Innovation in Online Travel

The general media is a buzz with stories about the lack of innovation of the major OTAs. A recent Forrester Report which shows consumers' frustration with online travel planning and booking is cited. The report stated that many consumers are fed up with the complicated process of planning and booking travel online. Part of this frustration concerns added fees, what we like to label in the travel industry as ancillary revenue. The article points to a resurgence of bookings through traditional travel agents.
From a different angle a recent VentureWire report states that VCs are funding start-up travel sites such as Oyster and LeiusreLink. This article further reinforced the concept that there is a lack of innovation from the four large OTAs (Expedia, Travelocity, Orbitz and Priceline).
Both media articles site lack of innovation, but both draw different conclusions. The Forrester research is being cast in the light of a return to traditional travel agents while the VentureWire WSJ blog points to an opportunity of new start-ups. So what is happening with online travel? Are the OTAs on a path to their own demise? Is online travel going to die based on the resurgence of traditional travel agencies?
In this era of sensational news reporting, dramatic statements forewarning the death of popular OTAs through renewed competition from traditional travel agents or new travel niche brands help sell papers (or in this day and ag, electronic articles). A key point missing in both these articles is a realization that the online travel market is at a mature level. Traditional, Crossing the Chasm analysis, points to multiple adopter segments.
By definition the late majority are conservatives. This market is naturally skeptical and thus resistant to change. The online travel market has reached the mainstream and thus includes many infrequent travelers who are not comfortable with booking travel online. Even the cliche quote by Henry Harteveldt " Could your mother-in-law use your Web site without having to call you for help?’ The answer is always no" is somewhat blind to the fact that my mother-in-law is an infrequent traveler, part of the late majority (actually she is more of a laggard) and thus has characteristics that are different from frequent travelers (who are often innovators, early adopters, and early pragmatists) who have grown accustomed to the online travel process.
Despite the generalities of these articles I do believe that greater innovation is needed from the OTAs to maintain their market position. Most of the start-up competition comes from niche plays such as Oyster (hotel reviews) or LeiusreLink (vacation rental). Innovation in travel planning is the focus of sites such as Uptake and Triporati. Whether it is true technology innovation or business innovation, carving out pieces of the all encompassing OTAs is a natural market evolution. OTAs will react to these niche start-ups if and when they see a direct correlation to revenue loss. For example when Expedia, Inc. recognized the importance of user generated hotel reviews it purchased TripAdvisor. Movement to traditional travel agents may be occurring, but it may be limited to specific segments and does not mean the death of OTAs. In various research I have conducted over the past few years interviewing traditional travel agents, all agents recognize that the OTAs are their direct competitors and customers often quote OTA prices during the selling conversation. As a result, agents use tools such as Agentware to search the Web for competitive fares.
I agree that OTAs are not a replacement for human beings (that is why each has deployed a call center for support), but for routine trips they do perform well. Quoting the appropriate ancillary fees is an industry problem that is being worked on by ARC, the GDS and the airlines to simplify the online quote process. No the OTAs are not in danger of extinction by niche players or traditional travel agents as all will co-exist with the consumer making the ultimate decision based on their comfort with technology and experience with the online process.

Innovation in Online Travel

I am working with Bob Offutt this year screening applicants for the PhoCusWright Innovation Summit in November. This effort has triggered some thoughts about how innovation comes to the market as well as the danger to companies that lack innovation.

From 1989-1995 I worked at Sun Microsystems. Part of management training at Sun was reading the book The Paradigm-Shift-Promise-Information-Technology . While I was at Sun I was able to secure funds to implement an early corporate booking tool from a now defunct company called TravelNet. Why not look internally to develop this application? Even though at that time Sun was far ahead of other companies in talking about "the Network is the Computer" foretelling the current hype around Cloud Computing, I could not get any internal IT support for this self-booking effort. I even had a Senior VP of Purchasing tell me that "we do not like to be early adopters of new technology". Yes this was a Sun VP acting as a Luddite about emerging technology. Despite the paradigm shift training, Sun's demise can be traced to its slow reaction to open source software. Hopefully, IBM will purchase Sun and put it our of its misery.

Another interesting paradox regarding innovation concerns online travel. Conventional wisdom may make you believe the current online travel heavyweights came from venture funding. Though each of the major OTAs has received venture funding over the years, Microsoft birthed Expedia, Sabre created Travelocity, the major airlines created Orbitz. Only Priceline has true venture capital roots, but was literally reborn under Jeffrey Boyd's leadership after the company went bust trying to promote "the name your own price" strategy to other non travel segments. Jeffrey successfully transformed Priceline from a opaque distribution channel to a full blown OTA and expanded the company's global reach with acquisition of Booking.com. The point here is that Venture Capital is often not the source of new innovation.

So where is tomorrow's innovation in the travel space? We need not look any farther than the emerging mobile platform. Our sponsors for the PhoCusWright Mobile Special Report represented some of the travel industry's largest companies (Starwood, Hilton, Carlson Hotels, Travelport, Amadeus and Abacus, IBM and Teradata to name just a few), but few showed true mobile innovation. Many sponsors are simply taking their Web content and reformatting for the mobile browser. This strategy misses the value of the new mobile platform and cannot access location a key component of succesful mobile applicaitons.

True innovation in the mobile space is likely to come from small companies such as Intelligent Spacial Technologies who have a unique point and click application that takes advantage of location, context and broadband wireless communication. Last year's winner of the Innovation Award was another small mobile advertising comany called Interactive Mobile @dvertising,

Can innovation continue in a down economy? Absolutely, though funding is tight, true innovation is a game changer and will continue to emerge from small companies. Even though hugely successful, the four major OTAs may miss the next "paradigm shift"(which I believe is mobile) and a new small entity may emerge with disruptive technology for travel applications on the mobile platform. No company of any size can simply ignore emerging technology trends such as mobile or risk becoming victims of shifts in market dynamics caused by innovation.