For such a juvenile segment, in terms of distribution, the tours and activities market has one of the most complicated distribution landscapes I’ve ever seen.
In fact, the current state of activities distribution is one of the findings of the PhoCusWright report [When They Get There (and Why They Go)]Β about the tour and activities market that I found most surprising.
Because the tour and activities segment is dominated by small long tail businesses who, as the report indicates, have small budgets and little or no technological sophistication, the idea of direct connects (like those in the airline space) are simply out of the question.
With only 14% of these businesses having any kind of central reservation system, it makes it very hard to electronically aggregate product across the segment. Hence the reason why so many intermediaries and aggregators exist in this space.
But being an aggregator in the activities space is no easy task. It involves a tremendous amount of work to source, load, and maintain activity content on a product by product basis from small businesses all over the World. Companies like Viator, Isango, Kijubi, and GetYourGuide are all based on this model.
Once product is on the sites (identified in the PhoCusWright report as Online Activity Specialists I or OAS I), the aggregator now has to get it to market. This may include driving traffic using natural search, pay per click campaigns, affiliates, and other creative techniques.
When the tour or activity is booked, the aggregator issues the customer a voucher and, after some specific period of time, the operator of the tour or activity receives their net fee for the sale, usually around 70-75% of retail cost. For the most part, the tours or activities are sold on a free sale or request basis. Nothing is real-time.
So, for the bulk of the βsourceβ products that exist in the activity distribution supply chain, we have content that is neither controlled by the supplier or available for booking in real-time (except as free sale). Already, you can see we have a problem. So now the fun begins.
Now that these aggregators have spent the time to catalog and organize all these activities, it’s time to build scale and deliver the content through partners. In many cases, these partners are OTAs or other third party sales organizations. In some cases, the partner is what is referred to in the PhoCusWright report as an Online Activities Specialist II or OAS II.
Are you still with me?
So these OAS II businesses are essentially meta aggregators or aggregators of aggregators. OAS II businesses, such as BeDynamics and iSeatz, pull in feeds from OAS I companies and combine them all together to make super feeds. For this, the OAS II will get some split of the commission from the OAS I, usually around 6-10%.
Now that the OAS II has aggregated all this tour and activity content, they develop some kind of unified interface that can then be integrated into another website, like an airline, cruise, travel agent, hotel, or destination website.
For this service, the OAS II splits their commission with the partner website, usually 50% of net commission, or between 3-5%.
Once on the site, the tour or activity is ready to be purchased by the traveller. Based on an average per person booking value of $100, we are looking at a $25 commission being split three ways, $15 for the OAS I, $7 for the OAS II, and maybe $3 for the partner website.
Since the OAS I is usually the one handling payment and customer service costs, their net is probably closer to $10. Each link in the chain needs to pay for marketing and technology costs out of this revenue.
Don’t get me wrong, there is a whole lot of sophistication happening behind the scenes here. Content writers busily bang away on keyboards writing “unique content” in order to avoid getting stung by Google duplicate content algorithms,Β XML feeds are being pulled into programs and deduplicated, sorted, and added to some local cache database for the purposes of βfast searchβ.
There are images, videos, and location data being added to the mix at every level. There are vertical search engines, mobile applications, mobile websites, widgets, gadgets, interactive maps, social buying, email offers, and all kinds of other cool and inventive things being created on top of this OAS I and OAS II layer.
In the end however, there is one important and critically fundamental player missing from this distribution chain… the supplier.
Once the product content is loaded, in most cases, the supplier is out of the picture until the customer actually experiences the tour or activity they purchased.Β In many cases, the customer doesn’t even know who is delivering the tour until after they’ve booked it.
For many long tail businesses, distribution just doesn’t make sense. Not because their products are too complicated or βuniqueβ to be delivered electronically, but despite all the sophistication, technology, and innovation focused on the mid-tier of activity distribution, intermediaries only accounted for about 5% of the online travel activities market in 2009.
Don’t despair though, that percentage is predicted to increase to 8% by 2012.
