Travel Innovation

As most of you know I was intimately involved with this year's PhoCusWright's Travel Innovation Summit. I have been tracking both new media and traditional coverage of the event. I wanted to provide you some feedback from the inside as well as some comments on the overall subject of innovation.
First let me acknowledge the hard work of my colleague Bob Offutt in being the creative force behind TIS and for managing the entire process. Bob and I interviewed over 50 applicants for the TIS. Our criteria was pretty straight forward- we were looking for true technology innovation. Often the applicant offered a business innovation, but lacked the technology component and thus were rejected. We heard from traditional as well as start-up companies. TIS is not a start-up - "get funded" event. It is designed to provide a forum for all industry segments to present their technology innovation.
The underlying themes from the TIS finalists are clear: (1) A better Web air shopping experience is needed (e.g. Amadeus IT), (2) Globalization of the Web is a complex process and requires some advanced technology (Translations.com), (3) Consumers continue to shop multiple Websites for a given trip and a social shopping tool can simplify the information gathering and sharing (Gliider) (4) Mobile technology is changing the way people experience travel (Global Motion). There were also presenters who demonstrated innovation in social media monitoring, leisure travel planning and integration between cable TV and the Web experience.

I have seen a few blog posts which criticizes the event as not being very innovative. Other comments have focused on the fact that the winner of the TIS 2009 event was Amadeus, IT certainly a major existing player, not an innovative start-up. Expressing one's views is certainly part of the fabric of the Web, but often bloggers or journalists miss the underlying process that goes into building an event such as TIS and are quick to criticize.
Let me comment on two particular articles:
1) Arnie Weissmann- Editor in Chief for Travel Weekly - " The Travel Technology Gong Show"
Arnie voiced his view that the show lacked true innovation. As I look at my in box at the pile of unread Travel Weeklys (I pretty much only read the online version), I find it ironic that this traditional bastion of status quo thinking would provide such a negative spin on the TIS. Much of the work as a consultant I done over the last 14 years has been with traditional travel players both in the leisure and corporate market. Often these traditional travel companies lack an understanding of online trends and rarely demonstrate true innovation (at least not without our help). In discussions with traditional travel agents as part of various projects, I am always dumbfounded at their lack of Web savviness. Many have poor Web presence and still take the majoirty of reservations offline. Since Web travel took off we've lost about 50% of traditional travel agents. Considering the rapid pace of technology innovation whether it it is improved air shopping , globalization, consumer shopping tools or the mobile revolution, traditional travel companies continue to lag. Rather than being critical of the event, Travel Weekly needs to better verbalize the underlying trends demonstrated at the TIS and educate their readers on how to deal with these technological changes.

Contrasting this with UpTake's Travel Industry Blog " PhoCusWright 2009 Travel Innovation Summit" . In this blog entry Elliott Ng's one of the founders of UpTake goes into great detail about many of the presenters highlighting their innovation and value to the industry. Granted UpTake is truly a Travel 2.0 star pioneering semantic search and adding value to the planning process. But both Elliott and Yen Lee the other founder of UpTake have spent many frustrating years at traditional companies trying to drive innovation in their travel offering, and founded UpTake to truly implement their vision of a better travel search approach.

In my career I have worked at large and small companies. Innovation at large companies often require a "skunk" project. This is an initiative not necessarily supported by senior management but driven by individual groups who drive the innovation. This was truly the case with Amadeus IT and thus end product results were very impressive. I do agree that small companies often innovate at a faster pace than traditional players, but often lack the funds and management experience to execute. Innovation is the key in driving improved interfaces and processes in the travel industry. The PhoCusWright Travel Innovation Summit is an essential place to monitor and track this innovation.

