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703 days ago
 

Hot stuff or flash in the pan – a dose of reality about tours and activities

In the year following the PhoCusWright report titled When They Get There & Why They Go, I’ve seen an explosion of interest and so-called innovation in the tour and activity space.

But is any of it going to make a long term impact or is it just lot of technological navel gazing?

From the list of tour and activity sites that Alex Bainbridge has been amassing, one can see that this sector is quickly becoming a popular target for developers hungry to deliver something different to travellers.

There have even been a few high profile investments from movie stars and comedians in these would be “Airbnb‘s of the tour and activity” vertical.

But, while the attention is excellent and the sector certainly deserves to have a light shone upon it, are these innovations actually dealing with the fundamental problems that face most small business operators or are they just adding more noise to the marketplace.

Before one can fully appreciate the solution, one must understand the problems, many of which take years of interaction and relationship building to fully comprehend.

Although the PhoCusWright report quite clearly identified the overall makeup of the sector, many of the start-ups seemed to have failed to take notice.

So, I’m going to share with you some of what I know about the tour and activity segment.

Economic reality

The first and most important finding in the report is that over a third of businesses generate less than $250,000/year in revenue (that’s gross revenues by the way).

That’s less than the salary of most senior executives. These are businesses that are extremely cost conscious and lifestyle oriented. They do what they do because they love it, not because they have to.

These operators generally don’t have a business background and, as a result tend to build their business processes around what works for them at the time rather than through industry best practices.

Because these businesses are small, they tend to be fiercely independent and are looking to succeed on their own terms. They are not looking to put all their eggs in one basket and they certainly are not interested in developing someone elses’ brand with their efforts.

The important thing to note here though, is that in all cases, these are businesses and not part-time tour guides looking to spend time on a weekend walking around their city with a bunch of people they’ve never met.

Regardless of whether or not they have a business background, these operators are running legitimate businesses and have gone through the process of getting certified, licensed, and insured.

Hi-tech or low-tech

The second important finding to consider is that although 70% of operators have websites, less than 14% have electronic reservation systems. What does this tell you?

Well, firstly it tells you that most operators (86% of them in fact) don’t have a means of managing their seat inventory, other than a spreadsheet or pen and paper.

If they can’t manage their inventory, they won’t be able to provide block allocation or perform other basic yield management tasks. In fact, most of these small operators don’t even have any understanding of the concept of yield management.

They work on a free sale basis or a call or email for confirmation basis, which makes it very hard to sell their tours (as a reseller) without delay for the consumer.

Distribution and problem solving arguments

The third finding, and the one I think most of the startups need to consider carefully is that operators favour direct bookings over distribution.

Why?

Primarily because the work required and the revenues generated by distribution are far outweighed by the effort required to distribute.

According to the report, about 14% of revenues are generated from distribution. That 14% is coming from heavy hitters like Viator and Expedia who have strong recognized brands and marketing dollars to match.

The other 86% of revenues are coming from direct to supplier channels such as phone/email, online, and in person bookings.

That’s not to say that distribution is not a good thing to develop,my assessment though is that the majority of suppliers are simply not ready to participate yet.

After the PhoCusWright report came out in 2011 I expected entrepreneurs and innovators to jump on the tour and activity bandwagon and come up with some great solutions that would help move the segment forward.

What I have seen instead is a lot of rehashing of existing models with new-fangled Web 2.0 names and some social integration, but not a lot of substance.

The tour and activity segment is in serious need of innovation, but that doesn’t mean trying to solve problems that don’t exist. There are enough real problems that need to be addressed without inventing new ones.

What are those problems, by the way? My advice to all you would be “game-changers” out there is buy the PhoCusWright report and read it (carefully) and talk to real business owners.

You’ll find out what the real problems are soon enough. Once you do, your challenge will be to solve those problems before anyone else can or better than the incumbents.

Maybe then, I’ll see something that really makes me cr*p my pants.

NB: Skydiving, pennies and problem solving images via Shutterstock.

 
 
Stephen Joyce

About the Writer :: Stephen Joyce

Stephen Joyce is a contributing Node to Tnooz and has been working as a travel and tourism technology consultant since 1995. Stephen is the CEO of Rezgo.com, a cloud based software as a service reservation and booking platform for tour and activity providers.

Stephen is the Past Board Chair of the OpenTravel Alliance.

Stephen is a graduate of Capilano University, is a certified commercial pilot, and holds a certificate in IT Management.

 

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  1. seamus Cullen

    great article, and from the point of view of a small tour operator. very interesting

    i think many have the idea that there are huge opportunities in the activity and tour market and that there is money to be made there. This is true, but those who have the experience know that the reality is a little more complicated that just getting the product online and collecting the payment.

    Have a look at our operation and tell us what you think:
    http://www.nofrills-excursions.com/
    http://www.facebook.com/nofrills.excursions.mallorca
    http://www.facebook.com/henry.nofrillsexcursions

    it would be interesting to see your comments.

     
  2. Ben Colclough

    Good analysis Steven.

    I think it also really helps to differentiate between (1) day tours & activities and (2) multi-day tours. Two different product sets with entirely different distribution requirements.

    I’d argue that the day tour market has seen some reasonable online distribution progress with companies like Viator, Isango et al. but this only represents a small piece of the pie, with low commissions and small ticket prices creating a challenging business model for distributors.

    Multi-day tours are arguably where the money is at, but this is an extremely difficult nut to crack. Based on personal experience (and we’ve tried a few business models in this sector), there appear to be more economies of specialism, than economies of scale.