Let’s face it, the cat is out of the bag now folks. It’s only a matter of time before some smart Harvard grad spends a week in a basement with a supply of chips and red bull and figures out a way to completely transform this dysfunctional segment by developing a new wizbang interface that will make it easier for travellers to book activities.
Except, like the so many other layers of make-up on this proverbial pig, it will be just another shade of lipstick.
The deeper problem, and the one that needs to be addressed sooner rather than later, is that there is a fundamental disconnect between the activities supply chain and the source of supply.
As I have mentioned in my two previous articles about the size of the activities market and how destinations need to focus on activities, this segment needs supplier engagement in the worst way.
For the distribution chain to continue to thrive and to scale, it needs content. As more and more intermediaries enter the playing field, they are going to demand a piece of a pie that relies on human intervention to curate and manage.
The answer is for technology partners at all points of the distribution chain to start finding ways to make the supplier accountable for their content and availability. This means pulling product content and availability directly from supplier reservation systems and distributing them through the chain and pushing bookings back through the chain directly into the reservation systems.
There is nothing to say that points in the distribution chain can’t add value or augment content in order to maintain a competitive advantage over others in the chain, that’s their prerogative, but at the end of the day, the supplier is managing inventory and bookings from multiple channels in a single source.
What we want to avoid is the operator receiving bookings via fax and email, which are both the predominate method for receiving confirmations from intermediaries today.
Don’t expect suppliers to push this mandate, however. These small businesses don’t know and frankly don’t care about XML messaging schemas, APIs, or standards.
They care about running their businesses and providing their guests with the best possible experience they can. That means that the people who have to push this mandate are the people at businesses that service this small business market.
Everyone from the reservation provider to the OAS I, OAS II, hotel, airline, cruise, and destination company that wants to tap into this market needs to buy into the concept that the buck stops with the supplier.
This is not about cannibalizing an existing market or undermining anyone’s existing market share, if this works EVERYONE stands to benefit from the influx of content.Β More direct access to content means more diversity, choice, and more opportunity to segment products by niche.
Maybe then, those new shades of lipstick won’t just be for decorating the pig.
NB: Author is CEO of Rezgo, a sponsor of the PhoCusWright Report.
NB2: Photo credit -Β Theilr
About Stephen Joyce
Why couldn’t there be a website where tour operators enter their availability directly? Do they generally not have internet access? Or does something like this already exist?
@Rob, there are a number of Central reservation systems that are on the market that allow you to manage availability. The issue is that NONE of these systems has any kind of upstream connectivity to the distribution chain. This is the problem that exists. In order to manage availability across many distributors, you’re required to update availability in multiple websites.
come to think of it, that would leave room for a channel manager for tour operators…
Rob –
there are quite a few systems like that, the issue is the fragmentation. Last time we checked, only 5% of our suppliers had a reservation system with an available API. We did connect to a few important partners, but we can get excited and connect all of the 5%, it will still be only 5%. Maybe this % has slightly increased by now, but we’re certainly not waiting for the operators. In fact, I am convinced they just don’t have time.
@Rob @Daniele, you’ve hit the nail on the head. They don’t have time or budget. That’s why we ALL need to be singing from the same song sheet. It won’t happen now or even in the short term, but if we are encouraging the operators to move to systems that have APIs then there is reason for all of us to get excited.
Excellent commentary, Stephen. Finally someone has pointed a flashlight at this complex market segment. Is it any wonder that most DMOs just don’t want to wade into this mess? I don’t think so. This is usually the last thing being addressed. The main focus is on their markets where they need to stimulate demand, next come the large destination constituents – like the hotels you addressed in an earlier comment – and last the many small suppliers. As long as these can’t be easily hooked up to their system, i.e. their websites, which may or may not have a booking capability, they will likely be neglected at least when it comes to distribution. It just boggles the mind that fifteen years into the web, faxes are still sent around to confirm a reservation!
