A Zero-commission OTA for the activities sector - you must be nuts?

When I was deep in the Tours & Activities world running Urban Adventures, barely a week went by without a public or private decry of the “outrageous commissions” taken by the sector OTA’s from a tour operator. Nothing has changed since those days except the commissions have gone higher and conditions of working with the OTA’s have become more onerous. The weekly outcries are still there and they reach fever pitch around conferences like Arival.

Urban Adventures was a collaborative marketing business. Under a single brand we brought operators together from some 160 cities. It also had its own set of onerous conditions. It was for a very specific product type that was quite niche. It only had one operator per destination. There were rules around branding that didn’t come naturally to operators. It took a lot of training (time & money) to get each operator up to standard. All these factors are major inhibitors to scale. It also kind of worked (450,000 customers p.a.; zero SEM spend; 17% CAGR across 10 years). because a customer who experienced the type of travel offered, had the option to go again in another city they were travelling to.

Most tour operators are single/handful category (walking or food or bike or segway and so on) and single destination. Most travellers go to a destination once (yes of course there are also travellers who return to the same place every year - if that is your destination as an operator and you run on repeat customers, great, this article may not apply to you as fully). For the majority of operators, the customers they have standing in front of them at the end of the tour, that is the end. You will never see them again. There is no need to get them to sign up to your newsletter or follow your socials. You’ve won the destination battle against your local competitors - the customer is here. You have their money. If you’ve done a great job, you also have their trust. How then might you leverage that position to your FUTURE benefit? (Yes, if you have another tour they might like tomorrow, of course also mention that in your post tour messaging).

In 10,000 other destinations, 250,000 other operators are staring at their bunch of completed passengers with that same leverage. In THEIR group ARE your next customers. In your group, are theirs. How to make the exchange?

The first decision is as simple as deciding you want to make the exchange? Actually the answer to this is not very clear and perhaps this idea dies right here.

If setting about doing it, it requires some technology. For the sake of trust, it really needs to be a third party without any connection to any specific operator. Most importantly, this tech also needs both an immediate and long term consumer hook (more on that later).

To build the technology requires some capital. Recent advancements in technology mean actually it requires a lot less capital for the tech that say 5 or 10 years ago. Sam Altman talks a lot about the rise of the one person company using ai. This tech could sit in that basket? The point though is that it is not free. It has a cost but by having each participating operator pay a small amount each, it could basically be bootstrapped on the customer payments. This is more important that you think because what we are talking about here is a business model disruption of the OTA’s who are VC funded. This can’t be VC funded. No VC firm would ever let a business with the potential to take commissions, not take them (see the Trip Advisor example below)

For the operator, they are swapping their 25-30% commission per sale for a small fee. The small survey reaction to this when I ask around is “WHAT! NO WAY. WHY WOULD I PAY YOU. PROVE IT TO MEEEEEEEEEEE.” Builder beware, this is what you are up against. Again, this idea probably dies here.

Christian Watts talks about a fee based model as a tax and thinks it has to be merit/results based. Perhaps that is true. He knows the operator mindset better than most (but also charges a fee for his SaaS to this audience I think - so that is curious). Potentially a meta search model works here best (like Kayak or Trivago), because what I have in mind doesn’t actually touch the transaction. It lands the user on the operaors own site and then over to them. On the Linked In post on this subject, Douglas Quimby from Arival argues that only the best booking experience will win, but we see meta players like Kayak and Trivago doing just fine sending the booking elsewhere?

Watts is right though. Tour operators are a unique breed of entrepreneur. You don’t need any capital to start tour operating business. The only thing you are really betting with is opportunity cost. Barrier to entry is basically zero, so lots of people enter & run very lean (ie they build themselves a job). They are not inclined to invest in tech. They are also not natural collaborators. The success of Fare Harbor was built on the mould of - “We’ll do everything for you, you pay nothing. The only cost is post a direct sale.” That was a stunnigly successful pitch here.

The Trip Advisor example

In the early days of Trip Advisor, when they were still focussed on figuring out hotels, the almost accidentally stumbled into activities as something that also required a review. As a community, they actually got the travelling public to first lodge things they wanted to review. Operators could then “claim” their listing and start to make it look and sound better. It was sending them free traffic. Literally no cost and lots of it. It had meritorious base in that the best reviewed products sat at the top. Yes it could be gamed a bit and people gamed it but mostly if you got your legit customers to review you as a matter for course (and were actually good) you rose to the top. This shows a way, I guess, that a model can “prove it” first. Only problem is, when Trip Advisor did get around to figuring out activities (by purchasing Viator), it became the big ol’ bait & switch. Operators built the business by sending their customers there. Now they were being charged 25% to get the next lot back. Their previous top positions in rankings were ‘curated’ away to the back blocks of the site in the name of customer personalisation. It was now the Trip Advisor customer and if you want them, you have to pay. It’s a classic digitalisation playbook (hi Facebook!).

