Drew Patterson Interview - Jetsetter CEO talks to the BOOT

I have re-read the Tnooz predictions for 2010 to confirm but as best I can tell none of the online travel punderati mentioned online private sale companies in their predictions for 'what's hot 2010'. But if the buzz around Jetsetter, Voyage Prive, Kayak Private Sale and more is anything to go by then clearly we should have. After I wrote a post on Tnooz called "Non-transactional travel sites are chasing the online agents on unique product hunting" I decided to do some more investigating into this area. From that I had a chance to talk last week with Jetsetter CEO and ex-Kayaker Drew Patterson.

As a reminder, Jetsetter offers a selected list of limited time deals at high end travel product to a member only list. To get on the member list you have to be referred by another member.

My view on the business model is that it is interesting, exciting but niche. Has the potential to carve a luxury/targeted space in the online world (like Abercrombie & Kent have done offline). But it is not right to view this move as an "OTA killer". Much like boutique clothing stores have a place in the market but will never beat malls in terms of turnover and scale.

Priceline's Jeff Boyd seems to agree with me. He is quoted in a Dennis Schaal Tnooz post as saying that it believes it is "hard to see how they [private sale companies] will scale".

The clothing analogy is particularly apt case of Jetsetter as they are an offshoot of high end fashion private sale company Gilt. Jetsetter appears to be more than a division of Gilt but an independent but related company. Patterson put it this way "Gilt has capitalised Jetsetter". As well as money, Gilt has set up an "intercompany agreement regarding access to customers".

A number of benefits come from the Gilt relationship for Jetsetter. Firstly they get an insta-database of high end customers (Patterson says more than 1 million). Next they have insta-funding in that they (presumably) are getting their funding from Gilt via the $43mm raised from General Atlantic and Matrix Partners. Finally there would be some technology synergies in Gilt providing Jetsetter with insta-merchandising through a common content management architecture.

These point towards solving a lot of the distribution and establishment challenges that face a travel start-up. Leaving Patterson and team to focus on getting product/supply on the shelves.

Patterson has a clear cut vision for his supply strategy. He is not out to replicate the OTAs with the need to manage "10,000 partner, many with low volumes. We much prefer to focus on 8-9 live sales 0n the site." Hotel selection has to be very tight and controlled according to Patterson. They use a combination of "editorial judgement" from a "group of people from within the industry" and post- stay survey responses from members. Patterson says that the survey response result in partners being discarded and new ones selected.

He stuck to the consistent line that I saw in the TravelTrends post on Jetsetter of not disclosing the margins that are being charged to hotels. He confirms that it is not the standard 20-25% of the OTAs but is "more than healthy enough to run a business". It matches his Gilt customer base to target a limited number of high end products. With a focus as much on descriptions and content as rate.

The spot that Patterson and Jetsetter are targeting has parallels with some of my EveryYou posts and discussions on how to help consumers answer open ended questions in online travel search.

He sees editorial content as the key to helping consumers to discover and book high end product. Wants to be compared to publication and information sources Daily Candy and Urban Daddy rather than shopping sites. To be a "lifestyle publication as much as a travel company". He believes that "Consumers want an editor to help point them in the right direction." To be provided with "a sense of what is interesting in the world of travel. What places to go to . What is distinctive." Jetsetter what their role to be to tell "a very different story to 'here are deals in vegas'" that is market of the OTAs. He did not give much away on performance but did say that traffic in Feb 2010 was 40% up on Jan which was 40% up on Dec. With "revenue per member holding constant".

Patterson and Jetsetter have spent time and energy thinking through the business. They have money, a targeted niche and a customer base. All point towards potential success. To get to success I see two challenges for them to address.

Challenge 1 - turning retail customers into travel customers

The bad experiences of Amazon, eBay and Pricegrabber in travel have shown that that a retail database does not translate easily to travel sales. Patterson's view on this is that there is "enough congruence in the basic business model and customers" between Gilt and Jetsetter to provide Jetsetter with an advantage. That the high end product seeking customers of Gilt will transition from buying expensive clothes to expensive holidays.

Challenge 2 - generating scale (in sales and data)

The first of these (scale in sales) is not that big a deal. While targeted sales will never be as big as mass market, there is plenty of money to be made trying to be the Abercrombie and Kent of online travel. High per booking values make revenue per transaction healthy and customers can be very loyal. Keeping supply numbers tight means that per hotel volume should be high enough to keep suppliers interested. However scale in data could be more challenging. As I discuss in a number of my EveryYou posts the future of online travel is not just making targeted recommendations, it is adjusting those recommendations based on the different 'version' of the traveller that is making a request at a particular time. One person can be many different travellers depending on the trip (ie business travel vs leisure v VFR). To do that you need lots of data on a customer. More than I suspect you get in the tight supply context of Jetsetter. To move to a more powerful recommendation architecture will require Jetsetter to tap into other sources of data from Gilt and other places.

The biggest asset that Jetsetter has to overcome these challenges is the 1 million member Gilt database to start things off.

