Sabre and G2 Collaboration

Travel Weekly reported today that Sabre is exploring possible collaboration with G2 SwitchWorks. This is based on a comment made by Sabre CEO Sam Gilliland in response to a question from a Sabre employee on December 12th. Texas Pacific Group one of the private equity companies that purchased Sabre also holds a 20% stake in G2 Switchworks. What does all this mean? This could be a good test on whether the equity buyout truly impacts Sabre's strategic direction. Some pundits have voiced their view that the equity buyout will free up Sabre from the constraints of public ownership allowing the company to innovate. Another camp, looks at the acquisition as a short term cash cow for the new owners, who will likely seek to reduce costs at Sabre while positioning the company for a future sale. Remember that private equity's primary interest is bringing a good return back to its investors. If Sabre does pursue a relationship with G2, this would be a sign that the traditional "not invented here" philosophy is changing. G2 has been struggling to differentiate itself in light of the new GDS/airline agreements. How could the two really work together? If G2 continues to position their solution as an aggregation tool a layer above the GDS it would not be in Sabre's best interest to partner with a company who is essentially eliminating their traditional single source GDS model. On the other hand where the aggregation point lies is not as important as who owns middleware. G2 could benefit if Sabre where to endorse the G2 travel agent point of sale tool and help distribute it to the large Sabre subscriber base. This is an interesting story to watch as we enter the new era of private equity owned GDS.

Sabre and Private Equity Buyouts

The announcement today that two private equity firms are buying out Sabre is part of a bigger trend. Over the last two years, investors have been putting billions of dollars in private equity firms. Recently private equity has bought out firms with such well known brands as Clear Channel, Readers Digest, Eddie Bauer, Burger King, Hertz, Domino's Pizza and AMC Entertainment. What is behind this trend? There are two camps of thought. The first highlights the benefit of removing a company such as Sabre from public scrutiny where financial details are required to be shared as a publicly traded company. The other view of this trend is a bit more skeptical. One needs to remember that the private equity buyouts are intended to provide a profit for the equity investors. This is often realized when these buyout companies are in turn sold. The first step the equity owners take is to cut expenses at these companies. Often, private equity firms borrow money to buy a company and then keeps on borrowing. The private equity firms can borrow the money in the company's name and then can keep the money themselves. This saddles the company with the debt while the private equity firms continue to siphon money out of these companies. This is all fine and well as long as the company continues to bring in a substantial cash flow, but if things change the heavy debt could be a problem. So which scenario drove the Sabre deal? When private equity offers an acquisition price above the current stock price, companies such as Sabre have no choice but to accept the offer as the short term benefit to shareholders is clear. As with the Blackstone buyout of Travelport and the subsequent purchase of Worldspan the jury is still out on whether this will truly be good for the travel industry. My concern is that with the focus of private equity in cutting costs, the new owners of Sabre, Galileo and Worldspan may decide to eliminate needed R&D and slow the process of moving off legacy mainframe technology to more open systems.

TRX buys Hi-Mark

Today's announcement by TRX on the acquisition of Hi-Mark marks a significant step in the area of corporate travel data management. Over the last 6-7 years Hi-Mark has successfully marketed their data management solution to many large corporate buyers. Despite this success, Hi-Mark's position in the market is strongest with second tier TMCs and corporate buyers. By acquiring Hi-Mark, TRX expands their reach to the mid to lower part of the market. TRX's DATATRAX is an extremely robust platform with a price tag only affordable to the high end of the market. With this acquisition TRX not only expands its reach, but eliminates a major competitor. It is clear that corporate travel data management is still a wide open market, particularly as procurement takes a more active role in travel management.

