BTC's Position Paper

My apologies for being off the radar for a few weeks. I've been called back by the U.S. government (GSA eTravel project) to assist with a major software procurement. I can't go into much detail, but the solution has the potential to save some significant dollars (as in Billions) for the U.S. taxpayer.

I wanted to comment on the position paper published by the Business Travel Coalition (BTC) in April and which has acted as the organization's talking points concerning corporate buyer's view of the current changes in travel distribution. For those not familiar with BTC, the organization has been around for approximately 10-15 years. BTC's leader Kevin Mitchell is a well known advocate of corporate buyers. The BTC membership consists of some of the largest U.S. corporations. Mr. Mitchell came to prominence in the 1990s when he took center stage at a NBTA convention calling on the major U.S. airlines to abandon their frequent flyer programs due to their counter productive effect on corporate policy compliance.
BTC's latest stance has some valid points. There is no question the current distribution changes may have a negative impact on corporate buyers through additional fees and lack of total content. Where I disagree with Mr. Mitchell is BTC's complete dismissal of the issue of U.S. airline health. Over the last 4 years the major U.S. airlines have racked up more losses than all other prior years combined. During that same period we've seen consistent profits from the GDS and large TMCs. It is in the best interest of U.S. corporations to recognize the need of these airlines to cut costs through distribution so that they can remain profitable . The key point missed by BTC's position paper is the need for corporate buyers to gain control of the distribution of their travel expenses. Whether this involves traditional methods such as switching (or threatening to switch) GDS at a particular location(s) or working with the so called GNEs who have the ability to direct sourcing at a segment level, the key message has to be purchasing leverage. Alfred Kahn's (the Father of airline deregulation) comment at the NBTA conference in the 1990s regarding the airlines still applies: the definition of "yield management" is "you yield to my management". Rather than complaining about the evolutionary changes happening in distribution, BTC should be focused on educating their participants and corporate buyers in general on strategies to regain leverage in airline negotiations by controlling distribution.

Microsoft Live Labs Photosynth technology

Microsoft's Live Labs has introduced a new technology that synthesizes photos of a single destination from a variety of sources to provide an immersive experience for the user. Photo tagging is already a big part of Travel 2.0 and this technology has the potential to provide a travel shopper a true virtual experience of a destination by integrating photos taken by different people into a 3-D view of the location. By allowing travelers to experience a destination as part of the travel planning process, travel sites can utilize user generated content in a new way. I encourage you to check out the short video at http://labs.live.com/photosynth/video.html

BlackHistoryTours

For the last 8 months I've been working with BlackHistoryTours (BHT). The company was founded 6 years ago by Eric and Lisa Alboher. Since its creation, the primary focus has been on escorted bus tours for inner city youth to African American cultural sites. By creating tours around African American heritage sites (e.g. National Civil Rights Museum, the National Voting Rights Museum) BHT is using tourism to educate and inspire African American youth. In September, BHT will launch a new Website and booking capability (using EzRez) to position the company as a major African American travel portal for heritage travel. The National Trust defines cultural heritage tourism as "traveling to experience the places, artifacts and activities that authentically represent the stories and people of the past and present." According to the Travel Industry of America, 81% of the 146.4 million U.S. adults who took a trip of 50 miles or more away from home in the past year can be considered cultural tourists".

The nationwide launch of BlackHistoryTours (BHT) will serve as a model for a family of companies that will include other ethnic segments (e.g. HispanicHeritage Tours, HolocaustHistoryTours) all focused on cultural heritage tourism. The company is currently seeking additional investment. If you know of any potential investors please contact me at norm@traveltechnology.com

---

GDS contracts

I thought I'd chime in on the current industry focus regarding total access fees and the renegotiation of GDS contracts. I tend to look at this issue in a very black and white fashion:

• Financial incentives for travel agents (and TMCs) are going away. Whether this is the first step (e.g. Sabre, Galileo) or a complete elimination (Worldspan) of these payments, it is just a matter of time until these funds disappear
• No travel agent or TMC can depend on total content from a GDS no matter what happens with the remaining hold outs (e.g. AA and Sabre, DL and Worldspan)
• Larger TMCs have already implemented technology (e.g. CWT's Symphonie, Amex's TravelBahn) to aggregate content. Second tier TMCs and below need to lean on their consortium to find a solution to this aggregation problem
• The Air Canada Tango issue is only the tip of the iceberg of the coming changes in how airline inventory is distributed. With all due respect to BTC, I am not hopeful that a negotiated solution to this issue will be reached.

