DIGITAL SHIFT. Online travel’s next journey

Till last year MakeMyTrip and Goibibo were engaged in a fierce discounting duel. Today, they are under one roof, having gone through a complex merger, where MMT acquired a 100 per cent stake in Goibibo and redBus but sold 40 per cent of its equity to Naspers, the South African tech firm that is a majority stakeholder in the Ibibo group.

MMT — the dominant player in India’s crowded online travel space — might have taken care of one thorn through that merger but it cannot afford to breathe easy as some unlikely competitors could cause pinpricks.

Less than a year after entering the travel vertical, digital wallet company Paytm has sold 10 million tickets on bus, train and air and has signalled its intention of getting a larger share of the pie by signing a partnership with Booking.com.

Meanwhile, review site TripAdvisor has been investing heavily in its instant booking platform, which allows users to stay on the site and finish a transaction, posing competition to OTAs (online travel agents) such as MMT.

For its part, MMT had already got a foothold in the search and planning space through its investment in holiday information site HolidayIQ.

The online travel space has become a giant battlefield with consolidation and transformation in business models. As Amadeus in its new report ‘Online Travel 2020 — Evolve Expand or Expire’ notes, with metasearch players (companies like Skyscanner or TripAdvisor) edging into transactions, and OTAs getting into planning, we are all set to see the rise of a mega online travel retailer.

It also forecasts that in the near future we could see the birth of a new travel marketplace — one built by players in the travel industry where OTAs, airlines, hotels, experience sellers et al could get together.

We think of that as an integrated travel platform that integrates back from the booking action to the act of planning and integrates forward into the actual travelling. This integrated travel platform play will involve an end-to-end ownership of intents.

We are all set to see big upheavals in the travel space, a segment where online disintermediation was possibly the first to come in. Battle lines are getting drawn to own the traveller across her entire consumer journey from planning to buying.

Some of this is already happening. Airline metasearch site Skyscanner which has been acquired by China’s Ctrip is transforming into an online shopping mall for flight tickets with different store fronts for different airline brands. It talks of disrupting distribution.

Looking at the technological investments going into Skyscanner, there are many who feel it could soon pose a threat to the big global distribution systems such as Amadeus, Sabre or Travelport.

When we look at the consumer journey in travel, we see four distinct phases: dream, plan, buy, consume. In general, the OTAs have worked in the buy phase. The problem is that this particular part of the consumer journey is highly contested, and highly commoditised.

This leads to low margins, as a result of which, we regularly see cycles of fragmentation and consolidation in this part of the consumer journey — as is happening in India right now.

To get out of the commodity trap, OTAs are also investing heavily in moving up the conversion funnel. Currently they sit at the bottom where transaction happens, while the ones at the top of the funnel — search players such as Google — walk away with the bulk of advertising. In fact, the tech gatekeepers — Google, Facebook, Microsoft, Amazon and Apple — are controlling the acquisition of billions of consumers, and have the power to direct them onwards to airlines, OTAs etc.

The bottom of the funnel where buying happens is a low engagement activity. In contrast, activities that fall in the other three phases: dream, plan, consume are all high engagement activities.

This allows players in these segments to gather huge data about consumers, which can then be used to sell tickets.

Thus far, the dominant model for selling tickets employed by OTAs has been to buy a ton of paid advertising, in particular keyword advertising, and optimize the conversion funnel. We are now seeing a shift to a more engagement-driven, data-driven model of monetising travel.

In the planning phase, for example, TripAdvisor plays the dominant role. It is the single biggest source of information while planning which hotel to stay at what to do in a particular city, etc.

A host of startups such as MyGola and HolidayIQ are attacking the dreaming phase, which tends to be high engagement but with low intent towards actual purchase.

However, this may well be the face that monetises best with millennials who dream often and also travel often. While OTAs can try and differentiate themselves in the transaction phase through a superlative service, attacking the dream phase may be more lucrative for them in the future. Similarly, attacking the consumer phase may be another important play for travel startups going forward.

Companies such as the Lonely Planet and Marriott have been launching several content initiatives in these two phases. Startups, however, are flocking more to the dreaming phase rather than the buy phase.

Studies have shown that while planning a vacation, a process that may take months, a consumer goes through at least 400 digital moments — from search to buy. Holiday planning is a long journey online currently– from trawling through metasearch sites to landing on the OTAs page, the consumer does at least 200 clicks. A lot of the first phase is currently on mobile but the buying stage is still predominantly on the desktop.

Most online players realise that the road to completely owning the traveller of tomorrow lies in shortening her planning-to-buying journey. It remains to be seen whether the OTAs manage to do this or whether the large gatekeepers such as Google, Amazon , Alibaba, Facebook and Microsoft — who are all edging into this game — win it from here.

Paul Choudary is author of Platform Scale and Platform Revolution and the founder of Platformation Labs. Narayanan is Editorial Consultant

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