planning works:

As a traveler, you’ve made some anchor decisions - some subset of who’s going, where, when and why. You also have some preferences — e.g. brands, budget etc. You need to discover your options for transportation, lodging and activities within those constraints, so what you do is:

  • Search multiple times for the different items with different constraints, e.g. “what flights are there on Monday and what if we fly out on Sunday” “what are our hotel options or how about vacation rentals”
  • Collect alternatives, understand their implications and rank them e.g. “I’d rather drive down Highway 1 cause it’s more scenic, but that means we have to stay the night in Oxnard”
  • Share this plan with other participants to get their opinion too
  • Repeat prior steps until you run out of time and have to decide
  • Book, go…

The current state-of-the-art does not support this workflow very well. Online travel agents and meta-search sites do a poor job of qualifying hotels (often on purpose), TripAdvisor and Yelp are not much better as you have to read dozens of reviews about each place to figure out what it’s really like. That’s why you research on many sites, some by Googling, some by going to brands you know. Those sites have the simplest form of index-based search so you browse lists and drill into individual items to figure out whether they are good matches. Unless your constraints are exactly defined (e.g. you know exactly what you want and where), you have a lot of research to do.

Once you eventually get some “maybes”, there isn’t typically a way to turn those into a plan. Whether you found them in one site/app or multiple ones, these sites are optimized for conversion, not for planning. So tools for saving for later / sharing / comparing are generally not there. You resort to managing lists in Excel / Word / Google Doc etc. that you share over email with your co-traveler etc.

And so many product entrepreneurs’ natural conclusions are that anything that makes Search better and anything that makes Collection and Sharing more effective is a step in the right direction. And so if NewProduct happens to be a great user experience based on smart artificial intelligence that deeply understands your intent (it’s a romantic trip!), personalizes search results (you prefer Marriott!) adds social proof (your friend has been there!) and contextual insights (you’re going in July and this is right next to the beach!), strings them together on a map, automatically plans the best routes and compares prices on a gazillion sites — you will realize this is better than what you’ve been using so far and switch over to NewProduct for your travel planning, resulting in time saved, stress reduced and travel improved.

QED.

“Our superior content and user experience will entice customers to our product; They will bring their co-travelers; They will plan all their future trips with us and we will grow exponentially” — yet-another-travel-newco.com strategy paper

So Why Doesn’t It Work?

Let’s assume your product / R&D execution was perfect. You nailed it. You built the ultimate travel planner / travel content site for a sizable audience. Now all you need to do is:

  • Get a lot of people who travel to hear about it, just as they are getting ready to plan a trip
  • Quickly get them up-to-speed on your product so they realize their investment in learning your workflow will pay off, so they actually use it to plan their trip
  • Make sure they use it for the actual hotel bookings etc. so you get the affiliate fees
  • Invest the affiliate fees you got for those bookings to acquire the next customers (bidding against the company who paid you those fees)
  • Done!

That’s it for the TL;DR crowd. If you want the details, read on.

First, you need to acquire users. Guess what — if they’re not planning a trip, they’re not interested in travel planners. They don’t even acknowledge their existence… People are bombarded by new websites / apps / brands all the time, and they filter for what’s relevant. That’s what you see GEICO ads on TV all the time - cause the only way to get your attention those 1–2 times a year when you give a damn about insurance, is to be in front of you all the time. No matter how much press / word-of-mouth / viral exposure you’re getting, it only registers if / when it happens to be relevant. Inevitably this means that you too have to advertise a lot. And no, free user acquisition schemes like SEO do not work in 2015 at scale in established markets.

The Priceline Group spends over $2B / year on Google Ads alone. Guess why?

Now, let’s assume that you did get a user (whose actually planning a trip!) through the door — maybe for free, maybe you paid for an ad. Now you need to teach her a brand new way to plan her trip, one that is based on a new workflow that is different from anything she is using and/or based on trusting your content over established brands’. This needs to happen before she actually starts making booking decisions, but she needs to stick with it until she actually does. Of course she’s going to share the trip with her co-travelers, and of course they too are going to use your product — even when one of them sends a link to some vacation rental he’s found on AirBnB that’s not available on your app. Great job, given that the engagement curve for new apps and sites is notoriously L-shaped whether they’re games, planners or recipe apps. Granted, a certain percentage of users will recognize the value — but without an external reason to come back to the app time and time again, a much greater share will churn away.

Still, let’s assume your app was so great it did influence / determine the purchasing decisions of enough travelers, and therefore they will click-to-book on your site and you will collect an affiliate commission — you can now re-invest that to acquire the next batch ad infinitum, right? Sometimes. Many travel start-ups see users make decisions using the information they got on their site, then going up to the channel they already trust with their credit card — whether it’s an OTA or the hotel / airline. This happens even when there’s a “Book with [X]!” button on your site. It’s a phenomenon that takes a long time to change. If the customer can buy the same thing at the same price on a channel he’s done business with before — why wouldn’t they?

Brent Hoberman, founder of Lastminute.com: “we were seeing good traffic, but it took 2 years for traffic to start converting on our site”

Say you nailed that too, and your users survive the funnel to book through you so you can collect an affiliate fee. Who pays you the fee? Ah, it’s that same online-travel-agent or meta-search engine you were competing with over the user’s attention. Guess what? They pay it out of their own commission. So if a booking is worth $X to you, it’s worth twice as much to them. Guess who will outbid whom at the ad bid?

Competing with your affiliate parent for the same end-user is not a great strategy, when the end-user knows you both.

So What Does Work?

First, if you’re an end-user, I really advocate some of these products. We had to pull Desti off the app-store when we sold to Nokia in 2014 and since then planning family trips has become much harder for me personally, and I often hear the same from friends and colleagues. The problem is a better product is not necessarily a good business. However here are some strategies that sometimes work.

Probably the best strategy is distributing inventory nobody else has. If consumers know your site is the only channel where they can get X and X is desirable because it’s better / cheaper / more special, then they will come to you to buy X. This worked spectacularly well for AirBnB where most of the inventory did not exist before, it worked well in the early days of HotelTonight when you couldn’t book those hotels at those prices anywhere else etc. This is why the most important activity for Expedia and Priceline (booking.com) is getting as many hotels connected as they can. Of course, going down this path means your focus is on being a marketplace / retailer, not a travel planner.

Another approach is based on realizing that a travel planner saves time / effort — i.e. it’s a productivity app, and monetizing it with a SaaS model. In a sense WorldMate and Tripit were not travel companies, they were productivity companies streamlining a business process — collecting info about business trips and using it during the trip. This approach is what the managed corporate travel industry is built on — companies pay to have their employees focused on their day-job. However travel management is not a high-growth industry in this day and age.

Then there’s B2B2C. Those content curation capabilities, superior search, personalization, social proof etc. may be put to use by incumbent OTAs / meta-search players to improve their conversion rates, increase basket size or reduce acquisition costs. A white-label / tech-vendor strategy works if your product is indeed relevant within the incumbents’ offering, hard-to-build, reasonably easy to integrate and doesn’t step on too many toes. However that may or may not be a viable / scalable business. Adjacent to that are other data businesses where you sell the user exhaust data in some form. But that requires a lot of data in the first place = lots of users. Which you probably don’t really have.

Unless of course, you’re Google or TripAdvisor. But that’s for another post.

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