Online Travel – Non-stop Growth

Online travel is one of the early success cases of the Internet and it is still growing strongly. The research firm eMarketer estimates in a recent forecast that online travel sales will total more than USD 481 bn globally in 2015 (up 13% from 2014). Strong demand in Asia-Pacific and Latin America is driving these growth projections. Research firm PhocusWright provides an explanation: according to their findings, the online travel penetration in the industry is still low in these regions: 27% and 21% in Asia-Pacific and Latin America, respectively (2014). Compared to Europe and the U.S. with 44% there is still significant room for improvement.

Case study Brazil

One of these over-proportionally growing markets is Brazil. Despite of the current recession in the country, eMarketer estimates that online travel sector will grow by 14% to USD 12 bn this year. We would like to highlight the most disruptive trends in online travel industry by understanding Brazil’s ecosystem and its dynamics in detail.

Stryber Online Travel Ecosystem Brazil 2015

Online travel ecosystem Brazil 2015 (not exhaustive, hotel-focused), Notes:

  1. Meta search players do not have proprietary inventory as they are focused on providing a superior search experience across different websites’ inventory. Meta search experts Kayak (part of Priceline) and Skyscanner have entered the market in 2014. Recently, TripAdvisor and Google have started meta search offerings by integrating third-party inventory, too
  2. Online travel agencies (OTAs) do have direct relationships with destinations and can also offer partly exclusive inventory. The players in Brazil differ in their positioning in terms of inventory (e.g. urban vs. rural) and customer segments (e.g. business vs. leisure)
  3. Both, hotels and OTAs try to reduce their dependency on paid search and meta search players by building direct traffic. Supporting levers for this include brand awareness (for customer acquisition) and e-mail marketing (for customer retention – Criteo & PhocusWright show in a study from 2014 that 39% of leisure travelers in Brazil are subscribed to emails from hotels, >50% to emails from OTAs)
  4. Others include an array of different players from affiliates (e.g. travel blogs that participate in an OTA’s affiliate marketing program in return for a booking commission – for instance: booking.com) to flash sales websites (e.g. reselling packaged and heavily discounted travel experiences from OTAs or hotel websites – for instance: Groupon)

While the industry is transforming its sales volumes from offline to online, we can extract additional disruptive trends that could shape the market significantly for the next years:

  1. Increasing share of meta search players – with Kayak and Skyscanner only having recently entered the market, the full impact of meta search players has not played out yet. There is a risk that meta search players manage to occupy the start of the user journey and can capture significant value of the market (i.e. monetizing this position against the OTAs and hotel websites by charging heavily for traffic)
  2. Powerful meta search newbies Google and TripAdvisor – Google has 97% search engine market share in Brazil and TripAdvisor has been ranked #2 travel website for accommodation and destination in Brazil by Tnooz in 2013. Both have powerful positions to direct traffic to OTAs and hotel websites (which will not be for free, of course) and have just entered the market in 2015
  3. Short-term rentals attacking from the blind side – reinventing the market by unlocking a different class of inventory, players like AirBnB, AlugueTemporada (part of HomeAway) and Voltem (part of HotelUrbano) are providing private accommodation and are teasing the hotel websites and OTAs. For instance, AirBnB has won the bid for the 2016 summer Olympics and will provide 20,000 rooms over its platform

Global outlook

These disruptive forces hold true not only for Brazil but for most markets with significant online travel share. Apart from offline incumbents that are late to the game and can be found in each country, there are two large international groups that wrote the early Internet success cases and now find themselves to be challenged, too: Priceline Group and Expedia.

Both, Priceline Group and Expedia have a lengthy M&A history in order to cope with new business models and to foster international growth. For instance, both players have acquired meta search players in late 2012: Expedia took over Trivago and Priceline Group acquired Kayak. Unsurprisingly, Expedia has also recently made a move in short-term rentals with the take-over of HomeAway for USD 3.9 bn.

We expect the M&A moves to continue with most equity stories along these lines:

  1. Market expansion by targeting local OTAs in strongly growing markets (example moves in 2015: Expedia secured a minority share in Decolar, a major player in Latin America; Priceline took a minority share in HotelUrbano, a major player in Brazil)
  2. Innovation (and subsequently protection of core business) by targeting upcoming new business models (example move 2015: Expedia took over HomeAway; Priceline Group has not yet made a move in this direction – potential targets could be Wimdu or HouseTrip, both with significant venture capital funding)

The large groups also use a corporate venture capital approach to tip their toes into further business model innovation in core or adjacent markets, e.g. Expedia’s venture arm is invested in Room 77 (series C), which provides the technology of Google’s move into meta search, or Priceline Group investing in FlightCar’s series B – a marketplace that allows users to rent out their cars at the airport.

For startups in all the different markets remains the question whether there is a white spot in their local ecosystem. For instance, meta search growth does not seem to have reached a plateau yet: we see series A/B funding rounds for respective startups (air & hotel) even though there are established players in the market already. As short-term rental evolves, there are new opportunities for meta search with a focus on that inventory class, too – potentially in combination with classic hotel rooms.

Sources: eMarketer, PhocusWright, Tnooz, Reuters, Techcrunch, Skift, LAVCA; Photo credit: Flickr user PortoBay Hotels & Resorts

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