Steve Sherlock of Oodles: the search for funding and the deal with Wotif that almost happened

car rental search site Oodles is part meta-search, part travel agent and part loyal program deal search site. The classic meta-search part is the ability for consumers to search multiple sites in one go. The travel agent part is that Oodles collects commission on paid bookings (when customer pays car company) not on a per click meta-search basis. The interesting loyalty program part is that if you give your Airline or Car frequent flyer number to Oodles, then they will add to the search results specialist loyalty program deals. Means that a person who is both a Velocity frequent flyer (Virgin Blue), Qantas Frequent Flyer and Hertz Gold Club member will see an integrated display including special deals from Europcar (Virgin partner), Avis (Qantas) and Hertz as well as other deals from Thrifty. This is a great and - as far as I can tell - a unique offering in car rental and meta-search generally.

I was talking about Oodles today with Founder and MD Steve Sherlock. Steve and Oodles are in the middle of a search for a new round of funding. In a true web 2.0 fashion Steve is blogging his way through the experience in series of "diary of an entrepreneur raising capital" entries over at the anthill website. Included is a story about how Oodles was almost acquired by Australian online travel giant Wotif.com. It is an interesting series of diary notes and a recommended read.

I like the different angle that Oodles has taken from others. Allows consumers to see a display of a combination of inventory (loyalty program discounted and regular) that I have not seen on any other online travel site. Oodles already have the car rental traffic lead in Australia so appear to be executing well. The challenge for them is the constant start-up problem in Australia - finding the funding to continue to feed the growth.

Interview with Joobili boss Jared Salter - Part 2 - timed search, refinement and turnips

This is part 2 of my interview with Jared Salter, CEO of time based travel discovery and inspiration company Joobili (pictured here to the right of Joobili Co-founder Tamas Gabor). In Part 1 we discussed the founding of the company including raising money in Budapest with just a powerpoint presentation. In this part Jared and I talk functionality, discovery and inspiration online and turnips.

BOOT: Your site starts of with a time based search rather than destination based search. You need a lot of data to provide consumers with information on every event and activity around the world. Where do you get the data from and how do you plan to get more?

Jared from Joobili: We started off by creating it in house with a team of writers scouring the web, collecting events and writing up. We needed to do this to get us started, however clearly there is a scalability issue with approach. Now we are partnering with local tourism offices to access their content. In this area there is a big advantage is being in Europe. We now have deals with 12 or13 European national tourist offices, 25 regional tourism boards and 75 plus local promoters. They have joined us Joobili pro members. We give them a back end to upload and manage events.

BOOT: Where are you in the evolution of the product?

Jared from Joobili: Very early. We only became visible to Google in the last month as we were so focused on the front end. I am not worried about this as I feel this is pretty common with start ups.

BOOT: A challenge with a discovery and inspiration site is to decide how to balance up front searching and refinement. How much to you request from the consumer before a search is conducted versus how much to you move the consumer information collection to the post search refinement stage. I could not help but notice that in a random search I have just conducted for Nov 11-18, the number one recommended event is the Raben-Chilibi Turnip Festival in Richterswil Switzerland. Clearly I will need to refine this search for there to be valuable information (not that I have anything against the Swiss or Turnips). How did you balance asking for information upfront versus refinement?

Jared from Joobili: It was a big internal debate and am not sure we have found the answer yet. We made the decision to err on the side of simplicity by having only a date search at the beginning. You might seem more filters on the front page in later versions but for launch we erred on simplicity with just time search up-front.

We will need a much need larger content base before pushing the filter angle and profiling. Paraphrasing TripAdvisor’s Marc Charron– when it comes to profiling “rather than figuring out who you are, it is about figuring out when you are”. Completely agree with your EveryYou idea. We are saying to the customer – “tell us when you are and then filter who you are”.

BOOT: Another challenge for a discovery and inspiration site is building customer loyalty. Getting the customer to use the product more than once. How have you through about the challenge of customer retention?

Jared from Joobili: According to Google, the online travel research process is 29 days from inspiration to book. Therefore we are planning to introduce a save search parameter. We know you want to go on holiday on a certain date – so we will let you save that search. We can then provide email notification any time a new event is added to the database. Or eventually build a recommendation engine based on that search parameter.

The next part will be integrating price into the results through partnerships with other sites. One other trend is that price is no longer the sole motivator as discounting becomes permanent. For example we have been working with Wizz air [Low cost carrier in Europe]. They offer a 50 euro flight to Rome. It is always 50 Euro. There is not longer an urgency around the discount or low price because they always a low price. Therefore Wizz need to match the cheap flight with time sensitive inspiration to build in a sense of urgency. Price is an extremely motivator for travel behaviour but it is becoming not enough to drive urgency in consumer behaviour.

BOOT: What else in online travel has you excited?

Jared from Joobili: I am so focused on the discovery space that I have not thought about other areas. Everyone is talking mobile and Augmented Reality which is going to going to be great and interesting. But there are fundamental issues with online travel that we have not yet figured out and discovery is one of them

BOOT: How radical do you think the change will be in how we search and book travel online? Are the big four Online Travel Agents facing the same sort of radical change and industry shift that the offline agents faced in the 1990s and if they are not careful the OTAs could be in real danger?

Jarend from Joobili This period of change is not exactly the same [as the 1990s early 2000s were for offline]. The big OTAs will not be the innovators in the industry but have such a controlling part of the pie. Joobili can innovate the discovery process but need the big guys to make the booking. We hope we generate more interest in the discovery stage.

