Likes & Launch

I was talking to an entrepreneur this week about fundraising plans for her business. I tried to encourage her, but also set expectations about building in a category that comes with a lot of investor baggage. I know because it’s one I built a business in too: travel. 

The travel industry has all of the makings of a great market. The last major innovation in flight planning planning is 10 years old when OTAs were fighting for eyeballs using tv commercials and SEO. Kayak was a huge success for organizing all of the information transparently in one place, but since being acquired in 2013, not much has changed. Even the mass adoption of mobile phones has had little impact in shaking up the incumbents. 

In 2012, the travel market was sized at $313 billion and has only grown with the addition of millions of new consumers online. There is a lot of potential in the market, so why aren’t more businesses being funded here? 

Trips, far off destinations and photos on beaches makes travel a fun industry to talk about. The product is something people like thinking about, vs say audit software, but it’s hard to grow a mass customer base. The challenges start with high costs for search, infrequency of purchase, large incumbents spending a lot on marketing, gaining customer mindshare, and division of business v. personal travel. It’s a hard industry to crack as scale, which has left many investors burned by investments in this space. 

Even trip-planning companies that have been successful in fundraising, haven’t had break-out growth. Hipmunk emerged as a contender to the traditional OTAs, but hasn’t found it’s breakaway growth even with $40M in investment. Gogobot raised $39M in funding but pales in comparison to TripAdvisor. 

Hipmunk vs. Kayak’s Alexa Ranking:

Gogobot vs. TripAdvisor’s Alexa Ranking: 

Growth for both of these companies is good, but it’s not likely enough to push those companies to a big exit for investors. The early and late money in those companies are still waiting for growth to set them up for an IPO or a large figure acquisition. 

Investors who’ve done travel deals in the past or are currently in one of these companies are likely more skeptical of the category than anyone. 

Yes, the consumer experience for planning a trip is still broken. Yes, there are ways to use data and UI improvements to fix these problems. Yes, there are opportunities in mobile. But no, no I’m not investing in travel. Even the smaller travel companies who have exited, they aren’t the 3x+ investors are looking for. The market is still out on what these companies are worth. 

So what will change investors minds? A good comp in the market helps. Yes, there are photo sharing apps that still get funded, largely because Instagram’s exit at $1B is a good comp. If you’re an investor who places a few small bets and one of them even has the potential to be worth $1B, that sounds like an attractive deal. Is that rational, no. Is that the way to make smart investments, likely not, but the facts add up. There is a market (and an exit strategy) for photo sharing apps. 

Travel doesn’t have that luxury, or at least not yet. 

The big company that may change people’s minds is AirBnB. Now AirBnB fits in the travel category of accommodations, but it’s business model is far from the average travel planning site. Instead of being a superior way to route customers to hotels, AirBnB is the new way to build hotels. They are utilizing real estate and the sharing company to compete with hotels, not just send traffic their way. So if they aren’t exactly a travel company, how does that help the sector? 

When AirBnB goes public, it creates a new player in the “travel industry acquisition” game. A Himpunk with a large valuation may be a small cost for AirBnB to better compete with OTAs earlier in the booking process. The tours, activities, and things to do component of Gogobot may fit into their extended hospitality services, and they could buy instead of build. If the largest players get acquired at large numbers, there will be a resurgence of interest from investors to find the next thing to disrupt the travel industry or sell to the incumbents who now feel threatened by AirBnB. 

AirBnB is not far from Kayak’s traffic:

The size of the travel industry will continue to attract entrepreneurs and investors, but it may take a few big exits to help former travel-investors to get back into the game. 

My advice for travel entrepreneurs, is to think about ways to serve specific markets, like the breakouts in the Indian and Brazilian markets; monetize early to rely less on investors; and serve a market need so well that people are willing to pay a lot of money for the service (not just affiliate fees). I’ll save my ideas on open opportunities for another post. 

Something to share?

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