traction people
652 days ago
 

Travel startups: ditch the consumer traction and focus on data

There has been plenty of digital inches written recently about the Series A crunch. Is it real? I don’t know.

However my instinct is that there are certainly less entrepreneurs with travel startup ambitions than in recent history (2011/2012), let alone those ready for going for Series A.

I can think of several reasons why this may be the case:

1. Joining a big company now more attractive than before

Got a great idea for a new hotel search? Larger companies who already have access to the necessary hotel product data (and associated supplier relationships) are out there looking for new blood who can bring in fresh ideas.

Certainly an attractive proposition for potential entrepreneurs versus the long slog towards profitability that setting up your own business can require.

2. Become a professional travel blogger

Got a passion for travel and being self-employed? Instead of forming a travel startup go and set up a travel blog.

It requires many of the same skills as running a travel startup except you don’t have to disrupt anything, or fix anything, to create a viable income flow.

I am sure some would-be entrepreneurs have taken this route.

3. Barriers to entry are rising

It is becoming increasingly hard for bootstrapped, unfunded travel startups to get to the point of building consumer traction sufficient to take larger investment.

For example, you could have some form an innovation on how consumers search for beach holidays. (eg. BeachscapeTLabs here).

BUT now, in order to expose your innovation, you have to build an entire business – product contracting, customer service, SEO and B2C marketing.

Uh-oh – massive barrier to entry problems. Certainly will put some potential entrepreneurs off.

So, some alternative approaches

If you still DO want to continue with your own path then various options are open to you.

First you have to think about whether you really want to work within the existing flow of the industry or whether you are looking to disrupt it in some way.

If you want to work within the existing industry constraints then you can go to an incumbent product supplier and take their data feed (with their permission).

Great – except they will only work with you if you are giving them bookings NOT if they think you are going to disrupt them.

If your ambition is to be acquired by your data provider, innovating on their data is probably not such a bad idea.

You may find, as a standalone innovative company, you may be able to circumvent their internal politics and bring something to market several years before they can. Go for it.

Create your own data

Instead of relying on someone else’s data it seems that most “industry changing” entrepreneurs are actually in the data creation business.

This isn’t right for everyone – for example, Hipmunk focused on innovating using someone else’s data.

But for companies like AirBnb, creating its own data (home-owners willing to rent their space) was mandatory to unlock the opportunity it saw.

Data traction

This brings me to the key point. If having your own data is so important to the success of a travel startup, then why are we all so focused on consumer traction?

Ultimately the consumers belong to Google, Bing et al and the online travel agencies/metasearch companies, so unless you are looking to join them, let them worry about consumer traction while you focus on data traction instead.

Going back to the Beachscape example. Perhaps instead of innovating on UI and user experience around consumer facing beach holiday searching (and building the big surrounding business this will require to get traction) they should be providing a data API with a “beach score” for each beach resort hotel.

Would OTAs license that?

They probably would as long as the data was cheaper than what they could create it for, there was a return on investment (ie. it actually does something useful for them or their consumers) AND that they could build competitive advantage on top of the data (so not every data customer got the same benefit).

So is this hypothesis right? Is data traction more important than consumer traction? If so, why do we hear so much in the business media about consumer traction and not data traction?

Hummmm…

NB: Traction people image via Shutterstock.

 
 
Alex Bainbridge

About the Writer :: Alex Bainbridge

Alex is a contributing Node to Tnooz and writes about travel technology, travel startups, specialist tour operators and the tours & activities sector. He has previously led ecommerce, social media and reservation system projects for airlines, leading mainstream tour operators and hotel distribution companies in both leisure and business travel sectors.

He is the CEO of TourCMS, a web based software-as-a-service reservation system and distribution platform used by many specialist tour operators worldwide to take online bookings and distribute to 3rd parties.

He also moderates Small Fish Big Ocean, a community that welcomes small tour operators and niche travel agents to come and discuss travel ecommerce issues. Alex has a computing degree, is passionate about usability, speaks French and still writes and reviews code.

 

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  1. Pedro Vieira

    Coming in late to the discussion, want to say I agree with many of the points but especially with the importance of data, the lack of good structured data, and the need for virtuous cycles to help us get more and better data.

    I would say though that aside from focusing on data, travel startups need to focus on quality of service and most importantly in solving a real problem. I have not seen a travel startup that was solving a real problem fail… and if they do solve a real problem, it is hard to believe they will be seriously affected by a series A crunch.

    So much is said and written today about traction and virality that people focus on quantitative growth numbers and forget that travel is about emotions and experiences and we need to refocus on what matters to the users (the qualitative side of our industry). That’s why at maitaiz.com we’re completely focused on bringing back the human side of traveling by creating a marketplace to connect travelers with travel experts worldwide, support interactions between them while they craft dream trips in our platform, and facilitate transactions between them. We hope 2013 proves us right.

     
  2. Ivan Ilijašić

    I agree with Heddi. Sometimes this is “a chicken or the egg” question but it depends which segment are we looking. If we are talking about B2C segment you need fresh new data or data presentation but you need customer traction to validate not just your business but your data as well, especially if you are targeting global.