Thanks Joe. I think with DMOs helping suppliers (both tour and hotel) to become booking capable via CRS, OAS I and OAS II working towards connecting to CRS, and more consumers booking on-line or perhaps even mobile we’ll see some really excited changes in this segment. With 50% of seat availability left unfilled, there is still huge opportunity for every participant in the distribution chain.
And yes, fax… my kids don’t even know what a fax is?
Hi guys, OAS 1 here.
Stephen I would add that you’re only looking at a small slice of activities distribution – the one that we know and we like, which is online and technology based.
The much bigger share of the pie is still with very traditional channels: tour operator packages, hotel concierges, brochures in tourist offices, print ads…
So I think we’re actually doing a pretty good job.
@Daniele, the findings show that the traditional channels you describe account for about 10% of sales, compared to 59% off-line direct to supplier. The on-line component is about 29% of which 8% (of the 29%) is via intermediaries. So when you compare traditional channels 10% vs. online distribution at 2.5%, then yes, traditional channels account for about 3 times the sales. My point, though, is that regardless of channel, off-line, on-line, concierge, or tour operator, the distribution channel needs to be better connected to supply.
Then I have to politely disagree with “the findings”.
Sorry I haven’t read the report yet, and I know this is an opaque market so definitions can have different interpretations.
If the findings are that activity suppliers get 59% direct offline + 26% (i.e. 92% of the 29%) direct online, for a total of 85% direct, then these guys are actually very, very smart.
It’s not really about being smart, it’s about being accessible. The majority of these bookings are still being done in destination once the customer is in the location. The opportunity for you as an OAS I is to carve a larger piece of that direct to supplier channel (the vast majority of which is conducted via email and phone).
And, I’m not saying that you’re not doing a great job, I’m simply suggesting that by connecting the chain, your opportunities will increase.
Stephen, I enjoyed reading this article very much. The activities & tours segment definitely is an exciting sector to be active in right now! And yes, there are different layers with different challenges, providing different benefits…
Some points arise from my side.
1) “intermediaries only accounted for about 5% of the online travel activities market in 2009″ -> I don’t get this. Is it really 5% of the *online* activities market? Or is it 5% of the *whole* activities market?
2) “So these OAS II businesses are essentially meta aggregators or aggregators of aggregators…” -> Maybe I’m blind, but where can I – as a traveller – find those super-aggregated wealth of activities, on a global level? (As far as I see, BeDynamic and iSeatz only distribute B2B and their clients just show a very selected choice.)
3) I’m asking because this is what my startup http://www.pocketvillage.com actually wants to be: A meta-aggregator of extraordinary travel experiences – a directly consumer-facing search engine for (mainly) activities & tours.
I totally agree, the distribution challenges in this segment are rooted in the lack of central reservation systems at the source of supply. (Aren’t Excel and pager notepads still more powerful, after all?!
Certainly, if we all collaborate on this issue, we’ll all benefit in the end through better market access, better content, and more personalized travel experiences.
Question 1) was already answered while I was typing….. 5-8% of the *online* activities market, meaning 1.5-2.3% of the overall market. So THAT is really mind-blowing.
@Florian. If you are pulling your content from OAS I companies like Viator and Isango, then yes, you are a meta-aggregator. If you are connecting directly to CRS like TourCMS, Rezgo, etc. then (right now) you fall more into the OAS I category. So, you’re really more of a hybrid. That said, the fact that you connecting to source systems is a great step forward.
And, no, I don’t think Excel, a pager, and a notepad are more powerful.
Great article and comment threat. It’s good to see some minds on this topic.
No-one has mentioned the nature of many tours and attractions in that many of them cannot be paid for upfront as part of the online booking transaction due to the supplier not being able to guarantee departure as the tour or activity may be weather dependent or dependent on a minimum number of participants.
It seems to me that many of the online booking methods that are working now, are rudimentary in terms of payment models and require a full payment by credit card at the time of booking.
I think part of the improvement in distribution opportunities for this sector will come from innovation around online payment models and a move to more consumer and product friendly models, that aren’t just “pay now or find another way”.
