There has been plenty of coverage in recent months about the development and fate of person-to-person online marketplaces in the travel industry - not all of it particularly positive.
The idea of having an online presence where consumers can cherry pick from tour and activity products hosted and serviced by people on the ground ("travel like a local!") is an appealing one.
But the reality is stuffed full of challenges - technical, scaling issues, the actual business mode, operational.
So rather than react to individual company pivots, appearances in the deadpool, etc, here is what I believe to be a comprehensive summary of the issues and opportunities facing the world of P2P marketplaces.
Tours are a discretionary purchase
For consumers they are a nice to buy, not a must-buy.
Whenever I see a comparison with Airbnb ("it works for AirBnb, it must work for tours"), I tend to worry. Airbnb is a must buy - you book either a hotel or Airbnb (or equivalent).
But consumers must book something. With tours and activities, the customer often chooses to book nothing.
In fact, person-to-person marketplaces tend to have tours without assets, so end up being walking based tours or products using public transport.
In the tour world, day tours without assets are even more susceptible to "buy when you get there" or "organise your own trip", than day tours with assets (such as white water rafting where, err, you need the rafts!).
The provider has to provide the tour
(a top guide on Vayable works six to ten times a month). One again, this is not the same as Airbnb, where once the keys are handed over, the provider of the service doesn’t have to spend their time engaged with the customer.
Unless the provider wants to become a full time local tour operator, they are unlikely to wish to be booked out more than a handful of times per month, over the longer term.
Tours and activities are moving rapidly towards bookings on the day via mobile devices
Amateurs who have other jobs (and incomes) can be less flexible than regular local tour operators (who will have already planned to run their tours regardless of any last minute bookings).
If the P2P marketplace sends a message and says "in 2 hours you have to meet ABC and take them on a tour of XYZ", I expect you will find many individual providers will reject these opportunities.
Customers will then find regular local tours that are running, and build a habit of booking with local tour operators instead of via a P2P service.
To do deals with an online travel agency or airline requires a large amount of product stock
Imagine three aircraft full of passengers landing in New York today (approximately 1,000 people) - the tour and activity marketplace would have to put on enough product that would allow potentially 100-200 of those customers to book.
You cannot have tours which are full when they have just a couple of customers on each.
The low capacity of P2P systems to increase the number of tours that collectively will have availability for 100-200 people will take up more screen real estate than is commercially viable for an airline/OTA through a white label system.
If a popular tour is a walk on the New York High Line, then to get the booking capacity you now need ten P2P tour providers as a source for the product.
And then you have a user interface issue to contend with as well, primarily because the customer is going to find it hard to distinguish between these different, but visually exactly the same, experiences?
There just are not that large number of unique things to do in any particular city that are going to drive volume, hence the tours are going to have to cluster around the more popular opportunities, creating the navigation challenge.
Dates and availability become critical (if you know the travel dates of the customer, you should only show product that is bookable on those stay dates). You now need to keep your providers active and engaged so they keep their availability accurate with you.
Keeping amateurs engaged to this extent at scale is not a trivial challenge
From the providers perspective, they probably don’t care too much about whether the P2P marketplace has a deal with an OTA or an airline.
Actually, if it means that the marketplace wants to charge 25% (rather than the regular 10%), then the providers may be against such partnerships.
Airlines and OTAs probably won’t bother doing deals when they are only making 5%. The reality is that businesses will pay larger commission but individuals may not.
Not all about scale
It is worth mentioning that not all P2P tour and activity marketplaces are going for scale, of course.
It is a perfectly valid business strategy to aim to keep the marketplace small, friendly, and as a result avoid having to address any scaling issues at all.
However once you have taken funding over a few hundred thousand dollars (or more!), the opportunity to avoid scale is no longer on the table.
You have to solve the scale challenge to build a business that merits the funding level.
1. Data sharing/pre-filtering:
We can address the UI problem of having hundreds of provider offered experiences if we just know a little more about the customer.
For example, if we know the customer is travelling with family we can remove many of alcohol-led tours immediately (seems to be a lot of these!).
This is where deals with OTAs and airlines can help as they are able to provide basic demographic information that is key to pre-filtering the user interface (eg. two adults, flying from London to New York, weekend stay, leisure not business)
If you know that the customer booked a food market tour when in London there is a higher probability that they will be interested in a food market tour when in New York.
Again, this helps filter the potential list of experiences in a destination down to a set that may just about be squeezed into a result set on a tablet or mobile.
2. Few tours, many individuals:
Instead of each individual provider having a few experiences, the marketplace can create, say, 20 tours in a destination and let the individuals sign up to be a provider of some of these experiences.
This solves the UI challenge (the customer has less experiences to choose between). It also improves operational resiliency as if one individual is suddenly not available (eg. ill) on a particular day, another local individual can run the same experience. An example of a service taking this solution is Localers.
This cannot happen in P2P marketplaces, where there is one experience to one provider and if the provider is not available suddenly, the customer will be left disappointed.
3. Deal with a tour distribution system
The distribution company will pick up the volume opportunity while leaving the P2P product as the long tail.
The UI problem goes away as customers can be presented with a couple of mainstream day tours and a couple of P2P day tours. Daily booking capacity and uniqueness is also catered for.
The P2P marketplace has to pay attention here though, as often their product is visually stimulating but products have a tendency to be used as bait and switch (either for the OTA’s regular hotel/flight booking services or for the mainstream tours).
For example, a customer will click through on a High Line tour in New York but end up booking a downtown boat trip.
The P2P marketplace needs to structure the deal so they benefit from sales that have come from any bait and switch, not just benefit from sales of their own products.
Despite many opinions to the contrary, there still plenty of opportunity in P2P tours and activities.
The high failure rate so far from funded and unfunded startups in this sector is not a concept problem but, inevitably, mainly one around execution of the idea.
NB:Eiffel Tower guide image via Shutterstock.