Ancillary Airline Revenue and Fare Families

Over the last few weeks I have given a number of keynote presentations to a variety of airline groups. These audiences covered the entire spectrum of airline types: legacy, LCCs , and 2nd & 3rd tier airlines with speeches in the US and Europe. The airline executives were a mix of e-commerce, revenue managers and IT executives dependent on the conference sponsor. I spoke about emerging technology trends including mobile, semantic search, personalization, social networking and meta-search.
I began each presentation with a discussion of ancillary revenue showing how the carriers have profited greatly by charging fees for baggage, meals, and other services. I used this cartoon to emphasis that from a customer viewpoint these are fees for formerly free services. I have no doubt that the airline executives are well aware of this fact, but with the fever pitch around the value of ancillary revenue particularly in this tough market, the perspective of the customer is often lost.
I received a more surprising reaction regarding the subject of fare families (branded fares). Online search whether through an OTA or Meta-search company, yields a logo and price worsening the move towards commoditization. Every airline is concerned that their product is perceived as a commodity, but few are embracing fare families.
I am old enough to remember earlier LCCs attempts at market dominance with carriers such as People's Express and Texas Air disappearing after a few years of heavy fare matching by the legacy carriers. Of course today's success of LCCs is powered by direct distribution through the Internet and thus is flourishing in every corner of the world. The simple fact is that LCCs are not going away and are actually increasing in numbers and market share. It is my opinion that fare families are the best means for traditional carriers as well as high value LCCs (e.g. JetBlue, Virgin America) to compete beyond price. As I pointed out in my presentation, every part of the distribution travel value chain will be impacted by the introduction of fare families, but despite these challenges, I am hopeful the concept will take hold. One important aspect of the shopping process that would need to change for both OTAs and Meta-search, is the ability through mouse-overs or other similar UI techniques, to provide the fare family advantage to the customer at the point of sale. See Frontierairlines.com as an example. What I envision is that a customer goes on an OTA or Meta-search site, gets back the same fare from both a LCC and a legacy or high value LCC and when the consumer mouses over that quote, the option of paying a bit more to include services such as baggage, seat assignments, access to on board entertainment systems, meals, on board Wi-Fi, and other emerging services at different family price points. It is my belief this will be the only way airlines can truly compete against the LCCs by promoting a differentiated product fighting the trend towards commoditization.

Global View

I am writing from Cannes, France where I gave a speech this morning on emerging technology trends that impact airline e-commerce. I represented PhoCusWright at the conference and I was able to draw on some great stats and trends from a number of PhoCusWright research pieces. This speech was for the Amadeus' airline e-commerce conference. Last week I was in Los Cabos, Mexico giving another speech for the Amadeus' LATM corporate travel leaders symposium. Tomorrow through Monday I am taking some time off and my wife who traveled with me to Southern France and I will explore the French Riviera.

I wanted to write briefly about the global perspective I have gained over the last 12 months. My work in Kuwait had me traveling to the Middle East once a month for the last year. Often I stopped in Europe on the return trip to either attend a conference or meet with a client. I have worked in Europe with different travel IT and software companies many who deal with airline customers. The Kuwaiti engagement tapped my corporate travel technology and leisure distribution experience.

There are a couple of points which all markets have in common:
1) Every segment of the travel value chain worldwide is under pressure from low cost competition. Whether its LCCs for the airlines, alternative or direct distribution for the GDS, or online competition for the TMCs, every sector needs to drive greater efficiency to lower costs.
2) Mobile technology is beginning to emerge as a major new battleground where traditional suppliers and distributors are being challenged by innovation from new market entries.
3) Airline Fare Families and the airline focus on ancillary revenue is here to stay. This is good news for the airlines who are really suffering. Fare families creates a more logical relationship between services and price.
4) Local Carries are a global phenomenon that is driving consumers in emerging markets online
5) Corporate travel trends are the same globally, the differences are around the level of maturity in the market. Latin America is a particular challenge as major airlines have pulled inventory out of the GDS in markets such as Brazil.
6) The global economy is beginning to rebound with travel increasing, but premium travel is still not near the levels from 2007.

I feel blessed that I have the opportunity to travel to such diverse places in the world and help a variety of customers market, build or purchase travel technology.

Convergence

The pace of mobile convergence continues to accelerate. A camera is now a common feature on mobile phones. Smartphones have gone further with integration of PDA and MP3 player functionality. Tom Tom is now available as an downloadable application on the iPhone signaling the convergence of Personal Navigation Devices (PNDs) with smartphones. Gaming is already immensely popular on smartphones cutting into the portable gaming market. Mobile payments are still limited to specific regions of the world. In Japan, mobile payments have been a standard feature for some time and mobile micro payments for public transportation is emerging especially in developing countries.