This will be more than just about content – as consumers have to know what you are searching for. All of these sites are throwing in content for SEO benefits but still asking consumer to type in what they want. Is not about the content it is the interface or experience to help the consumer to discover something new.

My take and summary

I enjoyed this chat with Jared. Not least of which because it was good to get a European perspective on the travel discovery market. Joobili is still in seed stage so we need to be a little bit forgiving on the “turnip” result but it highlights that there is a lot of data collection and back end refinement/recommendation work that Joobili needs to do before the product is ready for any dramatic marketing investment. I think Jared knows this. For more on the challenges in starting a content company see my 3 rules for starting a UGC business.

Part 1 of the interview is here.

801 not out

Another 100 posts are live on the InterTubes. Time again for my regular "not out series" recap where I go through the last 100 posts and remind you of the themes that have been dominating the blog. I started almost three years ago with 101 not out and continued with 201, 301, 401, 501. 601, and 701 not out. This comes at a time that the BOOT passed the 100k visitor mark.

Two new segments for the Blog

• Seat Reviews including Qantas Economy, Qantas Premium Economy, JAL Business, BA Business, Singapore Raffles and United Business ; and
  
• Business traveller tips - what to pack, what to wear and getting through security.

Meta search action a-plenty which I tried to summarise in my post "Meta-search vs Online Travel Agents: the three main differences and why they matter"

• TripAdvisor launching air meta-search and received criticism (including from me) for allowing too many reviews from non-travellers
  
• Travelzoo launching Fly.com
• Kayak branching into content and review meta-search through expanded Travelpost
• Yahoo! went the other way and euthenased FareChase
• Cheapflights launched in Australia with a sub-par product
• Car meta-search company Oodles topped the car traffic numbers in Australia
• Sidestep founders came back with the oddly named Voyij
  

While also having time for Travel Discovery and Inspiration sites such as:

• event based search site Joobili
• the high profile Triporati
• data loving Tripbase

...and we found out how much Expedia paid for VirtualTourist and OneTime

BOOT interview mania with start ups and industry shakers

• Alfonso Castellano of TripSay (part 1 and 2)
• AsiaRoom came out of the closet, launched direct contracting and the BOOT found out more about them and their TUI ODS stable-mates including revenue numbers
  
• Jim Hornthal of Triporati
• Yen Lee of Uptake
• Reuven Levitt of Tripbase (part 1 and 2)
• Steve Hafner of Kayak
  

oh...and...a plane actually landed on water

Uptake CEO Yen Lee talks revenue plans, expansion plans and lessons learnt

Am on an interview roll here at BOOT HQ. To keep things going I thought it was time to catch up with Uptake CEO Yen Lee. Initially launched as Kango in 2007 with backing from Shasta Ventures Uptake is building a review meta-search business. They have a series of algorithms and search methodologies for collecting and analysing huge numbers of reviews for hotels and destinations (currently US only). They hit the news again in September last year having secured another round from Shasta just moments before the GFC entered our acronym dictionaries.

A year after the new round and four months after Kayak announced the expansion of Travelpost into review meta-search I wanted to find out from Yen how the company was going and what he thought about the market. Here is some of our exchange

BOOT: How is the business tracking?

Yen - four big milestones from the last twelve months:

1. 5,000 sites in the index;
2. Technology is working;
3. Raised the second round; and
4. Hit a million uniques in traffic.
   

BOOT: With 5,000 sites in the index and a significant traffic base is the focus now onto revenue, is the product ready?

Yen - want to increase the number of sites searched by 100-200 times. Beyond dramatically expanding the size of the index also want the display to be better customised based on consumer preferences.

Any other expansion plans? What about using ad networks to sell CPM campaigns for revenue raising

Yen - we are happy for now with the CPA model from click referral. Not under pressure to turn to ad networks and CPM. Areexploring expansion possibilities outside of English language but in no rush. Also to expand the product into destinations. Believes long term there is more money in destination activities than hotels. There is a third expansion plan but Yen would not share what is was.

BOOT: Has Kayak's Travelpost revamp left you worried? How about TripAdvisor?

Yen - would be flattering to think we are on radar of either of these companies [as a competitor]. Is convinced there is space for Uptake to take on both of them.

BOOT: Any worries about the fall in online advertising spend?

Yen - not really as not very close to it. Focused on CPA and lead generation revenue. While banner/brand spend is soft, performance based advertising continues to be very strong. Expects growth in CPA to be stronger than PPC as traffic is even more qualified than paid search.

BOOT: Now that you are through your early stages as a start-up what things have you learnt about launching a company and growing a business?

Yen - couple of things

1. There were some early staff members better suited to building prototypes and early products than for scaling the business. Learnt that it was OK to move people around and shed some people and move on;

2. Cash is king -"don't worry about dilution" and "if you have a choice don't spend a dollar"; and

3. Should have been more aggressive with the consumer experience part of the product. Were very aggressive on the search index and algorithms. Should have displayed the same aggression in building consumer experience and gotten to it three months earlier.