You can’t blame Trip Advisor. They are VC backed and ultimately anything following the VC route will squeeze every dollar out of whoever they can, to pay back that investment at the highest multiple possible. Post IPO, it just gets worse. No VC backed business can remain a zero commission OTA in travel. Shareholders won’t allow it. It is an obvious take they can have.

What we can learn from the Trip Advisor example is that distribution > product and the very best form of distribution is community. These are powerful learnings. If only the tour operators could form community around acquisition for one another. It requires a pay-it-forward midset.

To recap: between all the operators, they have every consumer of tours in front of them (100% of the market), often for hours where they are building trust. That customer is (generally) not buying from them again and they have won their local geographic competition by already having the sale. What mechanism therefore could they use to both immediately add value to this client (and get both uptake and further credit for themselves) that could then return other customers acquired by their fellow collaborative operators elsewhere. This is where I think ai can play its role.

The Hook

Anyone following the comments from Brian Chesky and Airbnb as to how they will utlise ai should be able to see the answer. Chesky is obsessed with the customer experience. He has said they will leverage the tech, not build their own foundational model. We have seen in the past what Chesky thinks is an 11 star experience. Now they have the opportunity to actually get a lot closer to delivering exactly that with ai. I fully expect to see a just-in-time recommednation engine that guides you through each day with a high level of personalisation, to make each moment of each day outstanding and have the bonus of getting the user back into the app multiple times per day (the holy grail of app use).

So?

This is the same methodology and approach I would advocate the tour operators collective to take as the initial value proposition to offer customers directly after a tour. Specifically I would suggest a message like “please leave us a review on <recommendationengine.app> and in return you will get the best recommendations for the rest of your day, the rest of your trip and the rest of your life.” The tech would then collect the user preferences both directly (via onboarding, static things like dietary etc) and ongoing via review responses and ratings on recommendations. It will involve natural language search and SGE style answers that throw up only the best solution to customer intent. When that comes to experiences it will be one operator’s product via a direct link to their site (just like the old Trip Advisor days). This IS the future, the question remaining is who will harness it for their own benefit. It makes little sense at the inidivual operator level because the customer is never returning. It only works communally.

Aside from the post tour acquisition tactic, there is nothing specifically in this tech that makes it specific to the tour industry. Hotel chains will have the same. As will airlines. But those versions will be getting their activity supply via GYG or Viator etc just making the incumbent OTA’s more powerful. There is no real upside to try and build that plumbing yourself and so operators can’t expect any relief there. The opposite in fact if they work directly with hotels now.

Only a Tour Operator native version would be looking after Tour Operators’ needs. 

Operators are uniquely placed to ensure the local recommendations in their area are the absolute best, so they could have a significant product advantage here too - but I don’t actually see that happening at scale. It’s an extra piece of work too few would do. There are other more efficient ways here.

People are people, so why should it be?
You and I should get along so awfully….

There is a great joke in ai circles that goes like this - the factory of the future will require only 1 person and a dog to run. The human is there to feed the dog. The dog is there to make sure the human doesn’t touch the machine. It’s funny because we don’t know for sure if it is actually going to be true or not. Except we do. Humans are always going to be catalyst for anything we do for humanity. We are also very good at getting in our own way of progress but often that is simply a choice. Either do, or don’t do (and complain I guess… ).

The only thing this model asks of the operator is:

• promote it post tour by switching the review conversation

• Make the micro investment to keep it out of VC hands

• Support it (loudly) in the tour operator community if you want industry wide change to the OTA model

To be honest, it seems to ask very little (which is crucial here). It counters all the restrictiveness of the Urban Adventures model whilst providing multiples on the upside. It has natural network effects built in. The more who join, the better it is and the more power that can be taken back. The redundant asset not in use here is the customer standing in front of you who is never coming back to you.

Community > Distribution > Product - it is the tour operator community who would need to come together here and definitively say they want this problem solved and are willing to do this bare minimum to solve it.

So will it happen? My crystal ball says, sadly no. This is exactly the bet the OTA’s are making, that operators will never organise themselves sufficiently to upset their business model. It is probably a safe bet. As a natural collaborator, this kills me.

TL:DR:

Acquisition: Tour Operators use the trust they’ve built with customers on tour to offer them a post tour value add

Product (Customer benefit): just-in-time recommendation engine for future travel decisions (where to eat/drink; what to do). Personalised to customer and conditions (time, weather). Push notification driven and with natural language search (type, voice).

Operator Benefit: only participating operators’ products are in the recommendation engine. Traffic sent directly to the operator site for booking. No commission on conversion. Best product for customer surfaced (best match → best reviewed → most customers supplied to network)

Business model: meta search model or monthly subscription to operator.