@Stephen: Great article as always.
@Liz: This is a good point. Do you have any suggestions how activity booking websites could cope with this?
@Liz, I agree and I think the distribution opportunities don’t have to be based on transactions. We have to look at distribution in a different way with this sector (as with the adventure travel segment). Content distribution with lead generation, the partial merchant model (where distributor takes a deposit as their fee) and customer pays supplier remainder, and full merchant are all viable models. The distribution of content, however, can be the same for all three. I don’t think that distribution needs to imply that the transaction has to be distributed, just that the source of the booking was generated through a distributor rather than the supplier.
I think suppliers also need to look at and plan based on historical trending. So, for example, if the supplier knows that out of 100 days of operation, they have to reschedule 50 of those days because of weather, then it probably makes sense not to take full payment because they are going to have to deal with refunds and the costs associated with that. If, however, the supplier generally only has to reschedule 10 days out of 100, it makes sense to collect pre-payment because the costs associated with that are outweighed by the benefit of collecting the funds in advance (again, as long as they account for it appropriately).
Still lots of learning to do by all, but you and the E-Kit are helping tremendously.
Thank you Stephen for presenting a clear picture of the activity sector and the distribution chain… as a supplier I wondered how it all worked ! The plight of activity providers and niche operators is that most distribution channels are “destination led” and could it be that perhaps customers don’t see themselves as travellers but “participants” wanting an activity experience not a destination experience.
The demand for activities comes not just from tourism/travellers market but also from the likes of the education sector and the social group sector etc.
Any distribution chain therefore needs to provide suppliers with a solution to access all markets especially to help stimulate demand, as Joe eludes to. Suppliers need to get their products and services in front of people who want to do an activity. Their consumers first ask what can I do and then ask how do I got about it. This is quite diferent from “when they get there what can they do”
How many of those in the distribution channels provide quality content to somebody wanting to start rock-climbing for the first time,or offer details for enthusiasts to find different graded climbs.If a consumer wanted to take up photography his first point of call will probably be to the local camera club or adult education programme or to search specialist photography websites rather than go to a DMO or travel website to supply the information he needs?
Suppliers of activites have different problems to accommodation providers and attractions and need different solutions. Surely activity consumers and suppliers will be better served by a distribution chain that puts the theme/activity first not the destination, and which bridges the divide between tourism and specialist interest industries.
This has been recognised in some way by the UK Governments new tourism policy which mentions Thematic Tourist Boards http://www.culture.gov.uk/images/publications/Government2_Tourism_Policy_2011.pdf (see 4.2.1. point 5). The challenge as you’ve pointed out is the quality content and the online infrastructure to capture and present it to consumers and which work effectively for the supplier.
To engage with activity suppliers it would be helpful too see the distribution chain concern themselves with the activity experience…perhaps the system designers need to look afresh at the challenge!
You are raising some very relevant points here, Paul. It just shows once again how many ways there are for people to make trip decisions and what criteria enter into the picture at the different stages in the decision making process. You’re right that the selection of an activity is not linear or even logical when other elements are chosen, like what place to visit and where to stay.
As for the theme approach that is nothing new and it has been the basis for the marketing by Switzerland Tourism for almost two decades when that DMO came to the conclusion, based on research done about the psychographic profiles of visitors, that a place based approach was often less effective. Despite the magnificient scenery of the country, many first time visitors asked the question: “well, it looks great but what can I DO and experience, when I’m there, in front of that beautiful backdrop?” That’s where activities come into the picture as convincing arguments to visit.
Thank you Paul. I agree with you completely. In fact, Joe and I have had many conversations about your point. In my opinion, the experiences should be driving destination choice. By having experiences like yours in systems that can be used for distribution, the opportunities to drive the experiences forward in the travel buying life cycle increase greatly. This means helping people find experiences first and then let them choose destinations where those experiences can be fulfilled. In the next few years, I would expect to see more niche distribution channels that are destination agnostic but experience specific. For example portals for wine enthusiasts or foodies, or cultural tourism.
