Don’t be a dinosaur – activities evolve to avoid extinction

Think about it for a moment – over $600 million in capital has been raised in seven years by companies in the tours and activities sector.

It is also seven years since Phocuswright published its debut report into the sector: When They Get There and Why They Go.

Yet despite the large scale investment in travel’s third largest segment and the profile it has received (with an upcoming report from PCW: Tours and Attractions Come of Age), it still remains heavily fragmented, mostly offline, and no clear leader or major player has emerged.

NB: This is an analysis by Jon Fauver, CEO of TrekkSoft.

A large portion of the investment has gone towards consumer facing platforms.

Of the 197 companies funded since 2005 that Phocuswright has tracked, less than 30 were B2B reservation systems.

The vast majority are consumer facing reseller marketplaces or person-to-person marketplaces – striving to create a better consumer experience, disrupt the trip planning cycle, and become the Booking.com of activities or the Airbnb of trips (Wait! Aren’t they doing that themselves?).

Despite the hype, there has been no breakout brand and Viator continues to be the primary channel for most consumers, as well as the most heavily used by suppliers (in both Phocuswright and our own research).

Its position is now supported by the $200 million sale of the company to TripAdvisor in 2014.

Key findings in the new report shouldn’t come as much of a surprise to anyone who has been working in the trenches with suppliers during recent years, but it is great to have it validated with hard numbers from Phocuswright.

tour guide

The market is big, important, and growing, but remains fragmented, challenging and primarily offline

Here are some datapoints:

  • Estimated at $129 billion, tours and activities makes up 9% of the global travel market.
  • This will reach $174 billion by 2020.
  • More than half the suppliers generate less than $250,000 gross sales revenue per year and handle less than 5,000 customers.
  • More than 80% of the gross bookings remain offline.

There remains a huge amount of friction in the distribution landscape – and the future shows some promise – but right now there remains a lot of work.

More datapoints to consider:

  • Although an estimated two-thirds of suppliers list products via OTAs (here Phocuswright emphasizes that the sample is weighted towards larger suppliers), OTAs accounted for just 4% of tour and attraction sales globally.
  • Viator, GetYourGuide and Expedia Local Expert dominate the OTA landscape.
  • Only 13% of reservations via online distribution partners happen via some form of real time connectivity.

Despite last-minute, in-destination bookings being the cornerstone of UX for B2C platforms and mobile technology, most suppliers still cannot support last-minute, same-day bookings via resellers.

There is now an early foundation of plumbing between most B2B reservation systems and the OTAs – however, the first step of contracting remains mostly manual.

Suppliers that are using a reservation system often face challenges and delays getting listed on OTAs.

In turn, OTAs struggle to handle the backlog of suppliers that want to connect (and this is still a minority of the overall industry, the rush is still to come).

OTAs have focussed on where they can fulfil consumer demand best – ie. cities and high-traffic destinations where the ROI on time and energy is secure.

From a business perspective this makes sense, but it is also limiting their growth as their share of mind with the consumer is low, and limiting the reach and added benefit they can provide to suppliers that are not in high volume tourist destinations.

The diverse product range adds another level of complexity to things like price category mapping, terms and conditions, and cancellation policies.

Further complexity arrives in the form of weather-dependent activities – products that require a certain skill set or physical fitness, and providers who require a minimum number of participants.

In short: suppliers have been slow to adopt and many have not yet felt the pressure to evolve.

They are in the privileged position of being the driving force behind most recreational travel and benefit from the fact that, regardless of how painful the process, people who have already paid for flights and hotels are going to find a way to book and pay for their experiences.

Trends indicate evolution is about to speed up

Why can we say this?

  • Gross online bookings for tours and activities are growing even faster than the overall segment, expected to double by 2020.
  • Suppliers claim growing online sales as their top priority for 2017.
  • Three-quarters of suppliers claim they will have live online bookings within a year, and 61% claim they will have a mobile site supporting live bookings.

The success in online of early tech adopters and the continuing change in consumer booking habits are reaching the point where suppliers who have been lazy are going to start feeling the pressure to evolve or become extinct.

We see suppliers increase their online sales 30-50% year on year after adopting a reservation system, and suppliers that distribute via OTAs report to us 20% more bookings versus those who don’t.

This is against the backdrop of a continued focus and attention from big players that will drive more adoption.

TripAdvisor continues to highlight tours and activities as being next big area for the company, whilst Expedia is investing heavily in its Local Expert service and even Airbnb is getting involved in trips – all of which help change consumer habits that will eventually put more pressure on suppliers.

munich

The coming-of-age party is scheduled soon, but let’s not forget to learn to walk first

It is worth noting that B2B technology in the sector received less than 15% (a conservative figure) of the capital invested in the overall sector.

Okay, maybe it’s not as sexy, but it is the foundation that will allow the B2C innovations to unlock the majority of tours and activity inventory that remains unsold.

Educating the suppliers, getting the inventory online, and fixing the plumbing remains the key challenge.

Yes, the industry is fragmented and averse to standardization, but with the education of (and pressure on) suppliers, and B2B tech guiding them around major bottlenecks, we expect to be seeing change at a faster pace.