My Take on Uptake

I am not sure what it is about my most recent round of interviews with travel search and discovery sites. Like the others before him in this series Yen is sounding very confident and very relaxed. No furrowed brows and tough talk filled with reality checks and challenging growth plans. He has a comfort brought on from money in the bank and limited revenue pressure (or "lots of runway" as they say in the best Valley coffee houses). My guess is Uptake is actually more concerned about the Kayak move into review meta-search than they are letting on but Yen does have a product that is not only a year a ahead of Travelpost in functionality but most importantly a year ahead in terms of Google indexing. The meta-search model in reviews is not yet proven but the revenue model behind sending qualified leads to hotel companies and intermediaries is proven.

What do you think - is review meta-search a viable business? Can Uptake fight off product launches and marketing pushes from Kayak and TripAdvisor?

Tripbase CEO Reuven Levitt Interview Part 2 - tips for start-ups raising funds

This is Part 2 in my notes from an interview with Tripbase CEO Reuven Levitt. Part 1 was a review of the product and a discussion of the business of travel inspiration and discovery.

In this part I will share with you some of the interesting insights and comments from Levitt on this experiences in raising funding in the Valley. The trigger for the interview series was Tripbase securing $2 million in series A funding.

Tripbase is not the first time the Levitt has raised money for start-ups. In his last venture he raised $12 million through the "usual" VC routes. I asked him what advice he would have for other start-ups looking for cash. Here are his top three tips:

1. Build a prototype before you do anything else: To attract the two key elements to success (people and money) a start-up needs to build a proof of concept as quickly as possible. The fastest way to do that is to use open source technologies. It is very important to get "30%-50% of the way" to a product before looking for money. Levitt says that a lot of start ups hold back on doing a fast build of a prototype for fear that they will be copied. Levitt's view is that copying is not the area to worry about. He says there is more of a risk in going slow and hidden rather than fast and a little more open.
2. Bootstrapping is critical: Levitt could not over emphasise the importance of being tight with money as a start-up. The phrase he used regularly was "focus on spend". Putting this another way "Start ups do not tcome out of luxury. Investors need to see hunger."; and
   
3. Start-ups often look for funding in the wrong places: Levitt believes that "private people with deep pockets" are the best places to look for funding, rather than VCs. On location, there is "no comparison to being in the Valley" because "by sheer numbers you will meet people". The only draw back of the Valley is that "it is very competitive...lots of people competing for money...lots of options on where to invest".
   

Any other tips out there from other entrepreneurs? While writing up these notes I was also reminded of a post from Jeremy Liew of Valley VC group Lightspeed Ventures on Five things start ups must spend their money on.

Tripbase CEO Reuven Levitt Interview Part 1 - travel discovery, the travel genome and the magic of the slider

Am loving the recent run of interviews that I have been doing especially in the travel discovery and inspiration space. I have finally had a chance to write up my notes of an interview with Reuven Levitt of inspiration start up Tripbase. The interview and story came in part from my series of posts on the travel discovery and inspiration companies and part because Tripbase has just closed a round of series A funding, securing $2 million from private investors. I am going am going to do two posts on the interview. This first one will be on the company and the market. In part two I will share our discussion on start up fund raising.

What is Tripbase?

We have been talking on the BOOT about the different approaches that companies are choosing for generating recommendations. There is the criteria based selection process of Triporati, the event based selection of Joobili and the deal/price hunting approach of Voyij.

In Tripbase's case they have tried to distil trip recommendations critera to just five parameters - Nightlife, Dining, Shopping, Nature and Attractions. A search is then based on selecting your starting point (ie location), dates and (through using sliders) the relative positives and negatives of preferences the traveller has on each of the five parameters. For example I searched for a Spring (October) holiday from Sydney for a family of four with the following slider preferences hoping to reflect a "family" perspective (picture)

The initial recommendations in order were: Auckland, Brisbane, Canberra, Tokyo and Melbourne. [What is interesting about that is that the next trip I have booked for the family (Easter next year) is to the South Island of New Zealand].

Search results are one thing but it is the refinement that is critical for recommendations. There is a need for a balance - enough to allow the consumer to find what they want but not too much to be overwhelming. The main refinement available from Tripbase are budget, weather and continent (Levitt is promising more).

Here are the results (picture)

I like the idea of the price refinement. That said, I moved the value slider a lot and did not get presented with a much greater variety of recommendations.

Where did they idea come from, where does the data come from?

Levitt and the rest of the Tripbase team came to the travel recommendation area not from a travel background but from a history of computational biology and building recommendation engines in the biochemistry field. This led him to attempt to build a generic recommendation engine and commence work on taking that engine and modifying it for travel. As he described it to me Tripbase is made up of two components rather than one. The first is the data centre and information collection mechanism. The second is the Tripbase website itself which sits above the data centre, providing and interface for customers to access the information.

They call the data centre the Travel Genome Project (not to be confused with Triporati's Vacation Genome Project). Levitt is claiming the TGP indexes and scrapes over 3,000 websites and therefore up to 22 million reviews. As Levitt put it "we use artificial intelligence techniques to make "sense" of a destination" drawn from the huge number of data sources being scraped and searched. So while Triporati is using technology and people/editors hand in hand to determine the results, Tripbase is relying on computational data analysis to sort through the overwhelming amount of data available - including the need to estimate prices and costs.