    Jonathan’s scenario in 4 bullet points makes sense to me :)

    Good article, Alex ;)

     
  3. Heddi Cundle

    ” If having your own data is so important to the success of a travel startup, then why are we all so focused on consumer traction?” – You can’t have one without the other. At myTab.co, we are always pushing to excel our customer service. The more we do this, the more traction = more data grabbed. It’s a no brainer.

    Regarding barrier to entry & protecting innovation – this is the BIGGEST excuse a VC will give for not investing and it’s ridiculous. It’s what to say when they don’t know what to say. Every single company on the planet has the same barrier to entry…and the same opportunity. Google’s growth vs Yahoo is a prime example of this. Protecting innovation is by speedbump-filing-patents and scaling fast.

    At the end of the day, if you have a great product, then you’ll get the customers/data and barriers/IP will be moot (until the lawsuits kick in…which they usually do) :)

     
  4. jonathan meiri

    @Alex great post and discussion. Agree with much of what @rod, @psycho @martin and other had to say.

    One key question that is missing from the discusion about data, is where is it coming from and who owns it? Is it really your data or are you collecting somebody else’s data and repackaging it.

    At Superfly we tried both. We first collected users’ frequent flyer data, mainly balances and elite status, through an opt in process. US domestic airlines, specifically AA and then UA and DL quickly sent C&D letters to prevent us from screen scrapping their site.

    To comply we developed Superbox, just like TripIt searches for your itineraries, and LinkedIn finds your contacts, Superbox helps you find all your miles and points.

    The elite status was always a proxy to a users travel budget. Now that we have access to travel emails, we have a much richer set of information. We know exactly what a user is worth. In terms of dollar value spent on travel, number of hotel nights as well as airline/hotel share-of-wallet information.

    We will never sell this information to anyone. But will enable airlines and other travel suppliers to target an anonymized cluster of elite fliers. I talked about it more here http://www.tnooz.com/2013/01/07/news/superflys-guerilla-marketing-on-facebook-is-luring-travelers-to-flight-search/

    This rich data set is OUR data, and is already resulting in higher consumer traction (higher conversion rates, more accounts per user, etc.).

    There is a lot of work ahead of us but our key learning is that there is a virtuous cycle here for us.
    1. Start by creating value for consumers
    2. Develop your own data
    3. Leverage the data to create value for both consumers and travel suppliers
    4. Increase consumer traction

    Makes sense?
    Thanks,
    Jonathan

     
  5. Noam Zeigerson

    Most of the Business Intelligence and Big Data projects are too complex and expensive for the industry. By letting Aimee analyze the big data and automatically change the consumer website for each visit you can reach your business goals and targets. We offer to demonstrate that concept on your website, no payment or obligation required.

     
  6. Sergio Mello

    >> If so, why do we hear so much in the business media about consumer traction and not data traction?

    Because it’s easier to measure and monetize than data.

    User traction is equivalent to eyeballs, which is directly proportional to booking or advertising revenue, while data requires mining, processing, storage and most important applications that convert it into value added.

    Moreover, data related benefits are not always as tangible as direct ads or sales income.

    This is why unfortunately we hear so much about consumer traction.
    Just another myopic perspective on the digital world.

     
  7. Matt Zito

    In answering your question, “why do we hear so much in the business media about consumer traction and not data traction?” I believe mainly because data is not sexy. Where is the story? Travel is about the consumer and the experience and always will be. If your B2C and you have no consumer traction you have no business. I’ve always operated on the consumer side so I am biased a little but understand the value of data. I really think it comes down to what type of business you are in.

    I disagree with you somewhat that there are less entrepreneurs now looking at creating travel start ups. I’ve had the opportunity over the past 3 years to work with hundreds of entrepreneurs that are starting travel companies, most of the companies are small start ups but a few have grand business ideas that they are now executing.

    Joining a Big Company – I like your #1 and have recently started to circulate a business idea that I am starting to pitch to larger companies in the travel space that would in effect hire me to execute the idea with their financial backing and technology resources. I think this is mainly due to my age and experience having founded 2 travel companies that I built over a 15 year span and exited successfully. The younger generation of entrepreneurs will always boot strap and build wanting minimal help. I remember this clearly when I was building my college ski travel company in my dorm room while in college.

    Barriers To Entry -#3 I agree with you here that the barriers to entry are getting harder especially in the online travel space. As technology has advanced the original travel suppliers (Hotels, Airlines) now have easier than ever access to reach the consumer direct. The expense to reach the consumer is also increasing through online marketing and online advertising.

    I think the next big opportunity is in mobile and reaching travelers within destinations. I also believe video will play a huge role and we will see new innovations and travel companies spring up around video.

    Great article Alex.

     
  8. Rod Cuthbert

    Over at Rome2rio we agree that a focus on data is valuable, and almost certainly likely to offer a surer path to success than development of yet another social / travel feature masquerading as a business in its own right. We’ve seen too many of those over the last three years, most have disappeared, and it’s frankly a little shocking when you see yet another one pop up, all starry eyed about “helping people find their perfect vacation” and “harnessing the power of social networks to gather advice from friends” and blah, blah, blah.