Travelport Worldspan merger

After years of speculation, today's announcement of the merger between Travelport and Worldspan came as no great shock to anyone in the industry. The only surprising aspect of the deal is the lack of a competitive offer from Amadeus. As far as a fit, Amadeus and Worldspan would have been more complementary. Travelport has been suffering pre and post the Blackstone acquisition from an inability to easily integrate disparate entities and systems such as eBookers, Gulliver's and Galileo. The task of integrating Worldspan and Galileo is huge, and most likely will result in the Worldspan platform and brand fading from the marketplace. The biggest winner in this transaction is Rakesh Gangwal, whose golden parachute from the transaction is substantial. Considering his missteps at both USAir and Worldspan, his multi-million dollar payout seems unjust, but clearly reflects the benefit to Worldspan's stockholders not the industry at large. During his time at the helm at Worldspan, Gangwal saw the errors of his continued support of the "Worldspan inside" strategy with the loss of business from Expedia , Priceline and Orbitz. Worldspan's insistence to "stay the course" in regards to not launching their own online retail brand was a key factor in their demise. With executive compensation not reflecting actual performance, no wonder the traditional players in the industry are unable to anticipate the next wave of technology disruption.

Amadues introduces Meta Pricer

Amadeus introduced a new technology service this week called Meta Pricer. The service "allows airlines to optimise marketing and distribution reach by making cost-efficient use of travel search engines". This is a clear effort to re-insert the GDS into the travel booking value chain in an era of increased fragmentation of content. There is no doubt that there is some benefit to suppliers on reducing hits on their Websites from site scrapping technology. In an era of disintermediation, this major distributor is trying to diversify beyond segment revenue and add value in a new way. Interesting move, let's see if airlines who have successfully dintermediated Amadeus by negotiating deals with meta search engines (SideStep, Kayak, Mobissimo) would be willing to add another layer in their distribution strategy in order to reduce automated hits on their sites. Kayak has implemented an alternate strategy using ITA software to calculate fares (with a cache of availability from a GDS) limiting the query to booking only. If more meta-search vendors adopt this strategy, the opportunity for Amadeus will be further diminished.

Nile Project Personalized Trip Planning

This week I met with Josh Steinitz, CEO of a new start-up called the Nile Project. The Nile Project uses personalization techniques enabling the consumer to create a more customized tour of a city. The consumer explicitly choosers an area of interest, then by using Ajax, the Nile project presents the consumer a limited number of preferences related to those interest. The application uses an Ajax slider (chose a value within a range) allowing the consumer to rate an attribute on a scale (e.g. cost from budget to most expensive). These than act as dynamic filters that present content that meets a consumer's requirements. Additionally the site acts as an aggregator of ratings from other sites (e.g Trip Advisor, Travelpost). As with other Travel 2.0 sites, trips can be shared with friend, relatives and travel companions. Once the itinerary is set, the Nile Project creates a customized itinerary in a PDF file so the consumer can take it along with them on the trip. The Nile Project represents a great example on how personalization can filter content to drive a more customized travel planning experience.

Recap of PhoCusWright Executive Conference 06

It has been my pleasure to be associated with PhoCusWright over the last 7 years. I met Philip Wolf in the late 1980s and I have always repected Philip's ability to understand emerging trends and push the industry towards a more user centric approach to online and offline travel. I have been attending Philip's conference since its inception. Each year Philip and his team strive to provide an innovative approach to conference execution and this year was no exception. With a theme "Travel 2.0 Confronts the Establishment" the PhoCusWright team again pushed the envelope by breaking down the barrier between conference content and networking opportunities. Each attendee was able to listen to the on stage content through a wireless ear bud while still interacting with tradeshow participants. I applaud the PhoCusWright team for another successful innovative conference.

VC Forum panel at PhoCusWright

The VC panel this morning echoed a theme I have heard a lot over the last 8 months: VCs will only invest in online travel companies that have already established customers and revenue. The important thing to remember is that the true disruptors in the online travel market where not funded by VCs. Expedia was an incubator at Microsoft, Travelocity was launched with funding by Sabre and Orbitz was founded by the airlines. History teaches us that VCs are not very good at understanding the next online travel trend and with the current climate most will likely miss the next disruptive application

Corporate Travel Panel

Listening to the corporate travel panel, it is very clear that these executives don't get it. Travel 2.0 means disruption. This panel is still sticking to the same themes they've used for years.

