Startup pitch: Sputnik8 shoots into tours and activities with big ambitions

Tours and activities continues to be a hot marketplace with many players - large and small, established and startups - looking to get in on the act.

Enter Sputnik8, a project founded by Alexander Kim and Alexander Skorobogatova, combining their love of travel, programmer education and desire to bring all things tours and activities online.

It's not a new concept with a plan to have local people, residents of the cities to share knowledge and show guests (or neighbors) a "real face of a city" and uncover "facts that are not included in the guide books."

As well as the founders, the startup has assembled a team of three - Andrew Chernoguzov heading up design and front-end development, Alina Afanaseva-Altman, city manager for Moscow and Julia Topoliuk, country manager for the Ukraine.

Funding to date includes personal investment of $25,000, a $25,000 grant from Durov-Milner and angel investment of $100,000.

Sputnik8 plans to start with Russia which it says has little competition in tours and activities but is still a large market. The startup believes it's at the crossroad of two large and growing markets - travel and ecommerce, and points to the following facts for support:

• Travel to Russia - $53 billion (PhoCusWright, 2012). Annual growth 10-14%.
• Ecommerce - $13 billion (2012, 5th in Europe ). Annual growth 27%.
• Online Travel - $4.7 billion (2012) = 9 % of travel in general. Annual growth 40%.
• Global Market of tours and activities = $90 billion.
• Tours and activities market in the US = $ 26.8 billion (PhoCusWright, 2009) = 10% of total travel in the US.
• It is the third largest market after the air and hotels = 35 % of total travel in the US.
• Tours and activities market = 30% of the hotel-booking market.
• Current Russian tours and activities market can be estimated at $2 billion.
• Potential online tours and activities in Russia is $100 million, online growth of 30% per year.

"Hotels" - 65.1 million in 2012/51.2 million in 2011 = +27.1%

"Excursions"- 10.9 million in 2012/8.55 million in 2011 = +27.4%

Sputnik8 also says there is no single leader in the global market with all players having 1% marketshare:

List by Alexa Traffic Rank:

• #1 Grayline $300 million (2012) - 0.33%
• #2 Viator $280 million (sources - 2012) - 0.22%
• #3 GetYourGuide $ 10 million (2012) - 0.011%
• #7 Excursiopedia <$ 800k (2012) - 0.0089%
• #10 Vayable
• #19 Sputnik8.com

Revenue will be earned via an 18% transaction fee for every tour sold via the platform with a target of $80 average transaction per tourist rising to $260 for tours in "more expensive" cities.

What problem does the business solve?

Tourists want to go on excursions, guides want to make money. But, there is still no system for booking excursions online around the world.

Guides:

• Highly fragmented market of tours and activities. A lot of small companies and individual guides.
• Local small businesses: 60% of them have less than 25,000 customers a year (PhoCusWright).
• No knowledge and money to develop a website with online booking , payment processing . In the US, 80% of such companies do not have a website.
• Difficulty in promoting the site brings a lack of access to customers from around the world. While 70 % of them believe the online channel is important.

• 75 % of active travelers in Europe are booking hotels and air online, tours is only 25%. (PhoCusWright).
• No global international reservation system, so you need to look for many trips on your own or book them “on the spot”.

A very early idea was a mobile application. Then it changed to something like instant CouchSurfing for meetups with local people.

But, then finally it became a marketplace of tours by local guides. The main idea of discovering places and traveling with local people is still there. After that we didn’t have any pivots.

We have a few principles:

• We work only with real people - there should be a photo of a guide, even he represents a company.
• We are focused on good development of big cities and only after that will we pay a lot of attention to the promotion of other regions.
• We positioning ourselves on the P2P market

Why should people or companies use the business?

It’s an easy, cheap, unusual and reliable way to explore the city/region you are traveling to  for tourists. It’s even more easy and fun way to become a guide (for city-experts), sell their tours (for professional guide) and become a part of community.

What is the strategy for raising awareness and the customer/user acquisition (apart from PR)?

We use online and offline methods:

• Word of Mouth. Our clients share the information about the tours they’ve visited.
• Partners (language schools, universities, etc. - for searching guides, other platforms with similar theme - for selling tours).
• Search engine optimisation.
• Social media marketing on Facebook and VKontakte for the Russian audience).
• Google Adwords, Yandex Direct, context ads.
• Conferences (Travel, Startups), professional meetings etc.

In 2014 we are going to become a market leader in Russia on local destinations. In 2015 we will be in front of all Russian tourists and in 2016 we will expand to foreign tourists and become a truly global booking system for tours and activities.

We have couple of challenges (which are opportunities at the same time):

• Fragmentation of the market: guides are not so confident as hotels or airlines in selling tours online, so we need to educate them.
• Tourists don't have such a strong need for tours and activities as in places to stay and transport options to get to the place.
• Russian and Ukrainian tourists need to get used to booking tours online.
• We need to overcome seasonal changes (by adding new regions)

For hotels there is Booking.com, Expedia, Ostrovok, Oktogo etc, for flights - Expedia, Kayak, Onetwotrip etc. For tours there is Viator, GetYourGuide, Vayable, but all the players together occupy less than 1% of the market and cover mainly the developed countries.

What other technology company would you consider yourselves most closely aligned to in terms of culture and style... and why?

Airbnb. It also:

• Works in the P2P market
• Uses simple intuitive design and navigation on its platform
• Delivers partly new options - to get the service from locals
• Is young, fastgrowing, full of energy and has positive karma

Many players, startups and established, large and small are doing more than sniffing round the tours and activities sector at the moment. Expedia unveiled its intentions more than a year ago, Airbnb wants to let hosts sell tours and more recently Google was said to be looking at how to further integrate tours and activities. So hot has the segment been that PhoCusWright has put some numbers around the size of the European market. However, some are beginning to question whether the bubble (if you can call it that) is about to burst. It's true that no one player has taken a significant chunk of the market and if the numbers are to be believed it is sizeable but the more important issue is why? Experts tell us that aggregating all the content from fragmented sources, many of whom have limited technology, is no easy task as well as the problem of having live inventory with availability that needs to be updated. Other challenges are laid out in this article. Many are looking to mobile as a sales and ticketing channel for tours and activities but that has its own complexities. By focusing on Russia, Sputnik8 might be able to corner chunk of the market and become a regional specialist if, as it says, there is little competition. Growing outside of the region may prove more challenging for the same reasons existing players are experiencing. The segment will be cracked in terms of tours and activities online but it won't be an overnight process. It's more likely to be gradual behind the scenes technology developments and some more merger and takeover activity of all scales such as TUI-Isango, GetYourGuide-Gidsy, Nor1-FlexTrip and Excursiopedia-Travelatus.

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