The travel industry has not been very receptive recently to digital travel startups.
Yes, articles are written, conference startup pitch invites are received, but generally the incumbents, or digital startups formed between 1995 and 2005, successfully raised the drawbridge up behind them.
It is no longer a game where small-scale digital startups can flourish.
You have to aim big, early, and hold that ground if you want to become a total success, organic growth no longer does the job.
You have to pull the more powerful weapon from day one.
Getting started, however, has never been easier – it’s the “barrier to entry” line you often hear.
Technology costs are plummeting (I remember 15 years ago spending $500,000 or more on a content management system that nowadays you can get off the shelf from WordPress).
Also by having a few big scale winners (for example, in hotels – Expedia and Booking.com) they arguably leave more space in the edges around them, gaps where startups can initially launch.
This is a much better position than having 20 competitive digital hotel companies all squeezing everything out of a sector, leaving no gaps around the edges for new entrants.
Hotel startups should welcome the new duopoly.
However the spaces Expedia and Booking leave only support small businesses, not venture capital-funded enterprises.
The incumbents won’t let you get to a scale where you are able to significantly threaten them.
A good example is look what Expedia and Booking.com have done with their “book a hotel this evening” solutions. Both have basically knocked any significant exit out of Hotel Tonight, even if they have a great app and traction.
It’s peanuts vs the incumbents with their own services and existing supply contracts. There will only be one outcome over the medium to long term.
This leaves basically seven places where you can go as a travel startup:
1. Pro consumer
Most of the travel industry tends to be pro-supplier and customer neutral. A travel agent with a long term relationship with a supplier is unlikely to fight hard on behalf of a single transaction and a wronged customer.
It’s just not worth it, and risks the long term supplier relationship.
However, some travel agents with valuable long term customers tend to refund customers and not fight suppliers, but generally if the supplier says no, then the travel agent says no.
This leaves space for new entrants like Skiplagged which finds the best flight combinations and does not really care what the airlines or OTAs make of it. Pro-consumer, supplier neutral or supplier negative.
Or perhaps leaves space for sites like Tingo, operated by TripAdvisor, which refunds the difference on a hotel booking if the price reduces subsequent to the initial booking. Very pro-consumer, anti-supplier…
Go pro-consumer, garner great consumer press attention, just don’t expect a trade sale as your exit, unless you are being paid to shut up.
2. Pro supplier
The most obvious “pro supplier” startups are the new batch of cloud based reservation system providers. This arguably looks like an ideal startup scenario as its scalable, tech-based, and should be easy, right?
Frankly, sadly this gate is now firmly shut.
Most product types have their sector leaders now and with network effect kicking in strongly, this is not a place for a new entrant. Steer clear if I were you!
However, for the thick skinned, and strongly backed, maybe still a few slots left. Expect an inbox of hard work though.
Or, if you want to go pro-supplier, be like a pilot fish, work with the existing reservation system players and their customers, listen to what they say, and go with it. They may throw you enough tasty morsels to build a business.
3. Trade in the gap
I am regularly emailed about startup ideas in the hospitality sector that are “in the gap” that Expedia/Booking.com has left. But will it be a gap when they see what you have done? I doubt it.
Take an example site that lets you search for hotels that accept dogs.
Sure, looks great on Excel, may even afford two staff on this business, but a team of 20 and a breakthrough business, no way…
Every day you reload the leading players websites seeing if they have added an “accepts dogs” filter to their hotel search, knowing that the day they do, you are going to be in trouble.
As a small scale business, great, just don’t expect the VCs to get excited.
4. Trade as an acquisition target (“fortune and glory, kid, fortune and glory”)
Probably still the best idea as a startup who doesn’t have unicorn potential. Just trade along building something that someone will want at some point.
Be a part of someone else’s jigsaw.
The key point here is to understand what piece you play in the jigsaw and what the final picture could look like.
The hard part in all this is that if it takes 18-36 months to build your piece of the jigsaw, and then you have to predict what the picture could be in two to three years, but not build for today’s problem.
Dangerous game – but plenty of travel startups in this zone.
5. Get fully armed early
Go big! Take a $2 million seed round! Take $50 million total funding!
Problem can be that now we have a duopoly (as mentioned above) in the OTA space, travel startups can actually take too much funding.
There is a point where it is easier for them to build than to buy….. so then your glorious exit is closed.
Previously, when it wasn’t a duopoly, the second tier businesses would acquire startups in the hope of catching up with the leaders.
But now that door is closing, and they are far less inclined to buy-to-compete.
However, on a general point, taking more money that you do need actually is the new *thing*.
If you are not spending it on tech, you will be spending it on attention (not specifically consumer attention, probably quite a lot of trade attention).
Sure, take the big round, just don’t take more than your sector has demonstrated it can bear.
6. Go real world
Uber, AirBnb et al – services that are not just digital startups, but also real world services, too.
Be a vertically integrated supplier enabler, tech layer, consumer facing layer, consumer brand.
Tough gig, but for the ones that make this work, this is a rock solid strategy as it ignores the existing travel industry, at least initially.
7. Mobile
We have gone through three phases as an industry
- Mainframe – where GDS type companies flourished.
- Web – the large digital incumbents grew to where they are today
- Mobile – today? tomorrow?
Nearly every travel website starts with “where do you want to go?”, while nearly every travel mobile app starts with “I am here” (location inferred from the position of the phone).
This is as much a radical change as mainframe was to web…. anyone taken advantage of this yet? Companies like HotelTonight have started.
Many people are stuck, clearly getting excited about responsive/adaptive websites, when the real action is on making “I am here” travel services. Thats the opportunity.
Summary
Go big. Go mobile.
And travel seed investors, you need to be with the new game.
A few hundred thousand dollars or Euros or whatever is not really going to help anyone now, sorry to say.
If you want to back a travel startup from day one, going for the big prize, it needs to be concentrated on a larger starting pot.
To shoot for the moon you need to engineer to shoot for Mars!
