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968 days ago
 

Can consumer travel startups make it without being bought?

Expedia. Travelocity. TripAdvisor. Kayak. These are all household names that even your mother will likely know.

But behind these behemoths of travel stand hundreds (if not thousands) of startup attempts to hit it big with consumers over the years.

Some have made it and now stand shoulder-to-shoulder with the big brands. But for the majority of attempts, the only way to truly reach a critical mass of consumers has been what many founders dream about: the exit to a bigger company.

Let’s rewind a bit to an earlier era – an era where the big travel brands listed above were just in their infancy. Gaining customers via advertising online was still relatively cheap compared to today.

In a few cases, the brand was online early enough to have to convince customers to “trust” the process of buying travel online. In all cases, the process of acquiring customers was incredibly different to what it is today.

These brands – led by their amazing teams – trail-blazed their respective categories and, with a good helping of capital and luck, ended up where they are today.

But are stories like the above even possible anymore? Can a consumer-facing travel startup go from unknown to household brand?

On the surface, it looks to be a steep uphill battle. No matter how well a startup is funded, its search engine campaigns will likely be eclipsed by the likes of Expedia, which spends a reported $5.9 million a month on Google SEM alone.

Viral campaigns? Hipmunk, which used incredibly effective re-targeting campaigns to create buzz amongst the tech crowd, is still nowhere near a household brand.

The “build a great product and they will come” approach? The startup ecosphere is unfortunately littered with the cadavers of great products the public never got to know about. Reaching consumers is, in a word, hard.

But before we get too pessimistic, let’s take a look at some well-known consumer travel startups from recent years:

1. TripIt

Solving the pain-point of managing travel plans was clearly a success with business travelers, who still make up the majority of the service’s user base.

After raising $13 million over the course of three years, the company exited to Concur for $120 million in cash and stock last year.

A great result for a team with impeccable pedigree (Hotwire, anyone?). But could TripIt ever have been a bigger consumer brand on its own?

2. AirBnb

One of the most successful travel startups to emerge in recent years, the community marketplace for accommodations is by all accounts connecting with consumers.

Having raised $120 million at a reported $1 billion+ valuation, AirBnb has turned from startup to acquirer of startups.

One could argue they already stand shoulder-to-shoulder with some of the giants above.

3. Farecast

One of the first travel startups to use big data, Farecast predicted whether airfare would rise or fall for a consumer’s trip.

The company raised nearly $21 million over the course of four years before being acquired by Microsoft in 2008 for somewhere between $75 million and $115 million.

The fare prediction feature is still a central part of what is now Bing travel. But what would have become of the site without Microsoft’s audience?

4. HomeAway

The clear leader in vacation rentals is an amazing story by any standard. Growing from its founding in 2005 to an IPO in 2011 and a current valuation of $2 billion is quite a feat.

Even more interesting was its approach to rolling up the then very fragmented vacation rental market by raising more than $400 million, buying the most important players, and combining them into one.

In essence, HomeAway skipped the struggling startup phase and became the acquirer almost right away.

Risky? You bet. Successful? Obviously.

5. Skyscanner

As one of Europe’s most prominent metasearch players, Skyscanner has over 14 million users a month and an aggressive expansion plan in Asia.

With only £2.5 million in funding, Skyscanner has built an impressive brand in Europe and is posed for further growth.

It stands as perhaps the best example that there is still hope for entrepreneurs to build a real consumer travel brand from the ground up.

Reality

This list is an admittedly very small sample of consumer travel sites, but it does show that it’s certainly possible to build a big consumer brand without the resources of a behemoth behind it.

But does an acquisition actually help build broader reach?

This is one of the more difficult questions to answer. In many acquisitions, the original website is rarely left standing on its own.

For example, Microsoft took less than a month to integrate Farecast into what was then Live Search. TripIt’s traffic has been relatively flat since it’s acquisition, though its mobile usage has been increasing.

Companies acquired by some of the big travel brands seem to be faring better: Away.com has remained largely independent since its acquisition by Cendant (now Orbitz) and is still generating a great amount of traffic.