At the end of the day the bottom line is that the airlines are continuing to bleed and the intermediaries and in some cases corporate customers will ultimately have to pay the price.

HP's "Memory Spots"

Yesterday HP announced a new "inexpensive, wireless, battery-free microchip that can store documents, audio files or video clips. The memory spots are similar in some ways to the more simplistic radio-frequency identification tags. But they are far smarter and more secure: They can store more than 250 times as much data as RFID, transmit data more than 20 times faster and encrypt it, sidestepping many of the privacy concerns over RFID tags." This new technology has significant implications for the travel industry. In the Mercury News article the reporter describes the new microchip as "an electronic Post-it note" that can store" dozen of pages of text, a 15-second video clip or other data" and that the results can be viewed on a screen of a cell phone that's waved in front of the chip, doing away with the need for a computer or Internet connection." This technology will be a crucial step towards what Howard Rheingold has described in his book Smart Mobs as "sentient things". The ability for anyone to annotate a physical location such as a restaurant, hotel or guided tours, places social networking into our every day lives. For example, I was on vacation the other week in Monterey California and my wife and I took a whale site seeing tour. Unfortunately during the 3 hour cruise we saw only two whales for about 4 seconds. If this tour company had memory spot at its offices I could have looked at reviews of this tour from other travelers and probably would have learned that whale sightings was rare that week. Now take that same line of thinking and expand it out to other travel spots such as hotels and restaurants and you can quickly see how HP's new memory spot technology will radically change our travel experience. The new technology is 2-5 years away from mass production, but has the potential to permanently change the way we interact with the physical world.

ITA Software's Focus

The travel press have been playing up ITA Software's recent announcement with Air Canada as a sign that the GNEs have been unsuccessful in their quest to replace the GDS. Again I must reiterate a theme from my prior blog entries: this shift in distribution is not about us verses them (GNE verses GDS) but about the ever increasing likelihood that a single GDS will lack total travel content. Why is ITA focusing on airline automation? The answer is very simple. The majority of airlines still run their reservation platform as a partition of a GDS and thus some of the same inflexibility that exists in the GDS mainframe infrastructure also exists in the airline reservation systems. The underlying message here is that airlines want control over their distribution platform and there is no better way to seize control than to implement an entirely new airline reservation platform that is independent of the GDS. I've known for some time that this has been a main focus of ITA and thus the announcement was not surprising. Airlines want to control the level of fare inventory through different channels. It is this underlying desire which will likely increase the level of fragmentation in the market. Despite all the flurry of GDS announcements regarding their new airline contracts, no single GDS has signed all the major carriers. In addition, as details of the distribution deals surface it is likely that some of the travel agents may opt-out of the deal limiting their ability to gather complete content. The major TMCs (American Express, CWT, BCD) have already built (Amex TravelBahn, CWT Symphonie) or are in the process of building (BCD Project Renaissance) their own internal systems to aggregate content. At the end of the day the need for a GNE (with a focus on 2nd tier TMCs) will be more important as a tool to aggregate content across GDS as it will be for direct connection inventory. Both G2 Swtichworks and Farelogix recognize this and each has promoted this capability. By the end of this year, some of the smoke will clear giving us a clearer picture of who has what inventory and at what price. Who pays for this access is still unknown as TMCs will struggle on whether to pass on this cost their corporate customers. The bottom line is that fragmentation is here to stay. This will not only impact the corporate market, but the leisure market as well.

