The pivot worked. That's the conclusion that can be drawn from the decision of investors to pour $30 million into Zozi, a tours-and-activities startup in San Francisco.
Signaling confidence, even Richard Branson, founder of the Virgin Group, is participating as a new investor in this Series C round. The investment adds to the $21.3 million that Zozi has raised before.
Leading the round is Pritzker/Vlock (via its public arm as LaunchCapital). Pritzker/Vlock has supported Zozi for a few years. Other past investors -- Par Capital Ventures, 500 Startups, Dolby Family Ventures, and Bridge Bank -- also doubled down on their bet.
The round is notably larger than the $25 million Series B raised last summer by Europe's consumer-focused GetYourGuide.
That said, last week, Beijing's Haiwan reportedly secured an unspecified Series B round in the "tens of millions" to push activities to Chinese outbound travelers.
Rapid growth
Zozi began in April 2010 by trying to build an upscale consumer brand alternative to Viator, primarily through flash deals.
But the company went sideways. So it decided to pivot, as CEO T.J. Sassani recalled yesterday in an interview with Tnooz:
"We saw the challenges that Viator has had over two decades. If you don’t build a really strong brand around the consumer piece it is hard to scale a marketplace platform."
In late 2012, Zozi shifted to emphasizing the business-to-business, or supplier-side, part of the equation of the marketplace.
It bought TripFlavor, an online booking platform for tours-and-activities suppliers. In January 2013, the company renamed the software-as-a-service platform Zozi Advance.
The strategy worked. Sassani said "thousands" of tour operators and destination management companies have signed up to use the company's real-time booking, scheduling, payment, and customer relationship management platform.
Since then, suppliers have processed 4.5 million tours and activities through Zozi's platform. That means nearly $500 million in transactions -- up from $50 million in 2013 -- for suppliers in 90 countries were directed through Zozi's technology.
Sassani said in an interview that about half of the merchants his startup signs up today are organic, seeking out Zozi. The company also has a significant backlog in merchants who want to join. The funding will help clear that up.
The suppliers that use the platform vary in size from $50,000-a-year sole proprietorships to companies that have annual turnover in the eight figures.
Less than 10% of a typical supplier's business comes through Zozi's own consumer-facing channels. The rest is the supplier's phone, walk-in, and affiliate channels. It's appeal has been partly due to its low credit card fee -- a flat charge of 1.99% for processing.
The startup has all-but-ignored its lead generation capability, though it does claim to have collected 2.5 million registered users it could contact.
The latest funding round will let Zozi go back to addressing the demand-generation side of the marketplace equation.
Within the next six months, it plans to scale up the number of experiences it offers for sale on its consumer direct channels, from "a few thousand" today to "tens of thousands" of activities, such as kayaking tours, fire-eating lessons, and racecar driving.
Becoming the OpenTable of activities
Sassani said the advice he has recieved over the years is that, to create a billion-dollar marketplace, you need to own both sides: supply and demand.
"That advice is sort of useless, unless you have investors like we've had who are willing to put down huge sums of capital out of trust in the vision of the team, the promise of the market, and the knowledge that we execute well.
I see a lot of companies coming in raising a $5 million round. But it's not going to get you there. This is a very capital-intensive business. So if you create a leadership position, even if you share that with another company, it's extremely difficult to disrupt.
To use an analogy, even if you offer easier restaurant booking technology at a cheaper price, you still won't unseat OpenTable [the Priceline Group-owned restaurant booking platform] because it is so good at its demand generation side. Because in the markets where they are strong, they bring restaurants 30% or more of demand.
We chose to scale the SaaS side first for a variety of reasons. But we can scale our consumer side effectively and will start that now."
Competitive field
This spring, Viator, which was acquired by TripAdvisor last year for $200 million, launched its own version of a do-it-yourself booking platform for operators.
Another competitor is European startup Musement (which has raised about $6.8 million in funding to date) also has a booking platform service for tour-and-activities providers.
Musement has been more aggressive in integrating with its mobile app to help venues with access control (such as by scanning electronic barcodes on a mobile device screen). That service may appeal to the more specialist venues and tours that may not have any system in place for managing who come in.
Yet another rival potentially lurking on the horizon is Expedia Inc. While Expedia's past effort at a booking platform fizzled out, the company's CEO admitted this week in a Tnooz interview that its activities department is looking to relaunch that operation.
Meanwhile, TourRadar is yet another online reservation platform for activities and experience sellers, but its speciality is multi-day group tours -- of which it currently lists about 20,000.
Other players on the supplier tool side, to various overlapping degrees, includes Zerve and TourDigger and, if you include companies without direct consumer brands, Rezgo and TourCMS, among others.
Sassani says he sees his "long-term competitors as TripAdvisor, Eventbrite, and Active.com.
Overall, that's a lot of companies vying for commissions out of the global tours, activities, and events market that the consultancy Phocuswright says is worth about $100 billion as of February 2014.
Sassani said that several factors insulate Zozi from rivals.
"One of the biggest strengths of our product is centered around its flexibility. You name a variation, and we can handle it.
We just shipped a new update to our merchant interface than enables our platform to handle the complexitiy for multiday tours as well as rentals -- not just afternoon straightforward walking tours.
Consider the rental business. There is a high number of permutations.
Single bikes. Tandem bikes. Hourly, half-day, daily. Guided tours. Multiple pricing for seasonality."
But some people think Zozi has an edge. In a statement, Branson, founder of the Virgin Group and a first-time investor in Zozi, said:
“I’ve founded many companies that have disrupted markets over the years and it’s clear to me that Zozi is leading a revolution with its innovative online booking software for activity businesses and consumer marketplace.”
Zozi, which now has 65 full-time salaried employees, will use its funding to accelerate hiring, particular for its sales and technical needs. It's especially looking for engineering talent with fluency in Java, Ruby on Rails, and AngularJS.
EARLIER: GetYourGuide raises $25 million as tours and activities take centre stage