OTA panel at PhoCusWright

Wow, listening to Expedia, Travelocity, Orbitz and Priceline reinforces the fact that they are really the legacy online players. Nothing new from the panel and a characterization of Travel 2.0 as "tools" misses the fragmented nature of the every increasing number of new travel sites. Will Expedia et al be able to capture the Facebook/My Space generation?

Live from PhoCusWright

I am listening to the opening panel at this year's PhoCusWright Executive Conference. The Wall Street panel seems to be missing the Travel 2.0 wave by labeling the new move to social networks and other Travel 2.0 brands as not worthy of investment and incapable of stand-alone success. The attitude expressed seems to be missing the next disruptive impact of true Travel 2.0 apps. I am not surprised that this panel is blind to the shift as they all cover the traditional 1.0 companies that has gone public, who in general also are not understanding the latest trend.This group probably ignored Google's growth in the early 2000's because the "search area" was already established. There is a tidal wave a foot and Wall Street is still focusing on traditional 1.0 companies, what a shame.

See You in Hollywood!

A little later today I will be off to the PhoCusWright Executive Conference in Hollywood. As an PhoCusWright analyst , I will be blogging both on the PCWI blog site and on this blog as well. With the focus on Travel 2.0, this year's conference promises to be packed with lots of announcements, engaging presentations and controversy -
o Are Travel 1.0 companies ready to embrace Travel 2.0?
o With the recent buzz about Web 3.0 ( the semantic Web), how will that impact this week's discussions?
o What new alliances will be announced at the conference?
I will keep you posted.

See you in Hollywood!

The Consumer as the Ultimate Aggregator

Much has been written about the changing travel distribution landscape. The four GDS have been forced to lower their fees in exchange for "full content" agreements with the airlines. A closer look at these agreements reveals loopholes regarding special promotional fares. Recently there has been some rumbling from the major hotel chains about going direct. TMC platforms such as TravelBahn (Amex) and Symphonie (CWT) are being promoted as the ultimate solution for total content. GNEs have emerged as viable aggregators and alternate distribution platforms.

Within this context, old models continue to be the dominant theme as the traditional distribution players promote their definition of total content. A key point missed by this familiar discussion concerns the very nature of the Internet itself. So let me ask, how many travel Websites are there on the Web? What percentage of these sites have content in a single system? This facetious comment does have a point. There is no limit on content on the Internet. One might argue that there are a limited number of airlines, hotels and car rental companies so therefore there is a limit on the number of potential content sources. That may be true, but once you add new Travel 2.0 sites that promote user generated content, predictive modeling or mash-ups of fares and maps, the true nature of content is revealed. I believe that no single system will ever have total travel content. Ultimately it is the consumer who acts as the ultimate aggregator. The continued discussion which paints content as finite, misses the very nature of the Internet. Travel 2.0 will be followed by Travel 3.0, 4.0 and beyond. The way we think about online travel may be radically different within 10 years. Let's abandon the archaic notion of total content access and recognize that the travel industry has been permanently changed by the Web. Expecting any one source whether GDS, OTA or GNE to have full content is not only outdated, but ignores the very nature of the Web. At the end of the day it is the consumer who decides the relevance of content sources.

Using the Virtual World for Real World Business

Second Life is a virtual world where you can explore and interact with other online players. Initially Second Life was similar to other online multi-player games where an avatar representing your real or desired self can teleport to anywhere in the virtual world. Second Life gained additional prominence when it was featured on the cover of the May 20th Business Week. In last 6 months Second Life has attracted more traditional corporate entities. Last month my former employer, Sun Microsystems held a press conference in Second Life. Howard Rheingold author of such visionary books such as Smart Mobs, recently gave a talk in Second Life.