Reuters Interview

Last week I was again interviewed by Kyle Peterson of Reuters. The article entitled : "Internet Travel Agencies Losing Some Luster" talked about the drop in stock price of the leading OTAs (Expedia, Orbitz and Travelocity). My comments were primarily directed at the underlying technology and UI of these large players and the fact that there has been little innovation in the way consumers interact with OTAs in the last four years. With the emergence of Travel 2.0, the OTAs are starting to look like old school players. Their ability to embrace and integrate other sources of planning content is at the heart of my comments that OTAs "need to think of more creative ways for people to take advantage of all these new sources of information". Most OTAs seem content to simply continue to push a model of a single stop shop. Finding a way to benefit from new Travel 2.0 trends such as vertical search, mash-ups, user generated travel blogs, picture tagging and collaborative planning tools is an essential evolutionary step for the OTAs.

JetBlue Wins Air-Ground Wireless License

JetBlue pioneered Direct satellite TV services and now seems poised to offer Internet and new phone services on board with the successful winning bid on Air-Ground wireless license announced on Saturday. For some time I and others have been talking about U-Commerce (ubiquitous connectivity). The idea of the always connected consumer is quickly becoming the reality and it is nice to see JetBlue lead this innovation. Of course wireless Internet is nothing new as Boeing's Connexion has been deployed on long haul international routes for some time. Every segment of the travel industry needs to start planning today for the U-Commerce wave developing applications and strategies that assist the leisure and business traveler while they are in transit.

Virtual Tours

I am very lucky to have part of my family (my cousin) Marc A. Smith who is a research sociologist with Microsoft. Now rather than going off on the implications of Microsoft employing a sociologist, I instead wanted to share with you part of our conversation we had last week. Marc has been very accurate with predictions over the last 15 years. While he was getting his PhD. from UCLA he worked as a contractor with Microsoft developing a virtual world using avatars. The project was dropped by Microsoft, but we see evidence of this approach with environments such as Second Life. Also while completing his studies at UCLA, Marc created a product called Netscan, which analyzes the social trends of news groups. These are just a few things Marc has predicted, so when he provides me guidance, I listen carefully. During our conversation last week, Marc commented about how virtual tourism will play a major factor in travel planning for the future. Whether it's Google Earth, Windows Live Local, Amazon's A9 Maps or geo-coded pictures from Flicker, Marc believes that in the near term (3-5 years), Web surfers will be able to get a ground level view of a destination and take a virtual walking or driving tour. I am not saying that this immersive experience will replace travel, but by virtually experiencing a destination through ground level photos and videos, the planning of travel will permanently change.

The Death of Travel Agents?

On April 17th, 2006 the American Society of Travel Agents released a summary of a new Technology and Marketing Report which showed that the traditional travel professional spends an average of 17 hours per week on the Web searching on behalf of their clients. As part of my effort with the Fetch collaborative travel planning tool, I've done presentations and demos with many of the major travel consortium as well as leaders in the online travel world. Since the launch of the OTAs (Expedia, Travelocity, Orbitz) the mainstream media has helped foster the idea that traditional travel agents are a dying breed. As a analyst and consultant over the last 11 years, I have been involved with a number projects for more traditional travel companies, helping them develop holistic technology strategies. As a result I believe the role the offline agent plays in complex travel planning is still essential. I wanted to use this opportunity to start some dialogue within the industry on this subject. So what do you think? Are the pundits who envision a completely automated travel process correct, or is there still value in the professional travel agent? Obviously I have some strong opinions on this subject and I would have to admit part of my view is driven by what I believe is a an opportunity for the Fetch travel tool to bridge the gap between the consumer and agent Web search. May ask you comments on the subject?

