IAC Losses May Bode Ill for Travel Sites
17 Feb 2005
E-commerce giant IAC blamed its $49 million quarterly loss on performance of its travel sites, which include Hotels.com and Expedia. Dismissing the results as temporary setbacks, IAC intends to go ahead with plans to split up its diverse e-commerce holdings into two different companies, one focusing on travel. But analysts note that the poor performance among those sites may portend a longer-term problem where internet travel shoppers have been increasingly attracted directly to hotel and airline sites to do their booking.
Here’s my take:
This latest news item touches on an interesting issue in the still fast growing online travel industry, the threat to online agencies. It should come as no surprise to anyone aware of how the web influences how business is conducted, that intermediaries of any kind will be endangered species unless they provide high added value to justify their existence.
Today’s online travel intermediaries, having been largely in place for the past six or seven years at most, benefited from their position as market innovators and early entrants in what used to be a very fragmented industry. Suppliers, by and large, missed the boat and the first wave of web based businesses had pretty much a free ride. Combined with the business downturn post dot.com bubble and then caused by the aftermath of 9/11 these companies further benefited from the suppliers’ willingness to offer inventory at extremely low prices.
How fast things change! Today most major suppliers, airlines, hotels and car rental companies, start to add value to their own websites by offering online travelers to book other elements of their trip directly on their own sites. The more this trend becomes widespread, the harder it is for intermediaries, even large ones, to achieve strong growth, unless they add new value to their own proposition. As long as the whole online travel space is dominated by extreme price focus and almost complete price transparency – enhanced by the new metasearch market entrants – margins will remain squeezed.
The way out? Creative added value, ease of purchase, brand trust, are a few success elements for intermediaries. A one-stop shopping experience for the entire vacation trip at a perceived and real competitive price, well understood and accepted by the potential client is another. Why should it be otherwise? The off-line, airline ticket order taker of old has largely disappeared, why should the online equivalent survive?