The “commoditise the complement strategy” and the sightseeing technology sector

December 2nd, 2021

Alex Bainbridge

This strategy, from 2002, remains a classic that any senior commercial executive at travel technology companies will have internalised:

Demand for a product increases when the price of its complements decreases. In general, a company’s strategic interest is going to be to get the price of their complements as low as possible. The lowest theoretically sustainable price would be the “commodity price” — the price that arises when you have a bunch of competitors offering indistinguishable goods. So:

Smart companies try to commoditize their products’ complements

If you can do this, demand for your product will increase and you will be able to charge more and make more

[Source – Joel On Software]

It appears GetYourGuide is applying this strategy – they are commoditising the tour guide (with Originals), and now with B2B technology, commoditising attraction reservation tech (See news about their new B2B tech platform). They don’t have to achieve industry scale to achieve commoditising their complement, they just need to get sufficient scale to dampen price / opportunity.

Same happening with booking transaction data standards. This week has seen two calls for transaction standards leading to long debates on LinkedIn (Rod Cuthbert / Christian Watts). The calls came from companies where transactions are a complement rather than a core focus. Clearly those calling for transactional standards understand the commoditise the complement strategy.

However, we shouldn’t throw the baby out with the bath water (as we say here in the UK!), some standards can be agreed across industry. To find these, you need to look at what is non-core for everyone:

  • COVID data
  • Self-Sovereign Identity (see explanation video below)
  • Voice first – readying the industry for voice distribution and voice transactions

The standards have to be set BEFORE we then compete to innovate based on those standards. It is too late for that to happen on transaction standards as any proposal will create winners or losers leading to partial adoption. We need full adoption (or at least opportunity for full adoption) to make the short term pain worth it.

More on SSI from Phocuswright

Centralising vs Decentralising

All technologies that we see now fall into two camps – centralising & decentralising. Do you want large entities (such as online travel agents) at the centre, gaining power, increasing commissions (rent) that results from this power? Or do you want an industry where consumers book directly with operators? There is no right or wrong answer, everyone will have their own view on what they prefer.

Broadly, this is how to divide upcoming tech into centralising vs decentralising…..

Centralising

  • Online travel agents becoming more powerful (as fewer of them) – e.g. in recent times Orbitz going to Expedia, or Expedia now using 3rd party product data
  • Octo standards – reducing friction sounds great, but can lead to winner takes all, i.e. is a centralising force
  • Autonomous vehicles – when Cruise (Microsoft) put 4000 robotaxis into 1 city (at a cost I guess of 400 million USD) that will have a centralising effect on tourism in that destination

Decentralising

  • Improved direct marketing support from reservation systems working with search engines / social
  • SSI standards & verified credentials (see video above)
  • Web3 (e.g. DAOs)

Summary

Every business in this sector is someone else’s complement. We are a network of interdependent companies with a shared mission to serve the consumer.

Some of us have VC money and some do not. This adds complexity not just because of resources, but motivation. The VC backed companies are expected, by their investors, to capture the majority of the value. This is not a compatible mindset when working alongside non-VC backed companies that are co-dependent. This is a primary reason why tour operators are attracted by potential decentralisation.

Far too early to suggest if centralising or decentralising will prevail – there are powerful forces on both sides. However when someone pitches a solution to a problem, it is worth considering if it will have centralising or decentralising impact and where that pitcher is on the centralisation / decentralisation scale.

Image: Pexels

This content is protected by copyright. Link sharing is encouraged but duplication and redistribution is illegal

Comments

2 responses to “The “commoditise the complement strategy” and the sightseeing technology sector”

  1. Great article. IMO, decentralized projects like Travala, etc. will be a great way to incentivize the host and the guest with tokenomics.