Hot stuff or flash in the pan – a dose of reality about tours and activities
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.
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.
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.
Stephen Joyce has been a contributing Node to Tnooz since 2009 and has been working in travel and tourism technology 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 a graduate of Capilano University, a certified commercial pilot, and holds a certificate in IT Management.