As the global online travel market reaches a turning point, what lies in store for all players, from global to local?
To me, there was one key message that came out of the two largest conferences in online travel for Asia Pacific and North America: WIT (Web in Travel, Singapore) and The Phocuswright Conference (Florida), which wrapped up 2017.
For the first time, there was a palpable feeling of uncertainty. Yes, in recent years, even as the market has been pretty buoyant as a whole, there have been hints of a possible downturn here and there, but it was during The Phocuswright Conference that the uncertainty became glaring.
On November 7, 2017, the stock of the world’s largest market capitalized OTA Priceline Group dropped 15%. On the same day, TripAdvisor’s stock dropped a whopping 23%. (Expedia dropped 16% on October 27.)
It is clear the online travel market is reaching a turning point in growth. The question is, what are the key companies planning to do to address the situation?
Kei Shibata - Venture Republic
That night, while the market reeled from the price drops, I attended the Phocuswright annual VIP dinner. There, distancing themselves from the dozens of CEOs with cocktails in hand, the CEO of Priceline, Glenn Fogel, and TripAdvisor’s CEO, Steve Kaufer, were in quiet discussions.
The reason for the drop in stock price? Stock market analysts would argue it comes from a maturing market. The reason the stocks fell so much stemmed from each company failing to meet Wall Street forecasts when they announced their performance.
At The Phocuswright Conference, analysts from Wall Street (RBC Capital, Susquhanna Financial Group, UBS, Deutsche Bank & Guggenheim Securities) gathered on stage to discuss where things were going in the industry.
All of them stressed that “the online travel market has saturated.”
The global players, who developed their business with the West as its main axis, have all enjoyed growth in the past years, but it is clear the rate of growth is declining.
One analyst predicted growth performance (revenue) would drop 10% to 20%. Taking Priceline for an example, the company had up until the last one or two years reached 30% to 40% revenue growth (or profit), but recent revenue growth was running below 20%.
Global OTAs move toward reassessing marketing budget allocations
So was this stock market reaction due to the dimming of growth prospects?
Perhaps there is another reason. One could be the change in marketing strategies. It is understood that global OTAs are reallocating budgets for each marketing channel in order to acquire new users.
Specifically, they have started to shift their budget from performance-oriented online marketing channels such as search engines and metasearch types to branding-oriented channels such as TV advertisements.
This trend is also happening globally in other industries. Internet corporations like Yelp in America (which shares similarities to Japan’s Tabelog in that it’s a comment/rating site for restaurants) are putting more and more money into TV advertisements. (We would guess this shows that the internet market in America is maturing.)
Based on marketing from search engines, performance-oriented marketing channel models in the West (and maybe even Japan), travel-related keyword search volume on Google isn’t increasing as a whole.
Marketing channels to acquire new users remain confined to offline channels like TV or online channels through social media such as Facebook.
Even as each of these global OTAs move towards marketing on social media such as Facebook, they have yet to see good returns. At the same time, they are also running advertisements on TV to strengthen their branding. All of which means they are spending more on less cost-effective channels to acquire new users.
So it is clear the online travel market is reaching a turning point in growth. The question is, what are the key companies planning to do to address the situation?
The key could lie in “service differentiation” and “technology utilisation.”
Kayak CEO Steve Hafner emphasised this thought at The Phocuswright Conference. According to Hafner, “Differentiation should be made by innovation that can be brought with new and unique assets. Asset may be content, hard-asset or something else.”
At Travel.jp, we’ve started a network of travel influencers were among the first to enter the content media service, breaking out of the metasearch-only mold. And we’ve seen good results, increasing the number of new users in recent years.
The use of the right technology could also be another differentiator.
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This viewpoint was expressed by each CEO at both WiT or Phocuswright emphasized through one keyword - “personalisation”.
The CEOs of Expedia, TripAdvisor and Trivago all said that they would seek to provide a service that puts effort into customization and personalization for each and every user. There’s a certain level of technology required to achieve this service, and that is “AI” or machine learning that utilizes big data.
If we’re talking about AI, one of the most impressive technology giants in this field is Google.
Google’s Travel & Shopping vice president Oliver Heckmann, who was on stage at both WIT and Phocuswright, talked about the leading AI technology behind the machine learning already active in hotel and flight searches, and the quality of translations through Google Translate that AI has helped expand.
It really feels like we should watch Google’s trends to understand how we should develop services that utilize AI moving forward, and that includes the travel industry.
Focus on “private accommodation” and “in-destination experiences” for differentiation
I feel I don’t have to go into much detail about accommodation, but local tours and activities have come into the spotlight as growth sectors.
BeMyGuest (Singapore), the tours and activities market startup which I joined as a board member last month, started considering moving onto Series B round financing after the boom that followed their Series A financing this summer.
Hong Kong-based startup Klook, a winning contestant from the WIT Japan & North Asia Bootcamp Pitch Contest alongside Berlin-based startup GetYourGuide, announced financing of $60 million and $7.5 million, respectively, hinting at highly anticipated growth in the market.
We also can’t overlook developing markets as a significant factor in future growth.
China, India and Southeast Asia, where our subsidiary Trip101 and the above-mentioned ByMyGuest are located, are critical to future growth.
The birth of Southeast Asia’s first travel unicorn startup Traveloka in Indonesia last year hints at this.
Which then begs the question - with the global online travel market at a turning point, what road will Japan take?
OTAs have grown quickly and established their positions in the Japanese travel industry. The good news of course is the booming inbound market but the domestic market is also slowing down, like in the Western markets.
In the face of growing competition on a global level, it will be even more important for Japanese player to work on things such as differentiation of services through innovation, new services and overseas expansion.
Overall, I feel we’re entering one of the most interesting phases of global online travel. Welcome 2018.
* This article first appeared In Japanese in Travel Voice Japan.
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