The travel industry has also made their mark in this new virtual world. "Starwood, owner of the chic W brand as well as the Westin and Sheraton chains, became the first real-world hospitality company to open in Second Life, and joins a growing list of other companies who are using the online world to build their brand name, test products, or simply sell merchandise (albeit digital merchandise). You can't check into aloft, Starwood's new line of moderately priced, loft-style hotels, until the first quarter of 2008. Since September , you can wander into the lobby of its digital version inside the popular online world of Second Life."

How else could real world travel companies use this virtual world? By definition, your avatar is constantly traveling, though teleportation is much faster and does not cost any money verses an airline ticket in the real world. Who provides a guide for exploring Second Life? The search functionality can be used to pinpoint particular places of interest, but what if a large travel agency developed enough knowledge of the virtual world to create tours? This is only one example. Given the recent corporate focus on Second Life the travel industry needs to pay close attention this virtually world as a way to promote their brand and provide services at a fee.

Loki - A new twist on Location Based Services

Traditionally, most software developers think of GPS or A-GPS as the preferred technology to pinpoint your location and deliver relevant content related to that location. Loki an application developed by Skyhook Wireless, uses the ubiquitousness of Wi-Fi networks to determine your location. Between the movement to provide wireless connectivity throughout a city (e.g. San Francisco, Philadelphia) and the integration of Wi-fi into portable devices (e.g. smartphones), the ability to use Wi-Fi to deliver location based services (LBS) has become a reality. In a recent article on LBS I authored for the PhoCusWright's GDX subscription service, I talked about the "walled garden" that exists at the wireless carriers which inhibits the advancement of broad distribution of applications. Despite the fact that the wireless carriers are gradually dismantling their "walled garden", companies such as Verizon and Cingular still make it difficult for travel software developers to use their network to deliver services that are specifically targeted to the business or leisure traveler.

Why is this important for the travel industry? The business and leisure traveler are by their very nature the best target for LBS. Business Travelers often are the early adopters of new technology. By enabling location identification through Wi-Fi access points, the traveler can benefit from a whole host of services. These may range from identifying restaurants in their immediate area to locating family members at a resort or theme park. These services can help suppliers and intermediaries bond with their customers while they are on their trip enhancing the travel experience and reinforcing the supplier or intermediary's brand.

Skyhook Wireless has recently opened up their API to allow software developers the ability to create location based applications on top of the Loki application. I encourage travel software companies to take a good look at Loki. Here is a link to a CNET video which describes the Loki service.

An Automated Travel Assistant

Every since I first viewed the historic Knowledge Navigator video produced by John Scully CEO of Apple in the late 1980's, I have believed that an intelligent assistant would truly be a killer app for the travel industry. As originally envisioned, Knowledge Navigator was going to be a tablet, the size of an opened magazine, and would have very sophisticated artificial intelligence. The machine would anticipate your needs and act on them. The Apple Newton was the first generation of these types of tools, but as anyone familiar with technology knows, the Newton was a resounding failure. (Though Palm a few years later did make PDAs a reality).

I have been involved with various AI scientists since the mid 1980s while I was still at United Airlines. A friend (the husband of one of my wife's bridesmaids) worked for a company called MAD Intelligent Systems here in Silicon Valley. Steve and I would spend hours talking about how to apply AI to the travel industry. Sadly Steve passed away in the late 1980s dying of leukemia at the young age of 35. Steve inspired me to continue to explore the possibilities of AI in the travel space.

We are now in the future (certainly in 1980s terms) and AI applications have been used in a variety every day activities. Examples include control, planning and scheduling, the ability to answer diagnostic and consumer questions, handwriting, speech, and facial recognition.

Over the years I have worked with a variety of clients who have tried to use optimization technology, constraint engines and other pieces of AI software to improve the travel process. Disruptive technology such as the Orbitz fare matrix was built by the AI scientists at ITA Software. My partners at Fetch Technologies represent some of the brightest minds in AI today. Once we are funded I plan to use AI techniques to fulfill the dream first described in John Scully's video. The creation of a master itinerary will allow us to run background queries to search for better fares, rates, and travel research items based on consumer preferences. In the early 1990s TMCs touted their mid-office software (such as TRX's CoRRex) as a quality control tool and as a way to search for better fares and seats against the GDS inventory. We are now in a much more fragmented, Web-based environment and the ability to use AI "agents" to perform similar tasks against Web information is not only possible, but can truly change the travel shopping experience.