"According to Inside Facebook, the social network is working with mobile payments provider Zong on a test allowing a small number of users to sample the mobile payment option in its virtual gift shop". Social networking is already a major activity on smartphones so Facebook's test with Zong is a significant development towards the mobile wallet.

So what does this all mean for the travel industry? The bottom line is this: labeling the device in the frequent travelers' pocket as a phone is not only naive but misses the true opportunity for innovation that can enhance the travel experience.
If you want to learn more, please join me next week for a Webinar through PhoCusWright. Details are below.

Smartphone Market Share Influences Download versus Mobile Web Debate

In a recent article from Media Post a software application developer from Istanbul, Turkey attending a conference in San Jose, California, voiced his opinion that the US does not understand the importance of the Mobile Web. This article reminded me of the panel discussion I moderated at the PhoCusWright @ITB conference in Berlin earlier this year where the subject of downloadable applications was debated against the advantage of the Mobile Web with a panel of European mobile travel experts. During that discussion a common argument in favor of the Mobile Web approach was the ability to have the application available on all devices with a mobile Web browser. On the side of downloadable apps, the ability to use the GPS location capability and ability to balance the processing load between the network and device were common arguments for the downloadable app approach. Given the explosion of app stores from device manufactures and wireless network providers , it is clear that the downloadable approach has been recognized as an important channel for application delivery. So given this debate, what is the right approach for travel companies who want to build and deploy mobile apps?

The answer lies in the recent 2nd quarter market share numbers published by Canalys. Here is the worldwide smartphone adoption numbers:
From a global perspective the growth of Apple's iPhone is phenomenal. But the true insight comes from the individual regional market share.

Clearly in the US market RIM and Apple dominate the smartphone market.


Contrast this with the EMEA market share












Now compare this with the numbers for Asia Pacific:

As you see Apple and RIM do not even qualify for their own category and are grouped into Other.
The simple conclusion is this:
1) Clearly smartphones are a growing category.
2) Areas of the world dominated by Nokia have not felt the true impact of the smartphone adoption.
3) Travel companies need to understand the specific smartphone adoption market share percentages for their clients when planning a mobile strategy.
On a long term basis as recently voiced by Google, browser-based applications may dominant, but for the short term (3-5 years), downloadable apps will be the most logical path. Keep in mind that smartphone penetration is much greater for frequent travelers who are early adopters of smartphones. Developing applications for the leading smartphone devices: RIM, iPhone and perhaps Windows Mobile is the most logical path to follow. Nokia's recent announcement concerning their new relationship with Microsoft is an obvious attempt by both companies to fight the growth of RIM and iPhone.

Innovation in Online Travel

The general media is a buzz with stories about the lack of innovation of the major OTAs. A recent Forrester Report which shows consumers' frustration with online travel planning and booking is cited. The report stated that many consumers are fed up with the complicated process of planning and booking travel online. Part of this frustration concerns added fees, what we like to label in the travel industry as ancillary revenue. The article points to a resurgence of bookings through traditional travel agents.
From a different angle a recent VentureWire report states that VCs are funding start-up travel sites such as Oyster and LeiusreLink. This article further reinforced the concept that there is a lack of innovation from the four large OTAs (Expedia, Travelocity, Orbitz and Priceline).
Both media articles site lack of innovation, but both draw different conclusions. The Forrester research is being cast in the light of a return to traditional travel agents while the VentureWire WSJ blog points to an opportunity of new start-ups. So what is happening with online travel? Are the OTAs on a path to their own demise? Is online travel going to die based on the resurgence of traditional travel agencies?
In this era of sensational news reporting, dramatic statements forewarning the death of popular OTAs through renewed competition from traditional travel agents or new travel niche brands help sell papers (or in this day and ag, electronic articles). A key point missing in both these articles is a realization that the online travel market is at a mature level. Traditional, Crossing the Chasm analysis, points to multiple adopter segments.
By definition the late majority are conservatives. This market is naturally skeptical and thus resistant to change. The online travel market has reached the mainstream and thus includes many infrequent travelers who are not comfortable with booking travel online. Even the cliche quote by Henry Harteveldt " Could your mother-in-law use your Web site without having to call you for help?’ The answer is always no" is somewhat blind to the fact that my mother-in-law is an infrequent traveler, part of the late majority (actually she is more of a laggard) and thus has characteristics that are different from frequent travelers (who are often innovators, early adopters, and early pragmatists) who have grown accustomed to the online travel process.
Despite the generalities of these articles I do believe that greater innovation is needed from the OTAs to maintain their market position. Most of the start-up competition comes from niche plays such as Oyster (hotel reviews) or LeiusreLink (vacation rental). Innovation in travel planning is the focus of sites such as Uptake and Triporati. Whether it is true technology innovation or business innovation, carving out pieces of the all encompassing OTAs is a natural market evolution. OTAs will react to these niche start-ups if and when they see a direct correlation to revenue loss. For example when Expedia, Inc. recognized the importance of user generated hotel reviews it purchased TripAdvisor. Movement to traditional travel agents may be occurring, but it may be limited to specific segments and does not mean the death of OTAs. In various research I have conducted over the past few years interviewing traditional travel agents, all agents recognize that the OTAs are their direct competitors and customers often quote OTA prices during the selling conversation. As a result, agents use tools such as Agentware to search the Web for competitive fares.
I agree that OTAs are not a replacement for human beings (that is why each has deployed a call center for support), but for routine trips they do perform well. Quoting the appropriate ancillary fees is an industry problem that is being worked on by ARC, the GDS and the airlines to simplify the online quote process. No the OTAs are not in danger of extinction by niche players or traditional travel agents as all will co-exist with the consumer making the ultimate decision based on their comfort with technology and experience with the online process.

