Tours & activities in 2019 – the 10 key questions
February 19th, 2019
The tours & activities industry is all grown up. Serious investments are being made, presumably with the expectation that serious returns will be made down the line. Conferences (like the newly expanded Arival now with events in Berlin, Thailand & USA in 2019 ) are attracting people from all over the sector. Booking numbers & cross-industry connectivity is all trending upwards. Good news right?
But behind the scenes it isn’t as clear. Reservation systems are running on margins and volumes that are so thin that they can’t support investing in new innovations. Something has to change. The question is, what….
Peter Syme summarised his perspective by asking these questions:
1. In an inventory based market, how do we get more inventory online and fast?
2. How do we then drive demand to that inventory in an efficient manner?
3. The customer experience of our service and products in the past, today and the future are what defines the industry. How do we better serve our customers?
4. The way people discover things to experience is changing rapidly, how do we capture this opportunity?
5. The way people experience our inventory is changing, how do we capture this opportunity?
Douglas Quinby (Arival) summarised the state of play saying there are 6 dirty truths:
1. OTA market share is tiny
2. Airport transfers butter a lot of bread
3. “Experiences” is just a buzzword
4. Travelers love free tours
5. Some cruise lines and concierges are like the mafia
6. Distribution is super local – and it can get dirty
Neither totally reflect my views on the current situation so here are my ten questions / factors / considerations:
1 – Are online travel agents (OTAs) going to reach a maximum and if so, what is it?
OTAs fundamentally solve the consumer trust problem. If I spend my money on this, will I be given the service I have paid for? Does this service actually exist? Who will arbitrate any issues? The trust problem is greatest when someone is booking a day tour ahead of travel. This is when they are at the point of least knowledge of the things to do in the place they are visiting & they are (potentially) still thousands of miles away.
As a result, OTAs work great for pre-trip bookings. However most direct (non-OTA) bookings are not pre-trip. Most are within 48 hours of the experience itself. At this point the customer is already in destination, knows their way around (a little) and certainly has a feel as to what could be done in terms of tours & activities etc. Trust is less important at this stage.
When we buy food in a supermarket one measure that is used is “food miles”. e.g. has your lettuce come from around the corner or has it been put in air-freight and travelled thousands of miles before you put it in your sandwich. The lower the food miles, the better the food (as it is fresher) and the better for the environment (as less fuel etc is used).
Much like food miles, we have money miles. Does an American customer when in London need to book with and pay a company in the USA for a tour tomorrow in London…… And if there is value in that, is it really worth (to the supplier) a whopping 20-30% commission?
If the answer to that is NO, then we are nearing OTA maximum.
They are doing well upselling tours & activities to people who just booked flights & hotels but then need to move “in destination” (and local experiencing local) in order to keep their growth going. This will change the delicate supplier / retailer balance as suppliers feel they can do “local distribution” (as Douglas points out) to a certain extent themselves. Indeed, someone based in a certain city may be BETTER positioned to create local distribution opportunities than an OTA HQed in a remote location.
Whatever replaces OTAs will be built from the ground up and be fully based around enabling local distribution. We are not quite post-OTA yet, but we are nearing peek-OTA, with existing models
2 – We have built tech that is too complex
The tour & activity industry is not the hotel industry.
With a 1000 USD hotel booking the tech company will take 50 USD for their services (for example).
With a 200 USD tour & activity booking, the tech company will take 10 USD for their services (for example).
Hotels is a must buy, tours & activities are a nice to buy. Fundamentally this puts the tour & activity sector at a disadvantage as we just don’t have the technology budgets to build anything complicated. As an industry we should start to say NO to feature creep.
Two examples (of many)
Volume based pricing – Where for example it is 50 USD per person for 1-2 people or 40 USD per person for 3-5 people. These prices are very hard to configure & to distribute to retailers. They are slow to price up within mobile apps as each adjustment of customer quantity could require a 400ms server round trip to price up the new customer combination (slow due to speed of light and TLS). For all sorts of reasons we should just get rid of this price style.