Fetch Collaborative travel planning tool

I wanted to provide you an update on my efforts to launch a new company based on the extraction applications from Fetch Technologies. As a reminder, through the use of a Web browser plug-in, the application will allow the consumer to Collect, Organize and Share travel planning, research, shopping and purchases across all the major travel Websites. Travel Tech Consulting, Inc. and Fetch Technologies will be the founders of this new company (name TBD). Fetch will have a minority equity position in exchange for a perpetual license of their patent-pending "As U Browse" technology. The new company will own the source code and have field of use exclusivity (travel industry vertical). The new company will be based in the San Francisco Bay area.

I am currently in discussions with a number of VCs and Angel investors who are considering investing in the new start-up. I also have begun my search for potential employees who have experience in the online travel industry and are interested in participating in this new venture. If you know of someone who would be interested in either investing or joining our team, please email me at norm@traveltechnology.com.

Web 2.0 - Travel 2.0

The buzz about Web 2.0 and as a subset Travel 2.0, continues to get stronger. The flow of investment money into new start-ups in this area has been growing every month. As my readers know, I am always on the look out for emerging technology, not just for the "cool" factor, but with an eye on how it may change the underlying business practices in the travel industry. So apart from all the buzz words (social networking, mash-ups, user generated content) what does Travel 2.0 really mean to the underlying economics of the travel industry?

Any new wave of technology is often misunderstood upon its initial entry into the market, particularly on how it changes the economics of the business. That being said, a common cycle always occurs in respect to new waves of technology driven changes. The now hackney phrase of a "paradigm shift", still has an important underlying lesson that is still often overlooked: No dominant player in any market can simply rest on its laurels ignoring, or bad mouthing new technology driven by Travel 2.0 initiatives, while continuing to march at a snails pace in regards to innovation. For travel planning, the number of choices to shop fares, read travel blogs or search for packages has never been greater. The underlying message of Travel 2.0 should be setting off alarms at any Travel 1.0 company or application. This is true for the online travel market in both the consumer and corporate space. In fact, the corporate travel industry suffers from a long history of ignoring overall travel technology trends, suddenly to be awakened by their economic impact. In this sense the incumbent OTA giants (Expedia, Orbitz, Travelocity and Priceline) as well as the corporate online booking players (GetThere, Cliqbook, eTravel) must embrace new ways of thinking and if not risk being swept away by a new consumer driven trends. The economic impact of these changes is unknown, but the near term effect of an expanding universe of choices is clear: the old model where a single site or application can provide all information and comparative shopping capabilities for users is fading fast (if it every existed at all!). How can these single silo sites and applications embrace this new world? The first step is acknowledging the fact of the limitations of the single source concept, while seeking out partnerships that help bring the company's offering into more of a holistic solution.

AA/Sabre Deal, A big sigh of relief?

The last minute agreement reached between AA and Sabre has many in the corporate travel world breathing a sigh of relief. I fear that TMCs and corporate customers will quickly return to a state of complacency regarding the radical underlying changes happening in travel distribution. Yes this agreement avoids the additional imposed fees, but by its nature the new agreement also reduces the amount of "financial assistance" available to TMCs and corporations (provided there was a pass through). Anyone who believes that this announcement means the end of the content issue between suppliers, distributors and customers, is being blind to the fact that a major restructuring is underway in travel distribution. As I have stated in previous blog entries, the issue is one of control over distribution. The desire of airlines to dynamically price their inventory in different channels still exists. The work of companies such as ITA Software and Datalex to change the underlying systems used by airlines is providing a new opportunity for channel management. I encourage all parties in the corporate (and leisure) value chain to be wary of any message like "mission accomplished". The story is not over yet.

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.