Swoodoo, the German metasearch engine acquired by Kayak, seems to be increasing its traffic as well.

The magic formula

As outlined above, being acquired doesn’t always help startups find wider reach. Nor does remaining solo mean eternal life as an unknown travel site.

What then, is the magic formula to make it? Like most startups, it all depends on team, timing, product, and a whole bunch of luck.

NB: Exit sign image via Shutterstock.

 
 
Alex Kremer

About the Writer :: Alex Kremer

Alex Kremer is is a contributing Node to Tnooz and Vice President of Partnerships at Nor1, Inc. He was previously COO and co-founder at Flextrip, a tours and activities marketplace API servicing travel companies which was acquired by Nor1.

Alex is a 15 year veteran of technology startup companies, previously co-founding Cruvee, a business intelligence company for the wine industry where he led Business Development.

Prior to that, he co-founded FanAxis, one of the world's first fan club management and merchandising firms in the music and entertainment industries.

Alex began his career at 16 by founding Onlink, an early innovator in virtualized server technologies for the web hosting industry. Alex is based in Boulder, Colorado.

 

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  1. excavator hire adelaide

    There is some truth to the argument that PPC/SEO marketing is more competitive and expensive than before which makes it harder for start ups to boot strap their way up.
    Read more at http://www.tnooz.com/2012/03/30/news/can-consumer-travel-startups-make-it-without-being-bought/#9PteBX81P9c94YSK.99

     
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  3. Ciaran - Meetingsbooker.com

    very good article, certainly thought provoking. You could also add a lot of other smaller travel start ups who sold for 15 – 30 million and are sitting on a beach somewhere!! But it is hard and any start up needs a unique idea in a niche area with the possibility to scale. I think there are some many of us out there just working away and trying to grow and loving every minute of it!

     
  4. brian crozier

    “What then, is the magic formula to make it? Like most startups, it all depends on team, timing, product, and a whole bunch of luck.”

    The same can be said for most businesses including the online payment business!

     
  5. Nicole@ Hotels in Torquay

    There is still room for more. For those who are willing to sacrifice and devote their time. A limitless opportunity and lots of areas are just starting to have Internets.

     
  6. Sam Daams

    I guess it all comes down to your definition of “make it”…

     
  7. Scott Thompson

    Great article, Alex. The beauty of capitalism, competition, and the free market is that *eventually* there will be a startup who builds a great product/company, consistently wows its customers and rises up to the level of the big boys without being acquired. We can look to other industries for examples. In the mid-to-late 20th century, the auto industry probably looked similar to today’s online travel industry (i.e. a small group of seemingly unstoppable big players), and sure enough, the big U.S. automakers were overtaken by newcomers from Japan… and now the whole model is being reconsidered with companies like Zipcar. In its heyday, Microsoft seemed like it wouldn’t be touched, and now Microsoft is an afterthought in many of its core businesses. Even the untouchable Google is appearing more and more vulnerable.

    It will be exciting to see which travel startups take over – because it will definitely happen. It’s a matter of time.

     
  8. Huw Owen

    Good article Alex. I often think precisely about this issue. I think certain kinds of B2C products have thrived on the web, and will continue to do so (accommodation – in its broadest sense, airlines, day tours etc.). In these areas I think companies need support early, because the data possibilities mean that scale is the only route to “success”. To scale, you need cash.

    More complex travel products are much more difficult to commodify, so the tech folks amongst TNOOZ readers have a huge challenge on their hands.

    It’s worth saying as well that there are hundreds of offline travel companies that have been successful – depending on what your success metric is. If it’s to make a billion, OK, very few have managed that. If it’s to have happy repeat customers that pay your wages, and the wages of your team of staff, then that counts as success for a great many people around the world.

     
  9. Daniele Beccari

    “Travel” is a $3.6T industry with extremely different actors, models and ecosystem . Tough to generalise. What is clear is that if you have global ambitions as a B2C brand, you’d better know what you’re doing and have equally ambitious cofounders and financial backing.

     
  10. Stuart Lodge

    Smashing article Alex. Been thinking about this all day.