Net rates – Where we hold a fixed price that a travel agent will pay a supplier as well as the retail price the consumer will pay. Instead, just have a commission % from the retail and be done with it.
By removing this unnecessary capability we have a chance of making reservation & distribution system companies that are financially viable. Right now they are not.
3 – Is the industry horizontal or vertical?
A horizontal industry is how we have structured upto this point.
- Online travel agent / retailer
- Channel manager / reservation system technology
- Supplier / tour operator
e.g. a Viator booking, to Fareharbor, to XYZ Segway tours.
But 3 of the largest companies in the sector – GetYourGuide, Klook and Airbnb are going a different direction. They are going vertical.
- Airbnb website / mobile app
- Airbnb technology
- Airbnb branded local tour guide
Or, if you think about ground transport, Uber is also vertical….. Uber app > Uber branded vehicles.
Fundamentally, it is easier to innovate within vertically aligned companies than with horizontally aligned industries. There is a very high chance that vertical is going to win the tours & activities sector and with the 3 most funded sector companies pushing on the vertical strategy, seems they believe this also.
Leaves the reservation system companies (and the online travel agents like TripAdvisor / Expedia who have not gone vertical) in a tricky spot….. do they go vertical? Or do they double down on staying horizontal?
Easy for a retailer to pivot to vertical as they already have customers and consumer brands. All a retailer would need to do is buy a reservation system company and they would be halfway there….. and in 2018 we saw two reservation system acquisitions by retailers…..
If you are a reservation system company today you are fully exposed, risk wise, to the industry moving to a vertical alignment. They need to be hedging that risk (by moving into retail, or tour operating), perhaps aligning with other companies with the same risk profile. They need to make some hard moves today to join up with retailers and brands who also need the survival of the horizontal industry model.
4 – What about the customer experience?
So much focus in recent years has been on retail & distribution of products – making something easy to book, making that data go straight to supplier reservation systems, making the money flow correctly from customer to supplier.
Very little attention has been paid to using tech to augment the customer experience.
Fundamentally in many locations the tour & activity product that is on sale today has been the same for 100 years. Is creating a better customer experience sufficient to win customer hearts (and wallets)?
Going back to the vertical business question, is it easier to innovate on the customer experience if you also directly control the retail experience? I think so.
5 – What about personalisation?
Personalisation is in two parts
- Finding (discovering) the right product for the right customer – e.g. not suggesting an alcohol drinking experience to a family travelling with teenagers, or watching a customers in-destination activity to suggest things to do they have not already seen
- Customising the product for each customer – e.g. turning a product into a service. Not necessarily “private tours” although that is a simple way of delivering services not products.
Fundamentally, retailers are only looking at the discovery problem. All connectivity projects are about making products bookable. They seem to measure success by increases in bookable product.
But consumers want product customisation. They want services. None of the tech we have built today handles this….. Consumers want better choices, not more choices.
If the horizontally structured retailers, systems and suppliers want to compete with the vertical businesses they are going to have to rewrite their API connections to transfer customer data (and customer profiles)….. or transfer sale rules from supplier to retailer…… e.g. a cycle tour company knows which of their 5 tours is best if you are cycling with a toddler…… but this knowledge is not currently able to be exposed to retailers…… how do we solve that?
If personalisation becomes a key retail component – will consumers be happy giving over sufficient personal data so that products can be personalised? Does it matter WHO consumers give their data to? Will Facebook, Google or Amazon be better positioned than travel industry companies?
6 – What about responsible travel?
As an industry we still need to address:
- Animal experiences – elephant rides etc…..
- Overtourism – e.g. selling too much within certain cities
Seems these come up every so often as important, they get 5 minutes of coverage, then we go back to talking about other things. We know that retailers with 100,000 tours struggle to create systems where they can for example delist animal tours….. Suppliers create non-animal listings and then login to extranets and adjust descriptions once they have passed some kind of retailer evaluation….. so the problem is not easy as not all data can be trusted.
