NB: This is a guest post by Johannes Reck, CEO of GetYourGuide.
We have all read the buzz around tours and activities recently, spurred in part by a study revealing the vertical is actually bigger than cruise and rental car combined.
The report and subsequent travel industry interest was grist to the mills of evangelists and niche players in this field.
But are we seeing the rise of a marketplace with vast distribution potential, similar to what the hotel category has been in the past 15 years?
The realistic answer is, unfortunately, no.
Sales from tours and attractions are mostly irrelevant to the bottom line of any large online travel website, and the few aggregating platforms such as Viator, City Discovery, Isango or GetYourGuide, for example, make a combined revenue that is still less than $300 million.
While this figure is not bad, it pales in contrast to other online travel channels and particularly to what the tours and activities market is estimated to be as a whole.
The problem is that some of the key features of the product make it very difficult to be distributed online:
1. Small average shopping baskets
A typical hotel stay in a major touristic destination has an average shopping basket of $200-300. Tours and activities on the other hand have average shopping baskets that are between $100-150, when ordered online.
These rather low numbers squeeze the margins for paid traffic and limit the revenue share between aggregators and distributors.
2. Low conversion rates
One of the best kept secrets of tour and activity aggregators is that the products have unsatisfactory conversion rates in traditional cross-selling formats, such as standard white label solutions or in purchase paths of flight and hotel products.
3. Limited product inventory and no real-time product data
Tour and activity products are typically provided by fairly small companies. This makes the product very difficult to aggregate and even more difficult to standardize in terms of providing accurate information of prices and availabilities.
In fact, all aggregators to date mostly sell on a free-sale basis, avoiding smaller boutique products that actually sell out. That’s a pity, because this is precisely where distribution starts to get interesting.
What can be done?
These arguments have brought many people to believe that tours and activities attractions are an offline product that will remain fragmented and insufficient for online distribution.
However, recent data has indicated that the sector might still be interesting for cross-selling of products after all, just not in the conventional sense.
One key element that most travel webites have not fully understood is that the purchase cycle for destination services is different than for flights and hotels.
The latter are booked weeks or even months before the actual travel date. Tours and activities, on the other hand, are mostly purchased merely a few days before the trip.
For example, at GetYourGuide a vast number of our customers book as close as 48 hours before departure. Thus, cross-marketing only makes sense if it takes place very close to the date of travel.
Secondly, mobile commerce is starting to take off and so will mobile bookings for destination services.
Tours and activities are the perfect use case, where OTAs can target travelers on their mobile devices in destination, a cross-selling channel with gigantic revenue opportunity.
Most importantly however, aggregators are starting to grasp the importance of improving the quantity and quality of their inventory and are giving much greater effort to bringing the entire wealth of local travel experiences online and integrate with supplier back-end systems.
In the case of GetYourGuide, we actually have our own CMS that we require suppliers to use, a strategy that has played out very well.
It is unwise to expect that tours and activities will outpace other ancillary revenue products, such as rental cars, in the near future.
However, if destination service aggregators finally get the inventory side of the equation right and distributors start to think about more appropriate ways to integrate the product and increase its visibility to consumers, we will surely see a very healthy and growing the online marketplace in the sector with substantial revenue opportunites for aggregators and distributors alike.
NB: This is a guest post by Johannes Reck, CEO of GetYourGuide. Reck is holding a seminar "Making Money with Tours & Attractions" at the EyeForTravel Travel Distribution Summit in London on Wednesday 11 May 2011.