NB: This is a guest article by Andrey Spektor, founding CEO of Carsolize.
The travel industry is flooded with venture capital investment. Millions of Dollars and Euros are poured into a multitude of travel startups all the time.
One would expect these investments to result in exponential technological progress of the industry – however, a closer look reveals that most of the funding is spent on so-called concept interfaces, most linking back to established OTAs for content and booking services.
Dozens, even hundreds of companies pursue their dream to become the next Skyscanner, HotelTonight, Airbnb, and even Expedia, instead of coming up with new business models, or tackling an actual industry challenge/shortcomings (which are abound).
By doing so, they seem to defy what startup companies are all about: incumbent advantage, solid exit strategies and introduction of something truly new and different enough to deliver large, sustainable, and long-term profitability.
Idea-recycling is not sustainable
So many startups recycle the same ideas over and over again, offering little to no innovation:
- X tries to be Y
- Z replicates B
- G builds a brand new F
If consumers want to compare rates, thereâ€™s a sea of metasearch based interfaces, which will show a myriad of confusing and often inconsistent data.
But thereâ€™s couple of leading brands for that already â€“ Kayak, HotelsCombined or Skyscanner. If one was to pitch a VC with business plan to create “another kayak”, how disruptive this idea is?
And if so, how come so many startups do exactly that, and get funded in the process? In such a competitive business as online travel, there is a desperate need for innovation and so many real problems to be solved, yet we see so little of it.
Is it because complex development bears greater risk due to its longer-term nature, or is it because everyone wants to see immediate results?
Perhaps itâ€™s both.
Value versus mischief
A cold look at recent investments reveals that travel startups often rely on business plans that aim at delivering measurable results in a short span of time.
As a result, in most cases they pitch a good looking concept interface. Granted, some startups can ride the wave of particular trends, like social planning, inspiration, vacation rentals, and same-night bookings.
- However, what real value does X offers its clients?
- What protects Y from being instantly replicated by any existing industry player?
- What guarantees Z to still be relevant a year from now?
At the end of the day, if the most innovative and exciting interface completes the booking on a traditional OTA, the customer has gained no value from the interaction, the industry didnâ€™t advance anywhere, and the beast is fed again.
The bottom line: Erosion through short-term focus
It would seem that the goal of many companies is sheer traffic generation. “If you build it, they will come,” goes the saying. And off they will go, to continue their shopping and comparison elsewhere.
- How much revenue can a user generate and regenerate for a search-and-refer site?
- How many startups actually engage in an attempt to extract top margin and value from each booking?
- How many try new ways to tap different, new, or simply professional travel resources, not to mention creating such?
- How many take a deeper look into the industry beyond readily available affiliate programs and resources?
Good examples are few and between, such as Hotel Tonight who introduced a new market niche, and GetYourGuide some argue established a new approach and different model to an existing product.
Startups require nurturing, until substantial traffic and conversion volumes (ie. sustainable revenue) are achieved.
Travel startup psychology dictates, that if you can generate X users with Y bookings by spending Z on advertising, scalability of the model is a function of Z.
The problem is that once you scale, Z exponentially grows â€“ as established players engage to outbid competition.
In order to provide long term sustainability, these companies must develop actual travel operation (contracting, customer support, technological infrastructure), or figure out a new way to resolve a real challenge, yet most fail to consider and incorporate it in their business plan in due time.
Specialize, diversify, and innovate!
Travel industry is one of the most complex industries â€“ commercially, technologically, and politically. Yet most travel startups have absolutely no experience in travel per se, rather a vague conception of how things operate and where the upside might be.
Creating value by providing convenient booking site is great, as long as youâ€™re capable of actually profiting from it.
I reckon 90% of the existing startups can be easily eradicated by the slightest change in consumer behavior or by larger players adopting their ideas and structuring them to serve their needs.
So many startups are dependent on an idea that the likes of Expedia can replicate and implement at far lower cost with greater level of success, like calculating frequent flight miles or by adding tonight booking services.
The future belongs to those who introduce real innovation, actual technological advance, and patentable ideas or in other words figure out how to make money by breaching the gaps in the existing technological and commercial landscape of the travel industry.
NB:Â This is a guest article by Andrey Spektor, founding CEO ofÂ Carsolize.
NB2: Innovation word image via Shutterstock.