If we are all collectively in the mindset of looking at new industry structures, lets keep these aspects on the list of things to take into account.
7 – Are retailers over funded? Or suppliers under funded?
When retailers start taking funding rounds of 100 million USD plus…. they have to make this money back from somewhere. Only two ways:
- Volume – selling A LOT. e.g. locals experiencing local, rather than tourists experiencing local
- Margin – higher commissions (perhaps achieved by running their own branded products)
Additionally, because the companies that have the largest rounds (Klook / GYG) are not selling flights / hotels (yet!), they have to pay for their own distribution – normally either pay per click advertising or partnership based (with revenue share). This increases the volume they must reach in order to generate value for their investors.
Not sure there is an answer to this – but what suppliers have to concern themselves with is are those companies over funded? And if so, what does this mean?
8 – Are we still in a silo?
The tours & activities sector is still within its own silo.
Apart from some leaflets at the hotel concierge desk, we are fairly standalone to other travel industry sectors.
But voice assistants (a tech that is relatively hard to build) may be where this breaks down first. e.g. A hotel booking online travel agent with tour & activity booking capability may negotiate with hotel chains and say, “we will reduce our hotel booking commission by 5% if you put our tour & activities within your voice apps within your hotel rooms”….
Tours & activities may be a negotiation pawn alongside other more valuable negotiations. Right now we are still in our own little world. Not sure will stay like this for much longer.
9 – Price wars?
Hotel and airline sectors are dominated by price wars.
Tours & activities we are not. What happens if we do become price centric?
- Reserve with Google – currently 0% commission – would come strongly into play. Suppliers will price lower via Google than via online travel agents on 20-30% commission. Do the online travel agents want to poke that particular bear by starting a price war? Google combined with suppliers will win that.
- Price comparison only works on products – not services – would we all just change products (perhaps on a channel by channel basis) or convert more products to personalised services? (which can’t be price compared directly?). You can’t turn one hotel into ten hotels (in a hotel metasearch) but you can easily enough create an Expedia tour, a TripAdvisor tour, a GYG tour etc thus breaking price comparison.
- Meta search – do we end up with another layer on top of retailers – a “meta search” layer? Is that what we want?
Are suppliers or retailers likely to be keener on a price war?
If suppliers instigate a price war that would be against the online travel agents that retail them. As we have talked above above, the main competitors for suppliers are the new vertical businesses. The retailers who are focussed on being a part of a horizontally structured industry are suppliers’ most VALUABLE partners and they should be helping them, not hindering!
But someone is going to try this in 2019……. and the problem is, if one company tries this do the others follow?
10 – Autonomous vehicle sightseeing & micromobility
Bikes, electric scooters & autonomous vehicles are not being taken seriously enough within our sector [yet].
A couple of impacts
- Ground transportation – e.g. airport pickups – will no longer be a cash-cow for local tour companies. No longer be a source of finding new customers who may take a tour with you on another day of the trip. What happens when this tap is turned off?
- New experiences will be very attractive – will a customer want to take a double decker bus tour or jump in an Apple autonomous car?
Perhaps not coming in 2019 (!)….. but coming within the next 24-36 months. Will talk about this more in another blog post
2019 looks an interesting year for tours & activities sector. We are collectively moving on from Minimum Viable Industry to a new position. Its still not quite clear what shape that new industry will be – will it be vertical or horizontal? Will it be product based or service based? We will find out in the next 12 months.
I will be at ITB Berlin where I am keynoting the opening ceremony just after the CEO of TripAdvisor. Session details . Will be talking all things tours & activities at 12:00 on Wednesday March 6th.
Finally apologies for slight hiatus in DestinationCTO blog posts. Will get back to it now…. reality is been so focussed on building what is coming next that consumed all my available time to write about what is coming next! Building this…..
Image: Flickr: Alan Levine
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