Another fascinating thread.
Paul, great point. From the start we put the activity first and destination second on the search for exactly the reasons you describe. I think actually living and breathing for the activities we sell helps us to relate closer to customer requirments like that, which is something I guess central distribution systems built by people unconnected with the product will struggle to replicate. But then spending your time surfing and climbing doesn’t leave as much time for building your distribution capabilities! What a catch 22.
Liz also touched on another important point. The very bespoke nature of these products doesn’t lend itself well to packaging and distribution in the first place, so as Stephen said, continuing with the bulk of transactions happening with the supplier would seem to be a more realistic aspiration. Shame that excel and pagers are not very trackable!
Alex, I agree about the dilemma between running a business and indulging in your passion.
It does sound as though we’ve got a bit of tail wagging the dog situation with the techies wanting the activity operators to devote time to putting data into a fashion they can deal with to fit systems designed for traditional destination distribution.
Perhaps I’m too much of a newbie on the activities side (I’ve now got to go and research XML feeds mentioned by Travis !) but I read that operators have difficulty getting merchant facilities/payment gateways so I’m not sure innovation in payments systems will be the solution … probably needs the banking world to change their risk view of travel first ..again something else that activity providers suffer being tarnished with the same brush as the travel industry.
The very bespoke nature of activity products, which Liz identified and Stephen highlighted, is the peculiarity which nobody seems to be addressing but which might be the key to helping and engaging with operators. Would it not be worthwhile spending time analysing what it is about the buying behaviour of customers thats makes them want one activity or another .. and then building the technology and distribution systems around the results ?
You’ve definitely hit the nail on the head with this article Stephen. Distribution of tours and activities is extremely complex and like you’ve discussed, the work to source, load and maintain content is not insignificant…. Thankfully over the past couple years some of the more sophisticated tour operators have listened to our (and of course other partners) constant plea to create XML feeds from their in-house booking systems of their trips. Unfortunately there are still no defined standards for these XML feeds, which means that every file we receive from different suppliers is in a different format with different levels of detail. To then pull this data into a common database, requires individual mapping from the source file to the common database structure… all of which takes time and effort. So yes the industry has advanced, however as a whole it is still a LONG way from the ideal solution and as you’ve mentioned, frankly most smaller activity suppliers don’t have the time or budgets to worry themselves with ‘techy stuff’ that gets in the way of running their businesses…. however that’s where I see the likes of TourCMS, Rezgo (CRS’s) filling an extremely important gap in the market to help bind this very fragmented industry together.
We at TourRadar are a hybrid between an OAS I and II, except we are not a booking engine… we connect directly with the supplier:
a) For sophisticated operators via their own XML feed of trips which we automatically update on a regular basis to ensure we have up to date content (further complexities get added in when suppliers flippantly change tour codes, etc)
b) Directly to CRS’s (so far we’ve connected with TourCMS via their API)… and we’re keen to work with others like Rezgo as we realise that the data we pull from CRS’s is up to date and managed via the operators and can be automated via their API’s (plus each operator will only use one CRS…. chosen based on their business needs)
c) Operator can login to their TourRadar Dashboard and self add/manage their tour content themselves
We then help the suppliers distribute their tours using the key channels… such as Facebook, DMOs and Affiliates (either white label search page or via our API that allows other ‘aggregators of aggregators’ to use our one simple feed of tour content)… like wego.com have done on their ‘Packages’ page.
I agree with Liz that the one big improvement that will come in the future, especially for activities, will revolve around the innovation in payment models… in particular mobile. Whether it’ll be a startup, a CRS or an established player like Apple…. I’m very interested to see what happens..
Hey all, you guys might be interested in this article here:
Pocketvillage launches metasearch engine for tours and activities
Potentially rather big news from ITB in Berlin last week in the tours and activities sector with the official launch of new metasearch service Pocketvillage…
http://www.tnooz.com/2011/03/14/news/pocketvillage-launches-metasearch-engine-for-tours-and-activities/