Thoughts on the market and monetisation

He has plans for both elements of the product and there are clients for both. At this stage the plans for Tripbase are further distribution and customer experience refinement (ie general competition in the discovery and inspiration space). For the Travel Genome Project plans, he was keeping his cards close to his chest, not giving away too much. If it is true that he has with this product a unique (or near unique) way of indexing destination information then he has a powerful tool for distribution through partners. But was not sharing a plan as to how he would take advantage.

Tripbase are not yet focused on monetisation and are in no rush. Levitt says he is not under revenue pressure yet and he wants to get the product right first. He contrasts this to the Big Four (Expedia, Orbitz, Travelocity and Priceline) who he saw as struggling to innovate and grow because they are, as Levitt put it, "struggling to focus on costs and spend marketing money while trying to cut back on fees and keep the business growing"

My Take

The basis of the product is an automated way of indexing enormous amounts of travel data through algorithms that link descriptive data, price data and sorting criteria. Very interesting. But there is still much to do before the product is a hit. While the search process is easy, I found that the refinement process did not produce the variety of options that I would have expected. The search process was much less complicated than Triporati but the results from Triporati were more creative, unexpected and intriguing. That said, it is hard to say which recommendation I would actually be more likely to act on- the creative unexpected one (Triporati) or the proven more anticipated on (Tripbase). Also I liked the the "cost per day" and average hotel and flight cost information provided with each recommendation. The price estimations seemed very accurate (as far as I could tell) and varied with time of year/season.

Monetisation will be a challenge but not an impossible one. As Levitt admitted the travel inspiration business is a "distance away" from purchasing behaviour and therefore will take time to target to advertisers.

In summary the product has made a great start. Some challenges to overcome but I am definitely seeing some a very entertaining and competitive battle starting to emerge between the different discovery and inspiration players. Do you have any thoughts on this space and the emerging battle lines?

Update - part 2 of interview here

Alfonso Castellano Interview - on TripSay, content models and staying focused (part 2)

This is part two of my interview with TripSay’s new board member Alfonso Castellano. In part one of the interview Castellano and I talked through the online industry in general. We covered topics like the pressures confronting the OTAs (complexity, margin pressure, marketing costs), meta-search and the impacts of the global financial crisis (GFC).

In this part we talked about TripSay and the travel content model. Castellano believes that the next “ten year space” for travel is the 90%+ of the travel experience not captured by the OTAs – the discover, search, research and decision process that goes on before the trip and the collaboration, sharing and recording that goes on after the adventure.

His view is that TripSay will focus on the planning and sharing element using the traveller’s own community as the best resource.

Balancing UGC and Editorial Content

A challenge we discussed is finding the right balance between community generated content (UGC) and editorial content (see earlier discussions here and here). TripSay’s approach to this is to work with partners that have editorial content and combine with the TripSay community content. This does not mean doing a licence deal with a Frommers or Lonely Planet to white label the content on TripSay. Instead they propose to provide the TripSay as a white label community system for a travel company. TripSay provides the community content and platform, the distribution partner provides their traffic and editorial content. I like this idea. Giving travel companies like destination sites, tourism boards, tour operators etc to use TripSay in a software-as-a-service style model for launching a community structure. I see how this works towards a good balance between UGC and editorial content.

Monetising Travel Content Traffic

Castellano and I agree that if you can build travel content traffic (and make it sticky) then the advertising and paid traffic revenue will come. This places the monetisation pressure on the TripSay marketing team. On traffic acquisition, Castellano admitted that TripSay does not have a lot of money to buy traffic. Therefore the traffic plan combines with the biz development strategy for content acquisition. Using the partner deals for content generation to also drive traffic to TripSay. This will be driven through the acquisition of online affiliate partners but also through a push to sign up travel agents into a industry based community.

Focus and product development

The final challenge we discussed – which impacts all startups – is keeping the business focused on the product pipelines. In effect channelling the enthusiasm within the business. The GFC plays are role here too according to Castellano. Keeping an enthused entrepreneurial team focused on products that can make an immediate impact. Their hope is that they can do this faster and more nimbly than the larger companies.

I agree with these strategies but the main downside is that it places an involved (and complicated) biz dev obligation on TripSay. From my rules for content companies – this will take time. They will need great sales people and patience (read financial backing).

The last part that interested me was when asked about competitors he mentioned that the only other major player in the same space as TripSay is Travbuddy. I do not yet have my head around the distinctions between (or if there are distinctions between) the different travel content, review, planning, community etc sites. This came up in a comment in recent Tripwolf fund raising post. There clearly is some sort of categorisation between these sites but I have not figured it out yet. It is important to have categorisation because that helps with the development of competitor fighting and customer acquiring strategies. But done badly, categorisation can lead to the wrong focus – witness the distortions in parts of the online hotel sector in creating distinctions between last minute, full service, retail model, merchant model,etc when all consumers care about is booking a room. What do you think?

Alfonso Castellano Interview - current TripSay Board member, ex Travelocity and Lastminute (part 1)

Last week travel social network and planning site TripSay put out a press release announcing that former Travelocity Senior Vice President Alfonso Castellano (pictured) was joining the TripSay Board. Castellano spent nine years with lastminute/Travelocity and before than ten years with TUI. An impressive online travel resume.

I had a great chance to speak Alfonso last week about this new venture. This is the first in two posts from that discussion. In this post I will share with you the discussion we had around the online travel industry in general. In a later post will go through our discussions on TripSay and the travel content model.