    “As outlined above, being acquired doesn’t always help startups find wider reach. Nor does remaining solo mean eternal life as an unknown travel site”

    There was a Professor at the LSE (Layard) recently who wrote about happiness. One of his main conclusions was that having the respect of your peers was one of the big keys to a happy life. Still few of us here are proper communists, and I reckon a few quid doesn’t go amiss either…

    But I’m a bit with Pete and Sean. What is the definition of happiness. 100 mill. 20 mill. Or good health, a few quid in the pocket and a cold quality beer on a Friday.

    Like, I suspect, a lot of others on this thread, I’ve just finished Steve Jobs biography. What seeped through was the sheer scale of his success in so many different industries (6 or 7?) and the wealth it brought. But he didn’t seem that happy as a person; after all, you can’t take it with you….

    Then I think of Skyscanner (results, no. of sites, based in Scotland – huzzah!), or Momondo/CF (trains in results – ace) or Hipmunk (quality blog/agony thingmy) and I kind of hope they do all become more successful (bigger? better?) Methinks they’ll have a better chance than most due to their ability to scale.

    Re-reading the comments above I do also wonder if taking in outside wonga changes the expectation within a company. Must add to the pressure to design a profitable exit ASAP. Not sure more pressure is what a motivated start-up needs. Maybe it is though. Flipside to all your eggs in one basket is that is does focus the mind….

    But there is something fun in having a tight, flexible, well-run operation that you own though. Death or Glory is all very well, but muddling along getting things done properly does have a certain quiet honour about it….

    Laters

     
    • Sam Daams

      Hear, hear…

      But then again, I didn’t expect I’d disagree with you, Pete and Sean, given we’ve all taken rather similar paths!

      It seems for a lot of folks, the only way to be considered a household name is to be considered that globally, which is also rather ridiculous. The bigger the tree, the more wind it catches, and you can bet that competition will only be getting stronger with each year that passes for the Expedias/Kayaks et al

      Then you’ve got your niche players, operating in some weird language that uses an å or an ø or whatnot. There is a lot to be said for conquering niches in neatly defined geographical spaces that mean that competitors have virtually no way to gain any footing.

       
  11. Alex Bainbridge

    Because I travel quite a bit I am often eating at restaurants. I think I see how I can create a new restaurant that is quite different to other experiences out there. Do you think I should train as a chef first or should I just set up a restaurant based on my consumer experience?

    Sadly this is how many B2C travel startups are created….. based on personal poor B2C experiences but with founders fresh to the sector.

    The industry is more complex than that. Long time ago I thought the travel industry could be fixed by UI/UX/UE (even researched and wrote papers about it) – but then I found that the problems that surfaced at consumer level were really created right at some base supplier data level…. so you need to fix the data problem before you can fix the consumer problem.

    And thats why B2C sites now find it hard to break through. They are just “fishing” in the Google organic traffic fishing lake – rather than getting their hands dirty and fixing the root cause of the consumer problem

    Lipstick on a pig…….

     
  12. Peter Suhayda

    Hey Sean and all, let me just add a few more clarifications.

    Of course, you are more flexible without raising money when it comes to strategy. However, I do believe that in travel to become a household brand, it’s either word of mouth or multi-channel marketing. Also, sites that help you plan, manage, and share your travel experiences are way different from i.e. travel search where people use your site once or twice a year. It will not help you much to do Adwords, because in 6 month they will have forgotten your name. This is why large travel booking & search sites do massive advertising offline, where they keep reminding people of their name. I would claim that for these sort of brands, it is essential to spend massive ad dollars unless they are just super amazing.

    On the other hand, if you are ok with not being an Expedia, then of course you can still make a great living, no doubt about it.

    Peter

     
  13. A. Thomas

    From a provoking headline to a qualifying final summary that in the end its more or less
    a matter of a “whole bunch of luck” as there is no general answer whether or not an
    acquisition or the status of an independant “lonely rider” is the ultimate path of a start-up.

    Unfortunately the article is, having the headline in mind, more irritating than revealing as
    there are examples for the variety of different approaches and does not at all help on the main toppic.

    However the article is providing some interesting informations about the mentioned companies and their very own individual road to success.