Update on Fetch Technologies Spin-off

I wanted to provide my readers an update on my efforts with Fetch Technologies and the "Travelsmart" (actual name TBD) tool. As I mentioned in an earlier blog entry, the Travelsmart tool allows consumers to collect, organize and share travel planning and booking content across all major travel Websites. Recently the last capability of sharing has been expanded to emphasize the collaborative travel planning and search capabilities of the product. The growth of user generated content is increasing the importance of a collaborative travel planning tool that combines the search efforts of the traveler, their spouse, friends and relatives (whether traveling with the traveler or providing advice based on past experiences with a destination) as well the role of the professional travel or call center support agent. Let's remember that Google does not work without a human driving the search. Travelsmart combines multiple parties efforts in planning and booking elements of a trip through a collaborative search process. We have a functional demo of the product that I've presented to over 30 travel industry executives. Overall the reaction has been very positive. Our short term strategy is to fund the completion of the development through distribution partners and angel funding. If your interested in seeing a Travelsmart demo please contact me at norm@traveltechnology.com

Excellent Article on Web 2.0

I would suggest my readers check out this article by Tim O'Reilly. Though it is a bit dated (09/30/2005) it does a great job of describing Web 2.0. Mr. O'Reilly's detailed analysis of the changes a foot in content and design is at he heart of new Web pages by Yahoo! (go to the new design page). Online travel has a long way to go to truly capture the Web 2.0 movement. The key themes need to be collaboration, user generated content and aggregation of multiple sources of data. Most of the major sites have not changed in any radical way to address this trend and thus have opened the door for new applications that harness these Web 2.0 capabilities.

New Mobile article on GDX

As most of you know in addition to my own consulting practice I work as an analyst for PhoCusWright. I recently completed a GDX article on "Using Mobile Location-Based Services to Enhance the Travel Experience". The article discusses an evolving, more open mobile architecture which can enable travel companies to work more actively with the telecom carriers to deploy travel specific location based services. Here's the Abstract:

As wireless communication becomes ubiquitous, a new opportunity is emerging to deliver highly personalized services to mobile users. One of the most powerful ways to personalize mobile services is to provide applications that are based on location. Since the late 1990s, the travel industry has experimented with mobile applications with minimal success. Recent changes in the underlying infrastructure for mobile application delivery is enabling a new way to deploy location-based services(LBS), providing travel companies the ability to deploy mobile applications that can be targeted at the leisure and business traveler. By the very nature of travel, early adopters of mobile applications such as LBS are often frequent travelers. Despite this fact, LBS applications that specifically target travelers have been slow to emerge in the market. With rapid adoption of smart phone technology and the increasing availability of higher speed wireless networks, the ability for travel suppliers and intermediaries to communicate with their frequent customers while on the road has never been greater. The mobile phone has emerged as the primary device for traveler communication. This Spotlight examines how LBS are created and provides insight into how they will and should impact travel e-commerce.

Air Canada and Alternative Distribution

Early this week Air Canada announced that no-frills Tango fares would be available exclusively through AirCanada.com, not through any of the GDS. This announcement is very significant in terms of the evolving world of travel distribution as well as the ongoing debate of GDS vs GNE. From a supplier's perspective distribution must provide low cost (something very clear to everyone in the industry) but also added value. In prior blog entries I discussed the need for airlines to implement channel management strategies which provide different pricing to different channels. I also have voiced my opinion over the last 2 years, the GDS vs GNE debate is not only about price, but also about the underlying technology. Air Canada is offering discounts of $8 one way or $16 roundtrip on Tango fares if travelers "opt out" of checking bags or changing their itineraries. The bottom line is that the GDS cannot handles this type of creative pricing based on customer preferences. Thus we've now witnessed a concrete example of how the legacy GDS environment is incapable of flexible pricing that matches creative channel distribution. I anticipate a lot more innovative pricing to emerge over the next two years exposing some of the inflexibility of the primarily mainframe-based GDS and demonstrating the true value of the GNEs. I am hopeful that the GDS will continue to offload functions from their mainframe to lower costs and provide a more flexible server technology, but until the core passenger name record (PNR) is de-coupled from the transaction system, true customer specific pricing will not be possible.