Firstly to the OTAs

We started our conversation around the challenges facing the major online travel companies (OTAs). As Castellano said “Most [of the OTAs] are losing money in air” Castellano identified three themes/scenarios confronting OTAs today:

1. Complexity

The world is complex, the law, technology, fragmentation, environment, globalisation etc all ad complexity and with it costs to the big four OTAs (Expedia, Orbitz, Travelocity and Priceline).

According to Castellano, this globalisation investment bu the OTAs is not showing the benefits and gains in scale and volume and efficiency that were hoped. Instead this globalisation effort is bringing so much complexity that it is becoming a drag for the big four, placing increasing pressure on margins. Leading to theme 2…

2. Pressure on margin

Even in this economic demolition derby the OTAs are still under pressure from suppliers on margin. Castellano concedes that this pressure “might move a little now but underlying dynamic will remain. Car, air and even tour operators are becoming more and more discriminating in the on online channel.” This margin pressure is made worse due to the third theme…

3. Increasing cost of marketing

The global demand pressure will put pressure on margins but marketing costs will sill be there.

And….in a frightening prediction. Castellano is not surprised by the CEO changes recently “and am expecting more and more traumatic announcements out of the big four.”

Then to the Meta-search companies

He does not spare the bad news for other, newer players. Castellano also expressed views on the meta-search model. If we had talked months ago he would have said that the meta-search future was secured because meta-search supported the direct push by the suppliers.

Prior to this eco-madness (my words), the suppliers were able to be “discriminating about distribution”. Meta-search could play to this as “a marketing tool for supplier direct distribution rather than a complementary distribution” (ie unlike an agent). This meant suppliers could hold back from intermediaries. Today however, the “suppliers are running back to any player with distribution”. Castellano is expecting a shift “like the post 9/11 world”. Suppliers will be “desperate to pay for an extra bed to get back to profitability.” I found the discussion around the impacts on the industry of 9/11 versus this downturn very interesting. It was after the tragedy of 9/11 and resulting decimation in demand that the online merchant hotel business was born.

Finally to suppliers

I asked Castellano what advice he would give suppliers during this crisis to not repeat some of the mistakes of 2001 and 2002 where too much power was given to the intermediaries. He had even more grim news. This time for the suppliers (hoteliers). He sees a “fantastic future for hotel distribution for OTAs.” He goes on “If a hotel does not control big chunk of distribution today and is still dependent on high yield and hight cost distribution models [like agents]. It is too late, they have no room to maneuver. If they have not been building up distribution for the last 3 or 4 years, then the only option they [hoteliers] have is to keep ­ feeding the beast [online agents] then to come back and fight the bigger beast subsequently…Only a handful of hotel companies can get out of this.” Grim words indeed.

More from our discussion soon.

GoPlanIt - interview with COO Jimmy Ku on the day the Dow imploded

It is start up interview and profile week here at the BOOT. Earlier this week we talked with Yen Lee of UpTake about how he felt cashing a $10,000,000 cheque moments before the Dow went into (the first of many) freefall(s). Then I posted an exchange with Our Explorer CEO Dave Cunningham about his efforts to match tour guides with lost tourists.

Today I had a chance to speak with GoPlanit COO Jimmy Ku. You’ll recall that GoPlanit was the only travel company to be part o the high profile start-up competition TechCrunch50. My earlier profile of them is here.

Discussions around money

On any normal day our interview would have focused on GoPlanit's plans to move from beta to a full release, how they would generate traffic and thoughts on balancing editorial and user generated content. Unfortunately this is not a normal day. On this day Washington degenerated into a $700 billion game of “I like George Bush less than you do” driving the Dow down 778 points (check out this interactive graphic on nytimes.com tracking the decline of the Dow with the counting of the nae votes– registration required). Unsurprisingly it meant we spent time talking about GoPlanit’s plans for raising their first full round of funding. As the Crunchbase profile states and Ku confirmed GoPlanit have raised $500k in seed capital. This is enough to support current efforts and the team of 7 but Ku admits that they will need more.

Thankfully for GoPlanit the profile boost of Techcrunch50 participation has opened a huge number of doors as they look for funding. As Ku put it Techcrunc50 guaranteed me “days of back to back meetings”. But even Ku admits that the horror on the Dow going to make it tougher. “Anyone not scared [about the Dow decline] is probably lying” said Ku “but good products will still make money and VCs will still invest in those that can succeed”

Discussions around traffic

It is too early for Ku to share any traffic numbers with us but we did discuss GoPlanit’s marketing tactics. As expected the focus will be on SEO through user and editorial content. GoPlanit needs to take time to develop each destination it is planning to launch through connecting tot a “respectable source” of content and information, building out the links to providers and setting up the framework for attracting user generated content.

Sidebar - While discussing this I noticed that both TripIt and TripAdvisor are bidding on the keyword phrase “planning a trip” (as you can see in this poorly cropped photo image).



This seemed odd to Ku. He said (and I agree) that you want to attract the people looking for a destination not someone generically searching for a trip planning tool.