    On the main toppic I would finally like to add the fact that, in case of an acquisition, the sustainable
    success of a start up (which is of course to define individually) is very much depending on the strategy
    behind the acquisition. Does this include a valuable synergy effect for the mother brand, being bought
    should be a real option. If the plan is only to lay down an competitor, don’t expect a prosperous future.

    But anyway thanks for a really interesting reflection on an issue many entrepreneurs will sooner
    or later be confronted with which in the end has to be considered individually.

    Really exciting discussion …

     
  14. Stuart McD

    If you haven’t taken funding then there is no pressure to sell. That can be a lot better than in sounds.

     
  15. Peter Syme

    You always notice a distinct difference in the players in travel. Those the focus on the technology are chasing the huge numbers and the sell out or the deal that makes them millions. The you have the travel players who focus on delivering the product or service face to face with the consumer who think service, service, service

    Which one is the consumer more interested in and has the most impact on their experience? Of course the consumer needs to find things online and hence this gold rush which only ever was going to have a have a few nuggets of gold but thousands of miners.

    Good luck to all the brave start ups, the travel industry needs innovation and some of you brave guys borrowing millions will provide it, while most will just fade away. Keep a thought though for us unfunded travel companies that deal face to face with travelers on a daily basis, we will never be huge and never be bought out for millions but hopefully we are the inspiration that makes people keep traveling.

     
    • Paige

      I disagree with your comment:

      “Those the focus on the technology are chasing the huge numbers and the sell out or the deal that makes them millions.”

      Being a B2B technology startup, we have the goals to serve our customers, all of which are launching B2C customer facing websites and businesses, and also to enable local entrepreneurs globally to compete.

      In a sense, everyone in the game has to make money to survive, but I wouldn’t lump ‘technology companies’ into the above category.

      You have great companies on both the activities and tours side and lodgings side of travel (as well as other markets i’m sure) whose main goal is to make sure that smaller and more local B2C companies have the tools to survive and thrive.

       
  16. ALBERTO

    it is true there is no magic formula, however is also true that some big are going down on daily basis,hence I do assume new space might be available, are we all so sure that some of the big ones will still remain, if you have a look here
    http://www.forbes.com/sites/ycharts/2012/03/06/priceline-is-thumping-expedia-and-orbitz-and-making-google-wealthier/
    there is not a nice future even for the big ones. hence I think is above all a problem of creativity and new ideas something that unfortunately I have seen in the past but I can see nowadays

     
  17. Darren Cronian

    For me a successful travel startup is one that is talked about by my own friends, work colleagues and family because these are primarily people who are not internet savvy and dont spent much time on social networks, but they use the internet occasionally to book or plan a holiday.

    I would say here in the UK there’s one maybe two of the brands you’ve mentioned have been mentioned by the majority of people within this group.

    It seems the startup community focus success on how much money has been invested in that site, but from a consumer perspective, we care little about that – what we care about is that the website/service/product does ‘what it says on the tin’.

     
  18. james Scott

    Firstly, Expedia spends way more than $5.9m per month on Google ads. WAY more: see their earnings statements.

    The most interesting example for me is the centralised approach to acquisitions taken by Expedia and Travelocity vs hands off for Priceline/Booking.com. it’s pretty clear that hands off won that one, and Booking/Active together might even have reached current scale without being acquired, but combined.

     
  19. Juerg Wyss

    Why every company needs to become a household brand? Bigger, larger, richer? That’s not the only motivation for a start-up. I’m advising a small nicher player and the owner is very happy to have his outcome.

     
  20. Can consumer travel startups make it without being bought? « Tnooz « Public-Travel

    [...] link: Can consumer travel startups make it without being bought? « Tnooz Comments [...]

