Last week I attended Travel Tech Israel 2016 conference in Tel Aviv: a unique event that brought together travel start-ups, large industry players and venture investors. Here I want to share with you the insights from investors’ panel – if you run a travel start-up or have a “next big idea”, this summary is for you.
B2C model – The Loyalty Problem
The good news is that tourism is a huge industry worldwide. It generates 10% of global GDP and create 1 of every 11 jobs worldwide.
The bad news is that tourism is not an easy place for start-ups. Large players like hotel chains, airlines, online travel agencies (OTAs) like Priceline.com, Expedia, Booking.com, etc., are squeezing the value from the supply chain. The investors’ consensus is that “nothing can beat the existing ecosystem unless something revolutionary happens”. Overall, B2C segment is viewed by investors as a “death zone”.
The main problem in selling travel-related services directly to individuals is low customer loyalty – the customer switches from you to your competitor in a blink of an eye, if the latter offers a better price or extra features. This results in very high customer acquisition costs. In fact, every single sale should cover the costs for customer acquisition. Look for business models allowing large one-off transactions (e.g., premium or group packages) to cover customer acquisition costs. Example: WeTrip, a platform for group booking of activity packages for football matches, skiing and biking tours.