User Generated Content - Web 2.0

In recent PhoCusWright FYI pieces written by Cathy Schetzina, Direction of Information Services and Bob Offutt, Technology Analyst as well as an earlier piece written by John Bray, Vice President of Advisory Services, the authors describe a second generation Web 2.0 environment based on user generated content. I am in complete agreement with my colleagues at PhoCusWright on this issue and wanted point out a specific example on how user generated content can be tied to geo coding. Cathy and Bob mention Flickr tags in their article, but did not specifically highlight the Geo Coding aspect of these tags. If you go to http://www.flickr.com/photos/tags you can get a list of all time most popular tags. Immediately one will note the fact that top cities such as Amsterdam, Chicago and London show up on this list. Integrating this digital content, reviews from both online review sites such as Trip Advisor and IgoUgo as well as blogs, and other user generated rants and raves, highlights the need to find a way to filter this content and validate the input. Reputation systems that rate content based on the reputation created by the author is one way to sort through the ever increasing user input. Another idea is using constraint engine technology allowing the user to filter not only end user content, but all content based on a set of constraints defined by the user is another technology to consider. More on this technology in future blog entries.

The Line Between Self-Promotion and User Generated Content

Southwest Airlines has launched a blog as part of their Web strategy. This is an interesting example of how companies are trying to use newer forms of community generated content to help position their product. Southwest which has always tried to differentiate itself by its "happy" employees, is using the Blog to allow pilots, flight attendants, airport employees and management to express a point of view. Will other travel suppliers also create their own blogs? The biggest fear of any supplier is that the vocal minority of angry customers will take over the blog and thus cause some bad PR. This concern is justified, but overlooks the fact that the Web has already enabled dissatisfied customers to voice their opinions (e.g. Trip Advisor, IgoUgo). As consumer generated content becomes more ingrained into the buying process, providing an outlet for consumers through a supplier generated blog begins to make more sense, if it truly empowers consumers to have a direct dialog with management. If the blob ends up being simply a PR mechanism, it will have limited impact on shaping the consumer opinion and could ultimately anger consumers who want to express their views.

CWT and Navigant

Today another chapter was written in the restructuring of the travel industry with the dual announcements from CWT concerning the acquisition of TQ3 Navigant and the buyout of the Accor share of CWT by One Equity Partners. Was this really unexpected? Accor clearly signaled that they wanted to sell their half of CWT last month. Most pundits believed it would be very difficult for Navigant to re-create the TQ3 international presence. So clearly this should not be a surprise to anyone. The press has for years characterized CWT as a #2 to Amex's #1 position. To maintain this, (and perhaps go after Amex) CWT needed to continue to grow and acquisition was the most logical path. The next shoe to drop will concern Cendant and who ends up with Travelport. The interesting part of many of the deals of recent years is the role private equity has played with major acquisitions (e.g Worldspan, Amadeus, CWT and most likely Cendant). Private equity is looking for immediate returns and all four of these companies are profitable with solid ongoing income. Private equity is also funding the GNEs (e.g. ITA Software, G2, Farelogix). So who's right, the funding on traditional players or the embracing of new distribution platforms? Time will be the final judge. I would venture to speculate that ten years from now there will five players in the distribution game (3 GDS and 2 GNEs) and they will look very much alike. On the TMC front today's announcements means more pressure on 2nd tier TMCs and their associated consortium (e.g. Radius) or partnerships (GET) forcing them to prove that their model works and is able to compete against the new mega - mega TMCs.