How a Single Vacation Experience Can Impact Loyalty

I generally do not blog about my own personal travel experiences, but I felt compelled to do so after my family's recent trip to Hawaii. To validate that I am indeed a frequent traveler, I am currently a UA Global Services member, a SPG Platinum and a Marriott Silver Elite. I have made 11 trips to the Middle East in the last 12 months and traveled to Amsterdam, Berlin and Dublin on the way back from some of these business trips.

In order to use free tickets on UA for my family, we extended our stay a few days before and one day after. We exchanged our Marriott timeshare in Lake Tahoe for a timeshare on Kauai. We stayed at the Sheraton Kauai for three nights and the Kauai Marriott for one night.

When I checked-in at a separate line for SPG members at the Sheraton Kauai, I was pleasantly surprised to learn that we had been upgraded to a corner suite which were three connecting rooms and three balconies. This is a picture from one of the balconies. This was a great start to our vacation and reinforced the Starwood brand.

Our Marriott Lake Tahoe timeshare is one of the most desirable timeshares on the market at the foot of Heavenly Ski resort overlooking Lake Tahoe. We were sold on the timeshare a few years back based on the superior level of the property and its value in exchange through Interval International. When we arrived at the Pono Kai we received no recognition (the property is managed by Blue Green) and though I had requested an ocean view, called two weeks prior to the property (on the advice of the property) to request it again, we were given a garden view. Overall the property was fine and we enjoyed our stay, but the lack of recognition and the lower quality of the property has made me question the value of our Lake Tahoe Marriott timeshare investment.

At the end of our trip we stayed at the Kauai Marriott. There was no special line for Elite member check-in. In addition, I had requested an upgrade and I was not aware that having done so, we would have to pay an additional $150 per room for the ocean view. An email came to me the day before checking in stating the $150 charge. I was disconnected during entire trip so I never saw this email. We were using points for the two rooms for a one night stay. When I asked to downgrade, I was told that no garden view rooms were available. We had to wait approximately 3 1/2 hours to check in and the room though newly renovated was only a partial ocean view and did not have any furniture on the patio to allow us to enjoy the expensive upgrade. The property is beautiful and the renovated room was very nice, but the lack of recognition and overall treatment has influenced my future travel booking behavior.

As a frequent unmanaged business traveler, I generally have complete choice on where I stay. I am currently working on two projects for the US Government which will involve lots of trips to the DC area over the next 2-3 years and I have consciously chosen to stay at Starwood properties as a direct result of my Kauai experiences. As a Global Services member, UA treats me great. The three nights in the luxury suite at the Sheraton Kauai has increased my loyalty to Starwood. Given the money we've invested in the timeshare and the number of nights I've stayed at Marriott this year, the lack of recognition and surprise charges dilutes any positive feeling I've had towards the brand. Overall it was a great vacation, but proved first hand how loyalty can be impacted by a single trip.