Phocuswright estimates global travel gross bookings will
reach nearly $1.5 trillion this year and more than $1.6 trillion by 2021.
While the majority of that spending is made on air and
accommodations, ground transportation is accelerating as a category for activity,
innovation and investment.
Whereas a few years ago, car rental, rail, bus, taxi and
shuttles were the primary subsets of this sector, now the lexicon has expanded
to include ride-hailing, ride-sharing, carpooling, bikes, scooters and more.
These newer entrants have entered the market digital-first,
forcing existing players to innovate to keep up with consumers’ expectation for
fast, frictionless, intuitive solutions.
While this growth creates more choice than ever before for
travelers, the sector’s high fragmentation also creates more potential for
In its 2019 U.S. Travel and Hospitality Outlook report,
Deloitte analysts write: “Even the most diligent of travel planners can get it wrong
- particularly those navigating unfamiliar cities or making spontaneous trip
decisions. For ground transportation suppliers with ambitions of evolving with
changing customer expectations, multimodal integration offers a promising path
"Next-gen trip services will combine disparate supply, new types of
content like transfers and parking and real-time transit information - and tie
it all together with AI, personalization and a single, integrated payment.”
This month we are exploring the ground transportation sector,
beginning with perspective from three investors in the category.
Ground transportation has undergone a transformation in the past decade, in large part led by Uber, founded in March 2009. Since that time, the company has raised $24.2 billion and is on the verge of going public, with
an IPO valuation expected to be as much as $120 billion.
Subscribe to our newsletter below
A bit younger but close behind in funding is China’s Didi
Chuxing, with funding of $20.6 billion. Didi was founded in 2012, the same year other
big players entered this space: Lyft and Southeast Asia-based Grab.
There are also many smaller startups in this sector: 276, according to Phocuswright’s latest State of Travel Startups report that
includes information on companies founded from 2008 through the first half of
In fact, ground transportation has been the most funded segment
of travel in the past decade, and there’s no sign investors’ appetite for
ground transportation is satiated.
“There are huge pockets across this from short-haul to long-haul
to commuting to parking - everything you have to do to get from A to B
effectively and efficiently,” Miller says.
“It’s a testament to how large the industry is. You can
really build something formidable. It speaks to why there are so many
entrepreneurs who are going after what otherwise seem like niche segments but
of a massively vast category.”
JetBlue Technology Ventures invests in startups that align
with one of five themes and one - “Evolving Regional Transport” - is focused on
ground transportation solutions.
“The thesis behind that is we think airlines - legacy
carriers and JetBlue included - are very well-suited to serve the trans-con,
the super-long routes. But we think on the sub-1,000 mile transport options, we
expect airlines to get disrupted,” Heggie says.
“It’s simply not a very efficient model.”
One category that has captured investors’ attention in recent
years is coach transportation. Similar to what is happening in the tours and activities
sector, Miller says he expects this sector of ground transportation to become
more structured and digitized, particularly in international markets.
...we think on the sub-1,000 mile transport options, we expect airlines to get disrupted.
Christina Heggie - JetBlue Technology Ventures
Both Amadeus Ventures and JetBlue Technology Ventures have put
money into Betterez, a Toronto-based company that has developed cloud-based
ticket management and reservation software for passenger transportation
Chiu says she believes, in many markets, travel by bus is a “viable
and welcome way of transportation” and information about schedules, pricing and
availability is the type of content Amadeus’ travel agent clients want to be
able to provide. The challenge has been that many bus companies do not have
modern, digitized systems, inhibiting this distribution.
But Chiu says Betterez is positioned to provide a cost-effective
technology solution that can improve the transaction experience for travelers
“There are other existing bus IT solutions in the market,
but they are not necessarily cloud-enabled, using the latest technology and
being able to drive the unit cost economics low,” Chiu says.
“In this sector, this is where we see the key of success. For
a bus ticket, you don’t expect it to be very expensive. So with a low fare, the
room for markup and commission is quite limited. As such, a technology
solution …. needs to be extremely efficient to be able to actually provide the
unit economics to the bus company.”
In the case of JetBlue, Heggie says it is also looking at
Betterez as a way to help customers have more options to reach their
“For example, we don’t fly into Toronto, but we do fly into [Buffalo]
across the border. And Toronto flights are exorbitantly expensive,” she says.
“So when we think about really expanding JetBlue service or expanding
options for our customers, including price competitive ones, using Betterez to actually
fly into Buffalo and then take the bus across the border - which will probably be
half the price of flying into Toronto and may also be more convenient for you depending
on where you are going in the city - that’s the next area we look at ... to truly
be offering multimodal transport and travel options to our customers.”
The need to help consumers solve the need for “first and
last mile” of travel is also a hot topic for investors.
JetBlue Technology Ventures has invested in Mozio, a ground transportation
aggregator and booking platform that is now accessible in the JetBlue app.
Things that have slightly more nuanced business models, that feel like true technology companies, not travel businesses with a technology angle - that’s an important orientation to be intellectually honest about.
Harley Miller - Insight Venture Partners
“For us, it was a really important way for helping our
customers expand their options,” Heggie says.
“You have super shuttles, limo services, this whole world of
options that in the world of a smartphone we really aren’t discovering. I tend
to look at Uber, Lyft and Google Maps - but there is so much more out there.”
Chiu says Amadeus also see opportunities in this space.
In 2014, Spanish ride-hailing startup Cabify was Amadeus
Ventures’ second investment - and a short time later, its first exit - and now its
transportation content, covering more than 40 cities in Spain and 10 Latin
American countries, is integrated into Amadeus’ systems.
“It’s about the end-to-end, seamless experience that we
believe that is an area that Amadeus has a role,” Chiu says.
“Their proposition is that they are able to offer very competitive
pricing to the offers existing in the market - which is taxi in most of the
cases - but a much better customer experience and at the same time security,
which is essentially important for Latin American countries.”
Chiu says there is more innovation to come in the area
of transfers, particularly for more on-demand recommendations and booking.
“How can travelers actually get to know the best model of
on-demand transfer when they are in a new destination? That is a question we want
to answer,” she says.
“To buy everything in one go at reservation time when they
book the flight is almost a model that we know isn’t quite working. So it’s about
being able to remind and recommend the right options at the right time through the
While ground transportation covers a broad range of
services, there are common characteristics investors look for as they evaluate opportunities.
Along with standard questions around the dynamics of the
founding team, for B2B startups in this space, Heggie says there is the
question of market readiness.
“It’s not easy selling to these companies, and some of them
aren’t ready to digitize,” she says.
“So how much does your idea rely on market acceptance is a
big one as well.”
Chiu says one of her first questions is whether the startup
is solving a real paint point, and then can it scale.
“A lot of the content and capabilities is quite local and quite
difficult to scale. That is definitely something we look for - how scalable are
those models and how fast can they grow. And then as a strategic investor, how can
we link it back to the travel community,” she says.
Miller agrees scalability - and innovation - are critical in
this ever-more crowded field.
“Something that sits at the juxtaposition of high repeat
behavior and unique supply, but asset-light,” he says.
And because Insight Ventures Partners focuses its
investments on high-growth technology and software companies, Miller says “how”
technology is used is critical.
“Things that have slightly more nuanced business models,
that feel like true technology companies, not travel businesses with a technology
angle - that’s an important orientation to be intellectually honest about."