     
    • Justin Francis

      Good, thought provoking article. There is some truth to the argument that PPC/SEO marketing is more competitive and expensive than before which makes it harder for start ups to boot strap their way up. However, I don’t think this is where today or tommorrows start ups will make their names or build their customer bases and brands. The social space and Facebook API graph rewards businesses with the most enchanting and memorable stories and experiences – this is the new currency of success. Once again the wheel will turn to differentiated product and super smart social marketeers not big PPC budgets. The little guys with this will soon become the big guys. Having beaten established players with SEO and PPC to establish our business 11 years ago this is where we see the next opportunity. Some new brands will emerge from this as household names. Responsibletravel.com, like many others, will be aiming to be one of them. Regardless of this, we – and others not shown here – have shown it is very possible to create a successful start up without being bought.

       
  21. David Nagy

    Or… there’s no magic formula :-)

     
  22. Shaun

    First, what a great article. Second, you conclude that “Like most startups, it all depends on team, timing, product, and a whole bunch of luck.” I agree with your conclusion but would add that success also depends largely on how big the problem is and how painful it is for consumers. You say that “The startup ecosphere is unfortunately littered with the cadavers of great products the public never got to know about.” While the startups may have had great products, do you think any of those startups were trying to solve really big painful problems, or were they just companies with cool products? Do you think companies that follow the “build a great product that solves a really big painful problem and they will come” approach are successful or do you still think it takes more? I would love to hear your thoughts.

     
    • Alex Kremer

      I think the size of the problem a startup is solving has little to do with their chances of success. One could hardly argue that humanity wasn’t able to live without the ability to search for flights that have wifi (I say this as a regular wifi user :) , but startups providing that data are nonetheless poised to capture a fair amount of traffic for that feature.

      Perhaps a better question is, are there any truly big pain points left in travel that are solvable by startups? I think so, but the amount of funding required to solve them would be astronomical. Do I hope someone will tackle them? Hell yes. Is it going to be a massive uphill battle? Yeah.

       
  23. Peter Suhayda

    Some of it is luck, but most of it isn’t. It’s more about putting yourself in positions that have a high probability of being lucky.

    However, raising money is still essential, with very few exceptions of course. I would argue that the full potential of any business model can only be seen with a funding round, since without it you can’t hire top people and build top notch technology.

    I would claim that out of 100 travel start-ups 1 becomes successful and of 100 successful ones, probably just 1 was not funded or bought.

    I know how hard it is just to survive without funding having built Travelgrove.com, but ask bootsnall for example how long it took them to make any money.

     
    • Sean

      “However, raising money is still essential, with very few exceptions of course.”

      I’d say the opposite. Most ideas can be tested/started for little. Raising money complicates what can be an easy process in many cases. It also brings in another set of expectations that the founder(s) may not have considered when taking the funds.

      Of course, there are many reasons to raise money I’m sure…I’ve just never done it. And perhaps the “glorification” (Facebook Movie as an example) of it at this point in time makes it feel essential.

      Hope all is well with you Peter. Everything I say/think, I realize as I get older, that I could well be wrong. Have been many times. :)

       
  24. Jeff Shaw

    Great article. We struggle with this as well. Having only been “live” for a few months and without deep pockets for marketing the concept of success is daunting. I think you are right though that travel start ups are like many other start ups in that they need a whole lot of luck.

     
  25. Pete Meyers

    Enjoyed this article Alex and will look forward to the wave of comments that will surely follow.

    One interesting point to ponder is a challenge to the overall premise: is the definition of “success” achieving broad scale and becoming a household travel brand? Falling short of this (or an exit to another company), do you “lose?”

    I recently read this transcript from the founder of MetaFilter that I highly recommend and covers a few of these same themes: http://a.wholelottanothing.org/2012/03/my-webstock-talk.html

     
    • Sean

      Ditto what Pete said. Watch that talk by Matt H and then think about what this article says.

       
    • Bart van Poll

      Very good point Pete (and many other down here, like Darren Cronian) – it also depends on how you define success.

      Matt Haughey (see Pete’s link) is spot on when he says ” there’s no real places that cover self-funded sites that are successful. There’s no mention of long term goals or long term plans for most sites.

      It seems nowadays companies are only seen as successful when a lot of money was invested. In fact, if a lot of money is invested industry websites (yes, also sometimes Tnooz I think) don’t look critically at the offering of a company.

      I can guarantee you that with a good idea, you can create a successful consumer travel startup that makes a lot of consumers happy. I feel we’ve done it with our startup. Without outside funding and a budget of zero for marketing.