Discussions around the founders

The idea behind GoPlanit is best drawn directly from CEO Steve Chen’s presentation at Techcrunch50. In short the founders separately experienced the pain of trying to organise large holidays. In Ku’s case he found himself as the designated organiser for group holidays with friends. In CEO Chen's case it was in organising his honeymoon and his general experiences post a career with Accenture as an event organiser in the Bay Area. Chen and Ku are also joined in the founder club by CTO James Chen, most recently of CNET, Rotten Tomatoes and HotorNot.

My take

I like the idea and as with many start up interviews with travel content/tool companies, if they can generate the traffic, then the ad revenue will follow. The CPM rates and advertising desire for good consumer travel eyeballs is strong enough to survive this economic Bush-wacking. The challenge is raising the money to support the product to attract the eyeballs on a day no one can get $700 billion from the US government.

Related News

• TechCrunch story on a site upgrade at the Microsoft backed PlanetEye;
• TechCrunch story on impact of the credit crunch/implosion on VCs and Startups; and
  
• Jason Calacanis on "the Startup Depression"
  

Our Explorer - pitching to be "the eBay" of tour guides

Recently a contact introduced me to Dave Cunningham the "Chief Exploring Officer" of Our Explorer. Our Explorer is an online market place for tour guides - not books, but physical people. Local accredited tour guides register for the service and build a profile page setting out their expertise and prices. Consumers come on the site, select a destination and then are provided with lists of guides that are experts in that location. Tours can be booked directly on the site. Guides have the capacity to lodge their professional qualifications. Fellow consumers can also leave testimonials in a classic eBay trust building activity. Our Explorer takes a 10% cut from the guides - no transaction fees for the consumer.

This is a great idea. I get the value proposition to consumers here. Giving consumers access to truly local guides - an alternative to just riding the generic tourist bus.

The biggest challenge that Dave and the others at Our Explorer have is that they are in the classic "Fax Machine" business paradox. The great fax machine problem was that everyone could see the benefit of a fax machine but is was useless unless their were lots of them. You would only buy a fax machine if the person you wanted to sent a fax to also bought one. In other words, in the early days of the fax machine you need to take a leap of faith that other people would buy one too. In the case of Our Explorer, the guides have to join first, taking a leap of faith that the customers will come. Our Explorer need a critical mass of guides to generate the customer interest. They need to generate that critical mass before the consumers were ready to book. It is not a chicken and egg story where you debate which came first - in this case lots of patient guides had to come first.

Cunningham thinks he is there. He claims to have cracked the 595 guide mark and adding 89 a month. I don't know if that is magic number to hit critical mass - but it sure is fantastic start. Lots of great potential here in affiliate marketing, especially if they can develop an API to feed this into the booking path of travel transaction sites.

If you are interested in a little more colour, below is an email interview exchange with Cunningham. What do you think about this business?

BOOT - Where did the idea for Our Explorer come from?

Cunningham - it came from a trip in South America I did with another of the founders Anne McDonnell. We had the services of private tour guides in Peru, Bolivia and Mexico. The first thing we noticed was that the type of tour guide you got on the day was out of our control as the hotel or local travel agent just provided them. Perhaps there would be a personality clash, you may share nothing in common or the guide may be of poor quality. So we wished we could book private guides in advance. Second thing we researched while talking to the guides is they all just got business from travel agents, at 30% commission - I knew we could get them worldwide access to travellers on the web for lower cost. We agreed it was an opportunity to take commercial.

BOOT - Tell me more about the background of the founders

Cunningham - Me [JPMorgan investment banking for 3 years, Founded a Chinese Real Estate company for 5 years. Overall Chief Exploring Officer] , Jean Liu [Expertise in Web Marketing for Chinese companies and now heads up the marketing efforts in China for OurExplorer - based in Shanghai. Ray Walsh [is a computer science graduate and leds the technical direction and strategy for the site development and growth] Anne McDonnell [Project manager in Investment Banking - Heads up the relationships with our suppliers - tour guide acquisition strategies]

BOOT - how hard is it to launch a destination, sign up guides?

Cunningham - Getting the critical mass of 500 tour guides initially was very tough as when you ask the tour guide to register we have zero traffic to the site. But partnerships with several tourist guide organisations around the world really helped us to the 500 tour guide point. Now we get over 80 organically registering per month as the value OurExplorer give them is now clear.

BOOT - How much money have you raised and who from?

Cunningham - the project has been financed internally by all the co-founders thus far. No external fund raising required as we believe in this project and the upside some much.

BOOT - What do you need to do to the product to take out of beta?

Cunningham - OurExplorer needs to implement 5 more enhancement features e.g. improved messaging system and restructuring to increase conversion rates etc

BOOT - What's next?

Cunningham - OurExplorer goes live in Chinese to the high growth Chinese travel market at the end of October.

UPDATE - Joris of AKOPSO www.akopso.com posted a comment below wondering about how Our Explorer goes about selecting guides and the need for official licences. The comment is below and here is Cunningham's (of Our Explorer) response sent to me by email.

As OurExplorer displays tour guides from all over the world it is sensitive that the specific licences and requirements for licences varies from country to country. Therefore when a tour guide registers their services on OurExplorer they upload their licence only when they feel it is appropriate and required for the specific tour they offer. Of course, a visiting client can request to see a licence copy from an OurExplorer tour guide at any time.