Tours and activities have one huge fundamental difference to flights and accommodation: a large amount of the product has high variable costs compared to fixed costs.

There is a limited to no advantage for suppliers to fill capacity with heavily discounted or high commission seats.

Therefore, commission paid for distribution should be offset by a saving in marketing costs or efficiency.

We advise that to not cannibalize a supplier’s direct bookings without adding significant value.

Lest we forget, direct bookings are sacred ground, if we really want to incentivize the suppliers to embrace change and evolve, prove to them that we can bring them more guests and access to different markets.

Let’s make sure as an industry that we come-of-age as a well-rounded, healthy, and stable member of the travel community.

Flights, hotels and vacation rentals have all made this journey already.

We should try and learn from their mistakes and take advantage of the new opportunities in mobile and SaaS tech to avoid some of the pitfalls.

NB: This is an analysis by Jon Fauver, CEO of TrekkSoft.

NB2: Dinosaur image via Pixabay; tour guide and Munich tour images via FreeImages.

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Viewpoints

About the Writer :: Viewpoints

A founding principle of tnooz was a diversity of viewpoints from across the spectrum. Viewpoints are articles by guest contributors from around the travel and hospitality industries. The views expressed are the views and opinions of the author and do not reflect or represent the views of his employer, tnooz, its writers, or partners.

 

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  1. Anton

    The same problem with bike rentals we see in BikesBooking.com. It’s difficult to educate suppliers that OTA can bring them new customers and commission model is fair. Thanks for the article!

     
  2. peter syme

    A fair report that highlights our experience as a supplier. As much as we are willing to connect with OTA’s and can provide real-time availability, the work involved and the time lag in getting contracts signed and product approved currently proves a negative ROI.

    As you point out several hundred $m have been spent by the giant players and those who want to be but we can still get small local B&B’s to generate more bookings than an OTA.

    Suppliers will not feel the pressure from the market until they see their annual booking decreasing due to OTA’s and due to the growth in the sector that will still be a long way down the road. Suppliers who do get involved and critically understand channel management will be in a position to better manage their yield.

    I do take the view that the tech is not the issue here. It is knowledge, education and demonstration of value to suppliers that is needed. Or maybe a demonstration of the risk of not getting involved.

     
    • Jonathan Fauver

      Thanks Pete,
      Given your location the local B&Bs are still better positioned to deliver more bookings as the OTAs are still primarily focusing on the big city, high volume attractions (wait in line to skip the line) as this is where they see the biggest immediate ROI. They have the same problem you do – the ROI of onboarding and contracting with the smaller suppliers isn’t there yet.
      – For suppliers like you they do offer an extended reach to markets you would’t necessarily be able to tap into directly. I am confident that as an early mover here, you will see the results middle term ROI increase.
      – I hope suppliers never feel pressure from a decrease in annual bookings due to OTAs! But rather pressure to take advantage of an increase in market reach. For suppliers who see a decrease in bookings first place to blame is their own refusal to make sure they can offer guests a good booking experience, mobile experience etc.
      – 100% agree (still) it is the education of suppliers that is key.

       
      • peter syme

        Jon, I do like the idea of OTA’s giving small suppliers extended reach into markets that we find difficult to get to. However, what worries me and should worry other operators is when we look at what has happened to the hotel industry. If I do a google search for “Aberfeldy Hotels” which is not a high volume search phrase by any means the 4 PPC places are all OTA’s and 9 out of 10 organic places are OTA’s and comparison engines. It is only the 3 local search map places that give the hotels any visibility. So out of a total of 17 visible placements on page 1 local hotels have just 4. That is something the activities industry cannot afford to let happen.

         
        • Jonathan Fauver

          Agree, there were mistakes made in the accommodation segment that we can’t afford to repeat.
          – 1 big difference is that at the time OTAs were becoming strong, there local hotels didn’t have access to affordable SaaS systems to push their own direct channels. Early on they were very dependent on OTAs for online bookings.
          – Tour & Activity companies have the chance to profit from very affordable, & powerful technical solutions to help them both optimize their own direct channels, and secure their place in the digital marketing field.

          The SEO and Search game for tours & activities is going to be interesting see how it develops. It is more complex with more variable and depending on the activity type more risk than accommodation.
          – If I search for “best things to do in Aberfeldy” I probably correctly get mostly OTA and inspiration sights I’m still in the decision making phase and don’t know what I want to do. But if I drill down and search for “whitewater rafting” in Aberfeldy I get a good list of the top local companies and OTAs/ review sights.
          Depending on the activity type, local providers will probably have an easier time ranking in SEO if they maintain a good content strategy and also work together with their local DMOs.

          Should level the playing field a bit.

           
  3. Stephen Joyce

    Stephen Joyce

    Excellent analysis Jon. It does seem like the numbers are not changing very quickly considering the first PCW report came out in 2011. Six years later and adoption of tech is still slow to move. But some of us understood, coming into this game, that education and evolution go hand in hand. We need to continue educating businesses about the benefits of automation and finding creative ways to help solve their operational and marketing problems. Reservation tech for flights and hotels took decades to develop to get to this point, we can hardly expect tours and activities to get to the same point in less than a decade. It’s still a long road ahead.

     
 
 

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