       
    • Alex Kremer

      I had a great discussion about this with a friend recently. For a founder, in all likelihood, the definition of success is the exit. For the brand itself, the definition of success is obviously a lot different.

       
      • Sam Daams

        I respectfully disagree. I’d rather make 250 grand a year in salary and dividends for a decade doing work I love at hours I love without some VC nagging me, and that allows me to spend enough time with my family in addition, than take a few million off the table on day 1. Sure, you can go the route that with that 1 or 2m you can start all over and turn it into more, but 99 out of a 100 times, entrepreneurs just aren’t as good as they think they are (see your point on luck, and thousands of examples of it in real life all around you). Of course if you are that 1 in a 100 person, you probably didn’t sell for 1 or 2m either, but 100s of millions, which is why your story drowns out the thousands of sob stories that exist (seriously, who really wants to hear a sob story anyway, when there’s a great, feel-good story right next to it?!).

        Of course this flies in the face of the ‘go big or go home’ mentality that permeates the start up world today, especially in the US. And you know what, that’s actually fine by me, as it means competition ends up focusing on the short term, which helps those of us focusing on the long term.

        It’s all about mentality, and whilst I agree that there are a lot of founders that share your point of view, I think you are underestimating the number of founders that don’t consider an exit as the definition of success.

         
        • Alex Kremer

          You make several good points, and you’re right that the VC-less option is one with a lot less interference (and loss of sleep..)

          However, you’re somewhat implying that taking investment is a requirement for an exit. As a founder, you can most certainly aim for an exit without ever taking investment. So in reality, you can take the 250k a year and, with a slow and steady approach, still exit at the end. No hyper-growth required.

           
          • Sam Daams

            Without hyper growth or hyper profitability, you won’t get the valuations that most founders seek in an exit though… of course at some stage, *every* founder has to exit in some way (sell to staff/pass on to family etc), but I think we can all agree that passing on your shares to your kids is not the definition of an exit that most talk about/hype today :)

            Of course every founder will sell if the price is right, but then we’re often talking about what a good friend so lovingly refers to as taking “f**k you money”; money so good you can say “f**k you” to everything else for the rest of your life.

             
      • Bart van Poll

        @Alex – For us success is definitely not the exit. Success is doing something I truly love, and with a purpose: making travel more fun. If you can pay the bills and can’t imagine a better life, an exit is not on your mind.

         
  26. Ophir

    Excellent article – This is the kind of stuff that keeps me awake at night, wondering what else I can do to achieve the critical mass needed to jump over the fence to where the big boys (and girls) play. Compared to some of the start-ups mentioned in the article, we don’t have a nationally-recognized “A-Team” of founders, the mere mention of which will open any door and be a great tool in getting the word out about the company. So it’s a daily uphill battle for us, but we believe in our product and in ourselves! (Regarding luck – I have my Mega-Millions ticket which should nicely cover a viral campaign + change).

     
    • Evan

      A-Team founders are created by their companies, not the other way around. You had never heard of AirBnB founders until the company started emerging on the scene. You probably still don’t know who Farecast’s founders are, etc. Hipmunk has founders from Reddit (a HUGE success), and they still deal with the same challenges as the rest of us.

      All “A-Team” founders do is get you some early equity which yes, raises your chances of success through the early days, for sure, but by no means puts you on a path to IPO. PR does not build a sustainable travel brand, good marketing and (most importantly) and sticky product are baseline requirements.

       
  27. peter m. gruhn

    I notice you mentioned luck more than once. it surprised me. While I figure it to be true, I would have guessed that people wouldn’t like to talk about it as an aspect of building business.

    Have you done an article yet on how to create your own luck?

     
  28. Paige

    Great article Alex! I watch the B2C travel space very closely, and even attempted my own play in it previously with no success. Critical mass is very hard to achieve, and considering the number of new consumer sites that have been launched recently, the competition for users will just get harder. Always love to see someone come through the gates that has the ability to achieve an IPO without the need to raise loads of money, but that is a rare scenario unfortunately.

     
 
 

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