FORT LAUDERDALE, Florida—Where venture capital and private-equity investors are choosing to place their bets can reveal a lot about important technology trends in the travel space.
At the PhoCusWright Conference in November, a panel of executives from an array of global capital investment firms outlined three trends they see as both short- and long-term indicators of where travel, and the hotel space in particular, is headed.
Hugh Crean, entrepreneur in residence for General Catalyst Partners, which identifies and invests in travel technology startups about midway through the capital-raising process, pointed to 1) mobile, 2) metasearch and 3) alternative accommodations as disruptors where technology companies can capitalize.
Crean said each area has room for true innovation. To stand out, companies need to bring new ideas to the marketplace.
“Don’t get into the wake of these big huge behemoths,” he suggested. “You’ve got to do something different that breaks out.
“A feature is not a business,” Crean continued. “Additional functionality on the same model is unlikely to break through.”
Sean Seton-Rogers, general partner at investment firm PROfounders Capital, said the travel sector always offers opportunities for new innovation.
“Think back three years ago and no one mentioned Airbnb or alternative accommodation,” he said. “In the last three years that space has grown 1,000 (times) or so.”
However, Seton-Rogers said if startup companies want to revolutionize these spaces, they should do it quickly because the “big guys” like Expedia and Priceline.com already are making moves.
“The big guys innovate very quickly relative to other sectors because they’re usually pretty young companies—10 to 15 years old at the most,” he said.
Mark Mahaney, managing director of Internet research for RBC Capital Markets, said it’s “remarkable” what online travel companies have been able to do during the past decade. He expects the growth to continue.
For example, Priceline.com’s stock grew from $10 per share to $1,000 per share in less than 10 years under former CEO Jeff Boyd’s leadership.
“I’ve never seen that in my 15 years of Wall Street experience and probably never will see it again,” Mahaney said. “They’ve grown hotel roomnights almost 50% year over year for eight years.”
He said while that growth rate is not sustainable, 30% to 40% growth rates each year are not out of the question.
“If you look at their numbers, they sell for their hotel partners about two rooms per hotel, per day,” Mahaney said. “So they have only about 10% penetration.”
Identifying the opportunities
Jake Fuller, senior VP of research for FBR Capital Markets, said metasearch was a big topic a couple of years ago, disappeared for a few years, but is now back in a big way, as evidenced by the increasing popularity of sites like Hipmunk, Room77 and even Google’s flight and hotel search tools.
Recent acquisitions of Kayak by Priceline and Trivago by Expedia also underscore the importance of metasearch on the future of online travel, panelists said.
“The key thing we’re looking for is an engaging consumer experience,” Seton-Rogers said of evaluating start-up meta players. “Is the company doing something that customers love? Because if customers love it they come back and tell their friends.”
Mobile, Mahaney said, is creating a new growth engine for many of the big online travel companies.
“Same-day bookings, next-day bookings, as consumers change the way they interact with the Internet—as they’re willing to make these last-second bookings—those are bookings OTAs in the past were never able to tap into. Now they do,” he said.
Crean said mobile is not another distribution channel for hoteliers and online marketers but rather a new platform.
“You have to think about this as a shift. It’s all going there,” he said. “If you’re in consumer and you’re starting a business right now, (you should be) thinking not mobile first, but mobile only.
“Build for the smaller screen first and then you can accommodate the other screens,” Crean continued. “This is where the world is going and it’s not going back. If you’re not there you better get there.”
He said there are unique characteristics in mobile that don’t exist in Web, features such as maps and payments.
“You can really create an exceptional experience,” he said.
Francesco De Mojana, partner with Europe-based Permira Advisers, said mobile is a prime opportunity because it is growing in global regions even faster than in the United States.
“It will change dramatically the landscape in terms of customer acquisition,” he said. “It will clearly change the rules of the game once the adoption is widespread.”
In addition, the consumer popularity of alternative accommodations, such as renting residential spaces instead of hotel rooms, offer substantial growth opportunities for established companies and newcomers, panelists said.
The combination of mobile and alternative accommodation sites change travelers “from tourists into locals,” Seton-Rogers said.
“That sort of experience has never been possible before. You go from being a visitor with a guidebook to living like a local, really seeing what the locals are doing,” he said. “That is a big change—people are moving from going to the zoo to look to being in with the lions.”