    As for the trouble in motivating small businesses to ‘invest’ (time & effort) into distributors, that will come if & when there is a strong enough distributor in the market with a proven ability to shift inventory. At the moment, if you speak to any small operator, they’ll all tell you they have signed up for a few sites and never sold anything through them.

     
    • Alex Bainbridge

      Hi Ben
      I know its shorthand to say day tours vs multi-day…… but the distinction, when it comes to distribution is not day tours vs multi-day – but products vs services…….

      Day tours tend to be products. Multi-day (at least for specialist tour operators) tend to be services (tailor making at least some aspects of it will make a base itinerary into a service)

      But you can have day tour “services” – i.e. a tour guide and discussing the itinerary they are going to guide you through, prior to you booking them…… and you can have multi-day “products” – e.g. a 4 day group tour

      Products tend to be distributable and bookable online, services are not….. if you want to distribute services, you have to distribute the conversation too….. and no one really sorted that yet

       
      • Ben Colclough

        I think you are probably right. The distinction is between products and services, rather than day vs multi-day, although this is arguably more difficult to to grasp and communicate.

        Following your logic then does not product = group tours (day or multi-day) and service = private tours (day services of a private guide, tailor-made multi-day tours etc.). This feels like a helpful distinction.

        There does seem a lack of innovation in the multi-day group tour market. It is ripe for a consolidator who can offer a social layer of information over the standard product data.. I’ve lost count of the number of times customers have asked for the sex, age, etc. of the participants in a group tour.

         
    • Stephen Joyce

      Stephen Joyce

      “As for the trouble in motivating small businesses to ‘invest’ (time & effort) into distributors, that will come if & when there is a strong enough distributor in the market with a proven ability to shift inventory. ”

      My point is that the majority of start-ups are focusing on distribution when they should be focusing on other real problems. I don’t think distribution can happen in any mass scalable way until some of the root issues are resolved. It’s not a question of motivation, it’s a question of readiness.

       
      • Ben Colclough

        You are right, there are certainly bigger problems and more lucrative opportunity than distribution in this sector. I guess the challenge in addressing your problem (2) technology is laid out in problem (1) the size of businesses. This is an incredibly diverse sector, I’ve yet to meet two operators (and I’ve met a fair few) who manage their distribution, inventory and servicing in the same way.

         
  3. Bruce Rosard

    Hi Stephen,

    Good write up, of course.
    Lots of truth in what you write, especially the section about operators needing electronic reservation systems.

    I have a feeling there might be some changes on the horizon…

     
  4. Joe Bühler

    Excellent analysis, Stephen. This segment remains one of the harder to crack for anyone involved. It might well take something like iTravel to disrupt the marketplace and make it happen. Having said that, I agree with you that unless these diverse services can be booked and confirmed in real-time even that won’t be the solution. In that effort, I continue to see a role that DMOs could and should play. It would be part of an effort to both better serve the customer better and raise the level of professionalism at their destination. Worthwhile efforts in my opinion.

     
  5. Adrian Measures

    Great article Stephen, I agree with all these points.

    Yet I think it is important to differentiate those internet services between those that are addressing the existing market (professional tour and activity providers) and those that are trying to create a new one like airbnb did, on a C2C model.

    The professionals already have their market and a business, sometimes a lifestyle business, that is working well enough for them. Services aimed at these professionals probably need to focus as much on making the professionals lives better as on making them more money (that is my own experienced guess and I’d love your thoughts on it).

    The C2C model hasn’t found it’s airbnb yet. The problem to solve here is on the consumer side : are you willing to take a tour with a non professional ? How do you make that happen ? Can the C2C model scale to a large enough volume of tours and providers without the professionals ?

    The business models of these two types of companies are going to be very different.

    Does it make any sense ?

     
    • Stephen Joyce

      Stephen Joyce

      In many jurisdictions, individual guides have to be licensed and certified just like any other operator, so even the current model isn’t really C2C. I think you’re right though, the C2C model is a completely different model that may well be suited to the marketplace concept. Of course, now they’ve just created a whole new set of problems.

       
  6. Eric Hoffman

    I think that the one thing to make you cr*p your pants is “iTrave”l, if it ever comes out. Because the only way it seems that the activity and tour segment will really jump on a platform is if a big enough player like Apple comes in and forces the change. I hope it doesn’t happen like that due to the fact that Apple has such a big cut of iTune sales, but sometimes we don’t change unless we’re absolutely forced to…

     
    • Stephen Joyce

      Stephen Joyce

      Good point. I can see iTravel being a distribution channel, but it would still require the suppliers to have a reservation platform that can support the real-time availability requests. What good would mobile in-destination booking be without instant availability and confirmation.

       
    • Kevin O'Sullivan

      What does the mythical iTravel solve that the plain old Internet doesn’t solve ? The Internet is a pretty big platform, and yet there is still be the issue of tour operators dealing with pen/paper & spreadsheets.

       
      • Stephen Joyce

        Stephen Joyce

        When I see iTravel, then I’ll believe it. For now, it’s only a Apple pie in the sky.

         
        • Joe Bühler

          Sure, but let’s not fall into the same trap music execs fell into before iTunes seriously disrupted their business model, or the old travel industry guard pre-OTAs. That’s just industry insider myopia which can be a detriment to success.

           
          • Stephen Joyce

            Stephen Joyce

            I would argue the writing was on the wall for music execs with the electronic distribution of music. iTunes legitimized something that consumers were already doing through Napster and other file sharing sites for years before iTunes came out. The problem I have with iTravel is that all we have seen is 1 patent application two years ago and nothing since. I don’t doubt that Apple could do something amazing with it, but I don’t think they will be able to do it without letting the industry know before hand.

             
 
 

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