Convergence and Behavioral Advertising

Back in the early days (1995) of the Internet (and my consulting practice as well) there was a lot of press devoted to the convergence of TV, the Web, and mobile communication. Today, the vision of U-commerce is slowly becoming a reality as the always connected consumer who is able to transact on multiple devices is emerging before our eyes. With travel being a top e-commerce category as well as a major online advertiser, our industry is in the midst of this permanent change in consumer behavior. As consumers are empowered to control content and the method for transactions, more personalized advertising is needed. Will behavioral advertising emerge as a mainstream vehicle to reach the new empowered consumer? There are mixed views on this subject. Some feel that former spyware companies such as Claria haven't really changed their ways and continue to load unwanted software on your computer. Obviously the VC community does not share this belief as Claria has recently received $40 Million in new financing. To better understand this subject, one has to look at what is happening in mainstream advertising. The advent of Tivo and other DVRs have a significant segment of the population skipping over traditional media advertising. TV shows are being released on the Web for nominal fees on i-Tunes without advertising or will soon be released for free by Disney, but with a technology that prevents the consumer from skipping over commercials. On Tivo you can selectively view ads that are suggested based on your viewing habits. Similar to the pitch by contextual Web advertising companies such as Claria or WhenU, Tivo clearly states in its privacy policy that it does not share specific consumer tracking behavior, but instead looks at aggregate behavior to understand overall trends and specific sub-markets. It is from this aggregate behavior, ads are targeted based on groups of consumers who have similar viewing habits. On the Web, intelligent agents capture surfing behavior and then position ads to match the subject you are investigating. Barry Diller's IAC recently announced a tool called Pronto which provides competitive offers to the consumer based on the products they are researching, another example of this trend. Overall I believe we are at the beginning of a new type of relationship between buyer and seller where advertising plays a more targeted role to purchase decisions allowing the consumer to learn about products and buy those products from a variety of devices.

ITM Study on SBT in Europe

A recent study by the Institute for Travel Management, a UK based organization that focuses on corporate travel, highlighted the disconnect between pundit predictions on the adoption of self-booking tools (SBTs) and feedback from members on a recent poll. The conclusions drawn from this survey emphasized the gap between the expectations of buyers and the actual adoption as well as the disconnect with their TMCs. Based on recent research I conducted that will shortly be published by PhoCusWright, I understand the reason for this response, but differ in my opinion on why buyers voiced these concerns. Overall Europe is at a different evolutionary stage of SBT deployment. The UK and Nordic regions are the most advanced in SBT selection and deployment, but overall the market is still below 20% adoption for corporate self-booking tools. The US experienced similar disappointment and lack of TMC integration when SBT became the major trend in 2000. A good portion of the problem with TMC relationships lies in the second tier TMCs who don't fully support self-booking viewing it as competitor to their standard services. The European market is now moving quickly to come up to speed with online corporate technology and thus it is my opinion that these issues will begin to fade as more companies embrace online channels and more 2nd TMCs come to the conclusion that Self-booking is a critical part of the travel management process.

Google Travel speculation

Some media outlets picked up as news speculation in Russell Shaw's Znet blog that Google intends to enter the travel booking market and partner with Orbitz. This story demonstrates a number of interesting trends. First how a blog can generate a "news story". The basis for Mr. Shaw's speculation concerns a job posting for a "Senior Account Executive Travel Vertical". I am amazed that Mr. Shaw would draw broad conclusions from this job posting considering the fact that Google has had similar postings on the Web for the last two years. This job posting is nothing more than an advertisement for a sales representative to target potential travel advertisers based in Chicago. To take this job listing and speculate that Google will now enter the travel reservation business with Orbitz is not only a wild jump in logic, but demonstrates how educated tech writers are not necessarily educated in the nuances of the travel industry. Don't get me wrong, I do suspect that Google is considering some sort of travel vertical initiative, but to use this job posting as evidence shows that the writer lacks an understanding of Google's current travel industry positioning. I would more accurately speculate that when Google does make its move into the travel industry it will leverage its core search capabilities to drill deep into travel Web sites, allowing more effective comparative shopping. A more logical observation from Mr. Shaw should have concerned the Google capability to search multiple travel sites when you enter a city pair (e.g. San Francisco New York) into the search engine. This feature was introduced in 2005, something Mr. Shaw doesn't even mention in his blog.