A possible blueprint for success with tours and activities marketplacesNews / DistributionBy Viewpoints | May 5, 2014Share This article was originally published on The meteoric growth of collaborative and P2P consumption in travel is creating new ways for people to connect and to exchange services.NB: This is an analysis by David Urmann, founder of Touristlink.Companies such as Airbnb and BlablaCar have transformed the accommodation and ride sharing businesses with their innovative peer-to-peer (p2p) models.The success of these marketplaces has inspired a surprisingly large number of startups to try to replicate the model within the tours and activities sector.To date none of these startups have gained any significant traction. As of 2013 investors had put $65 million into the sector with very little return.This raises the question is a p2p marketplace for tours and activities really a viable business model and if it is what will a successful tours and activities marketplace look like?The key driver powering the success of marketplaces such as Airbnb and BlablaCar is the difference between the small time investment made to list spare assets such as a car seat or room and the relatively large value obtainable by the seller.When it comes to tour and activities marketplace such a large difference in marginal costs is not as immediately apparent.It may play a role in that many tours do have fixed costs such as transport or the time investment of the tour guide so that the relative cost of adding more participants is a factor of economy of scale.Existing group buy sites such as Groupon, Living Social and Zozi (travel sector) take advantage of leveraging economies of scale via group buying.The role of disintermediation is more important in a tours and activity marketplace then differences in marginal costs.Marketplaces naturally emerge to cut out the middle man and bring lower costs to the consumer by letting them purchase directly from suppliers.Consumers seeking to purchase tours and activities have always been separated from the suppliers by layers of travel agents.Tours and activities seems the perfect opportunity for an online marketplace to bring together what is now a very long tail and fragmented market and if executed correctly could act as rapid agent of disintermediation.Great design, a smooth checkout system, and simple mobile options are a must for success.Beyond that here are six critical sector specific factors that make it or break it:1. TrustSimply put trust drives bookings in this sector. Travel review sites are the most important source of influence with 69% of travelers relying on them before making a booking.Buyers and sellers expect a well managed environment where the standards are clear and competition is encouraged within defined guidelines.The review system must be clear and foolproof so that suppliers are not able to manipulate it by creating fake reviews.Reviews and ratings for both buyers and sellers should ensure that those with poor ratings get very little visibility on the platform.Effective use of social proof is another key to making a marketplace work. This means attaching social identities to both buyers and sellers.It can also go beyond that to showing friends of friends that are in common with a seller or highlighting high profile users who have used a product.Marketplaces are quick to attract the wrong crowd if the correct systems are not in place for proactive management of the environment.This means strict guidelines and curation of both suppliers as well as individual products.Systems that encourage users to rate products as well as algorithmic and editorial reviews are key tools to make sure that the best products are always highlighted.2. Locals versus professional sellersWhen Gidsy (acquired byGetyourguide) launched it promised travelers unique walking tours, nature hikes with wild cavemen and exclusive pop-up restaurants hosted by top chefs.Such an extravagant offering begs the question of how important is that suppliers are actual “locals” and not professional sellers.eBay started out as connecting part-time mom and pop sellers and evolved gradually towards a more traditional two-sided marketplace connecting buyers and professional sellers.Amazon has always been more of a purely professional marketplace. One might spend time debating whether customers prefer one experience over the other but maybe that misses the boat.The key point here is creating trust and the simple fact might be that people are more likely to trust people so that by adding company logos you lose some type of accountability.Professional sellers have the most polished products and invest in keeping availability and tour details up-to-date so it seems clear that the benefits to having professionals outweigh the downside so long as the seller has a face which can be socially verified.Do people actually prefer social and or collaborative experiences?Some polling evidence suggests the answer is yes but actual numbers say no.My experience shows that the most popular must see experiences that are offered by “professionals” will get the most bookings.From a point of interest perspective it might be important that a marketplace provide a place for long tail unique experiences offered by individuals but its unlikely that these will be the driving force behind revenue growth.One might predict that in multi-product/multi-supplier marketplace that 10% of the products will garner 90% or more of sales.3. Product mixMost marketplaces so far have been careful to avoid product duplication or even highly similar products.This means only one supplier per a product. This is by far the largest mistake and its one which has been duplicated by apparently every startup in the sector.It’s hard to even call these "real" marketplaces as this concept defeats the real purpose behind a marketplace which is to benefit buyers by introducing competition between sellers for ratings, price and inclusions.Why not have 75 different suppliers offering the same trek to Everest Base Camp so long as the buyer can sort them by price or by reviews?This works just fine on Fivver (a marketplace for services) where one can see tens or even hundreds of suppliers offering essentially the same thing.It might sound confusing but most buyers will just sort by reviews and pick the top seller just as they pick the top search on Google without any confusion. See how its working on Touristlink.4. Supply and liquidityLimiting the number of suppliers per product introduces a supply and liquidity problem but when you allow multiple suppliers to list the "same" product the problem disappears.Top suppliers will almost always be the professionals as they can garner the most reviews (and as result the top rankings) by serving the most travel products to the most people.Marketplace economics suggests that given adequate time an equilibrium situation will develop where the supply at any given moment is equal to the demand at a given price.Most of the supply and liquidity issues are solved by letting professionals on board and by letting multiple suppliers list multiple products.5. Booking versus online enquiry engineVery few consumers are willing to make a wire transfer or give their credit card details to a tour operator in a foreign country.The marketplace adds the most value to the consumer when it owns the transaction as it lends its own trust to the transaction and ensures the consumer knows what will happen with his money.Tour providers can be paid on arrival or even after completion of services.6. Multi-day versus single day tour packagesThe tours and activity sector can be divided into two segments that have somewhat different buying behavior.Travelers will book day tours and highly defined shorter tours online but when it comes to multi-day itineraries most are booked offline only after some private consultation.A successful marketplace has to facilitate communication between supplier and customer and even leverage the fact that it is going to happen as part of the trust building process.The tours and activitie sector is certainly one with a lot of challenges but it’s also one the last giant markets ($51 billion just in Europe) that is ripe for disruption.NB: This is an analysis by David Urmann, founder of Touristlink.NB2:Blueprint image via Shutterstock.