For such a juvenile segment, in terms of distribution, the tours and activities market has one of the most complicated distribution landscapes I've ever seen.
In fact, the current state of activities distribution is one of the findings of the PhoCusWright report [When They Get There (and Why They Go)] about the tour and activities market that I found most surprising.
Because the tour and activities segment is dominated by small long tail businesses who, as the report indicates, have small budgets and little or no technological sophistication, the idea of direct connects (like those in the airline space) are simply out of the question.
With only 14% of these businesses having any kind of central reservation system, it makes it very hard to electronically aggregate product across the segment. Hence the reason why so many intermediaries and aggregators exist in this space.
But being an aggregator in the activities space is no easy task. It involves a tremendous amount of work to source, load, and maintain activity content on a product by product basis from small businesses all over the World. Companies like Viator, Isango, Kijubi, and GetYourGuide are all based on this model.
Once product is on the sites (identified in the PhoCusWright report as Online Activity Specialists I or OAS I), the aggregator now has to get it to market. This may include driving traffic using natural search, pay per click campaigns, affiliates, and other creative techniques.
When the tour or activity is booked, the aggregator issues the customer a voucher and, after some specific period of time, the operator of the tour or activity receives their net fee for the sale, usually around 70-75% of retail cost. For the most part, the tours or activities are sold on a free sale or request basis. Nothing is real-time.
So, for the bulk of the “source” products that exist in the activity distribution supply chain, we have content that is neither controlled by the supplier or available for booking in real-time (except as free sale). Already, you can see we have a problem. So now the fun begins.
Now that these aggregators have spent the time to catalog and organize all these activities, it's time to build scale and deliver the content through partners. In many cases, these partners are OTAs or other third party sales organizations. In some cases, the partner is what is referred to in the PhoCusWright report as an Online Activities Specialist II or OAS II.
Are you still with me?
So these OAS II businesses are essentially meta aggregators or aggregators of aggregators. OAS II businesses, such as BeDynamics and iSeatz, pull in feeds from OAS I companies and combine them all together to make super feeds. For this, the OAS II will get some split of the commission from the OAS I, usually around 6-10%.
Now that the OAS II has aggregated all this tour and activity content, they develop some kind of unified interface that can then be integrated into another website, like an airline, cruise, travel agent, hotel, or destination website.
For this service, the OAS II splits their commission with the partner website, usually 50% of net commission, or between 3-5%.
Once on the site, the tour or activity is ready to be purchased by the traveller. Based on an average per person booking value of $100, we are looking at a $25 commission being split three ways, $15 for the OAS I, $7 for the OAS II, and maybe $3 for the partner website.
Since the OAS I is usually the one handling payment and customer service costs, their net is probably closer to $10. Each link in the chain needs to pay for marketing and technology costs out of this revenue.
Don't get me wrong, there is a whole lot of sophistication happening behind the scenes here. Content writers busily bang away on keyboards writing "unique content" in order to avoid getting stung by Google duplicate content algorithms, XML feeds are being pulled into programs and deduplicated, sorted, and added to some local cache database for the purposes of “fast search”.
There are images, videos, and location data being added to the mix at every level. There are vertical search engines, mobile applications, mobile websites, widgets, gadgets, interactive maps, social buying, email offers, and all kinds of other cool and inventive things being created on top of this OAS I and OAS II layer.
In the end however, there is one important and critically fundamental player missing from this distribution chain... the supplier.
Once the product content is loaded, in most cases, the supplier is out of the picture until the customer actually experiences the tour or activity they purchased. In many cases, the customer doesn't even know who is delivering the tour until after they've booked it.
For many long tail businesses, distribution just doesn't make sense. Not because their products are too complicated or “unique” to be delivered electronically, but despite all the sophistication, technology, and innovation focused on the mid-tier of activity distribution, intermediaries only accounted for about 5% of the online travel activities market in 2009.
Don't despair though, that percentage is predicted to increase to 8% by 2012.
Let's face it, the cat is out of the bag now folks. It's only a matter of time before some smart Harvard grad spends a week in a basement with a supply of chips and red bull and figures out a way to completely transform this dysfunctional segment by developing a new wizbang interface that will make it easier for travellers to book activities.
Except, like the so many other layers of make-up on this proverbial pig, it will be just another shade of lipstick.
The deeper problem, and the one that needs to be addressed sooner rather than later, is that there is a fundamental disconnect between the activities supply chain and the source of supply.
As I have mentioned in my two previous articles about the size of the activities market and how destinations need to focus on activities, this segment needs supplier engagement in the worst way.
For the distribution chain to continue to thrive and to scale, it needs content. As more and more intermediaries enter the playing field, they are going to demand a piece of a pie that relies on human intervention to curate and manage.
The answer is for technology partners at all points of the distribution chain to start finding ways to make the supplier accountable for their content and availability. This means pulling product content and availability directly from supplier reservation systems and distributing them through the chain and pushing bookings back through the chain directly into the reservation systems.
There is nothing to say that points in the distribution chain can't add value or augment content in order to maintain a competitive advantage over others in the chain, that's their prerogative, but at the end of the day, the supplier is managing inventory and bookings from multiple channels in a single source.
What we want to avoid is the operator receiving bookings via fax and email, which are both the predominate method for receiving confirmations from intermediaries today.
Don't expect suppliers to push this mandate, however. These small businesses don't know and frankly don't care about XML messaging schemas, APIs, or standards.
They care about running their businesses and providing their guests with the best possible experience they can. That means that the people who have to push this mandate are the people at businesses that service this small business market.
Everyone from the reservation provider to the OAS I, OAS II, hotel, airline, cruise, and destination company that wants to tap into this market needs to buy into the concept that the buck stops with the supplier.
This is not about cannibalizing an existing market or undermining anyone's existing market share, if this works EVERYONE stands to benefit from the influx of content. More direct access to content means more diversity, choice, and more opportunity to segment products by niche.
Maybe then, those new shades of lipstick won't just be for decorating the pig.
NB: Author is CEO of Rezgo, a sponsor of the PhoCusWright Report.
NB2: Photo credit - Theilr