    As for data: there’s a surprising lack of structured, accessible data in the travel space. For an industry that handles millions of consumer interactions every hour the possibilities are endless, and that spells great opportunities for companies who can effectively source data and fashion it into something useful. Rome2rio’s been building a global repository of transport routes for almost two years now and the value of that effort is becoming more apparent every day. Anyone doing a travel startup today would probably be wise to heed Alex’s advice. If they’re feeling narcissistic, rather than just masochistic — the basic requirement for doing a startup — then they could follow Alex’s other advice and become a travel blogger… and join the 10,000 other travel bloggers out there. Good luck with that!

     
  9. Martin Kelly

    Owning the direct B2B relationship has always been key, whether you are an OTA, GDS or metasearch company. Is that now called data?

     
    • Alex Bainbridge

      Hi Martin
      Kind of – however – you can create B2C data ;

      For example Klout on Twitter….. or perhaps customer reviews……. neither of which make you B2B!

      Alex

       
  10. Shaun Kalnasy

    Alex, as the founder and CEO of Beachscape, I’ve struggled with many of the issues you bring up. I completely agree that almost all ‘industry changing’ entrepreneurs are either in the data creation or proprietary inventory business. However, I would argue that you don’t know if you have data traction until you have consumer traction, which is why the media and startups tend to focus on consumer traction.

    In the case of Beachscape, our goal is to make it incredibly easy for travelers to find their perfect hotel. In order to make this possible we need better data than what is currently available, which is why we create our own proprietary data by reviewing, scoring and categorizing destinations and hotels ourselves. This data is worthless unless we know what to do with it.

    We’ve spent a lot of time developing our algorithm, UI and User Experience because these are the keys to leveraging and harnessing our data. Since our launch two months ago, we’ve learned that certain travelers weren’t finding accurate results because of the way we were processing and presenting some of our data. We’ve learned that other travelers weren’t leveraging our data because of the way they interacted with our site. In short, we know we haven’t achieved data traction because we haven’t achieved consumer traction.

    Once we achieve data traction I think licensing our data/technology is a great business model (and is something we have discussed) however for now we’re focused on learning how to process and present our data to get to consumer traction.

     
    • Alex Bainbridge

      Thanks Sean for your comments. Saw you at Phocuswright and this post was actually what I immediately thought when I saw your presentation…… glad to hear you are progressing well since then.

      CERTAINLY a role to get SOME customer traction, to prove the worth of your data (and to keep it well tuned and tested)….. but you are not going to be the next Google or are you? ;)

      Good luck with your endeavours!

      Alex

       
      • Psycho

        I guess, not everyone wants to be a next Google. :)
        But Beachscape model can be expanded to over online travel spheres – say, Mountainskape, for example. So if we speak about future product development “to grow big” – that may be the way.

         
      • Shaun Kalnasy

        While we’re certainly not going to be the next Google, I believe our data can be the core to a much bigger business (expanded geography, opaque offering, proprietary inventory, etc.). Also, I don’t view licensing and running a B2C site as mutually exclusive. Do you?

         
  11. Alex Bainbridge

    Thanks for the comments everyone!
    Alex

     
  12. Ron Hodson

    A good article, and I think the observations are pretty accurate.

    I’ve met a lot of startups that have tried the data-scraping method of getting things going, but unless you have a lot of money and a lot of data experts, it’s hard to create anything new from publicly available data. Even if you have a boatload of money, that still doesn’t mean you can create value, since you still have to have a service that people need.

    However creating your own data is pretty hard too. Depending on the market you are going after, you have to find the interesting data that isn’t being collected, and hope there is a market for it. Oh, and it costs money to create that data, since data creation invariably requires people, and people cost money. And though crowdsourcing is an option at some point, you have to have a critical mass of usable data/features in order to attract the small percentage of users that will take the time to contribute.

    Another aspect to consider in this discussion is how will startups defend their innovation? If all you are doing is scraping data, then larger companies can come in and duplicate what you are doing quite easily, even if it does cost them more money. Creating your own unique data not only provides market differentiation, but also provides a niche you can defend. Or, as the author points out, it also provides a service that larger companies may want to buy, which is a good exit strategy too.

     
  13. Psycho

    Well, I think that in fact there are 2 ways of running a b2c travel startup:
    a) building a new “shop-window” for selling someone else’s products (Hipmunk way);
    b) getting new stuff that nobody else sells (Airbnb way).
    I don’t speak about advertising model here because I don’t think that it’s good decision to rely on it.

    So, you need to search to disrupt online travel somehow in 1-st or 2-nd way. It’s tough because as always “you are not the only one”. But it’s an interesting task to solve. :)

     
  14. james dunford wood

    >Become a travel blogger – “It requires many of the same skills as running a travel startup except you don’t have to disrupt anything, or fix anything, to create a viable income flow.”
    Well, that’s because there is no income flow, at least to start with. So not sure you are comparing apples with apples here. Travel bloggers need a day job to start up.
    But entirely agree with you on data. That’s the opportunity right now.

     
 
 

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