Uptake - near perfect timing on the second round of fundraising

Last week I carried the story of UpTake taking in a second round of $10mm to bring total amount raised to $13.95mm. In original post I wondered aloud why they had needed to raise a second round so close in time to the first round. Unfortunately due to some overzealous spam filtering in my gmail account I did not receive a reply to this pondering from Uptake CEO Yen Lee in time before the story was posted. That said, it looks like Yen's timing on this round could not have been better. Uptake announced the raising on September 16. September 17 the Dow closed down 450 points or more than 4%. In other words it seems they managed to close the deal moments before the recent round of AIG and Lehmann led shocks that are almost certain to dry up start-up company investment funds. Companies post this dark week on Wall Street are going to find it much harder to raise money as investors hunker down and wait for more clarity (or queue up from free tax payer funds as part of the bail out bonanza!).

As to valuation - Yen below says that "the valuation was very fair" and "we didn’t necessarily need to raise the round ". This is usually code word for an "Up Round" (where the valuation is higher in Series B than Series A). But is doesn't sound like the valuation was dramatically increased.

Finally Yen is on the hunt for talent (see interview below for details). With money in the bank and people in under-funded business looking nervously at their bosses this should be a good time to recruit.

Below is a slightly edited version of my email interview exchange with Yen that should have gone with the original post. If you want some background here my earlier interview with Yen.

BOOT -Who joined the Round?

Yen - Trinity Ventures led the round and Shasta Ventures, who led Series A, co-invested. Trinity has been looking at online travel for many years without pulling the trigger but they were really excited about our business model and specifically how we would solve the consumer acquisition challenge. Specifically, how our technology approach allowed us to create an infinite number of niche pages (e.g. Monterey romantic hotels) to dominate the torso and tail on SEO.

BOOT - How much and at what valuation?

Yen- We aren’t disclosing specific terms other then to say we raised more then $10M. Referring in advance to my answer to Q7 below, we didn’t necessarily need to raise the round now, so the valuation was very fair.

BOOT - What are the plans for the money? What about international destinations and non-eng languages?

Yen - ... building a search application is not for the faint of heart – nor is it cheap! Especially since we make the investment to not just spider all the travel content we can find but also to structure it. Despite the strong progress we have made, we think we are just getting started, so most of the money will be for continued product development. We are absolutely committed to helping consumers globally with their travel decision making. We don’t know the specific timing of when we venture outside North America although we will have a better estimate by end of Q1, 2009.

BOOT - If people are part of the plans (ie recruitment) what are the main areas that you need to attract people? Has hiring become slightly easier recently with economy downturn?

Yen- Yes, headcount is the lion’s share of our expenses and will continue to be as we scale our offering. Are you offering me a soap box to help with recruiting? Then ... we are continuing to look for engineering talent. Specifically more problem solvers on each of our three technology layers. We need engineers with domain knowledge in spidering the web and mining unstructured data, natural language engineers with experience parsing text to extract sentiments, and data warehouse developers who have built multi-stage data processing pipelines. We also need engineers who have built ranking algorithms and contextual targeting solutions. Finally, we need application and UI engineers.

Silicon Valley is really a little micro-economy unto itself and the increasingly tumultuous macro-economic conditions haven’t affected our little corner of the world – YET. While there is certainly more candidates out there now, it has less to do with the macro-economy then the number of engineers and others from Silicon Valley stalwarts like Yahoo, eBay and even Google who are looking for opportunities to show what they can accomplish in a nimble, focused environment. We are also seeing more candidates from the earlier generation of vertical search companies that generally just reprocessed already structured data and therefore found it challenging to differentiate and get market traction.

BOOT - the Site was constructed around organic search marketing. Any need with this new money to expand into spending money on market (paid search or otherwise)?

Yen - Nope. We are growing 30% month on month and have no plans to deviate from our successful playbook.

BOOT How are monetisation plans going?

Yen - We have been pleasantly surprised by the number of consumers clicking on paid leads. We certainly haven’t emphasised that on our site, but the consumers tell us we offer them all the information they need to decide whether that hotel or attraction is a good fit, so checking rates and availability is the natural next step.

BOOT Series A was just a couple of months ago. Why the need to raise again so soon?

Yen- We didn’t necessarily to raise now, but there is an old adage that the right time to raise is when you don’t need the money! And our decision was made easier given the shaky macro economic environment, our confidence that we have proven our approach works and we are ready to scale, that we have known the Trinity Ventures team for a long time and wanted to work with them, and that they made a very fair pre-emptive offer.

VibeAgent Sessions: Interview with VibeAgent CEO Adam Healey - the Web is my container

In my continuing series of interviews with start-ups I had a chance to chat with VibeAgent founder and CEO Adam Healey.

VibeAgent is a combination of review site and meta-search - which I think in today's world is where every hotel focused meta-search player is pitching themselves. As I have discussed recently, content is now the number one tool that people are grabbing at to drive natural traffic to feed search. As PPC becomes more expensive it has become harder and harder for meta-search to make money the old fashioned way - traffic arbitrage. Now meta-search providers need content to generate traffic from natural search. Sidestep tried this through acquisition (though it seems that Kayak does not care for it very much as the new owners).

VibeAgent do things slightly differently from other met-search providers we have seen. They have matched content, maps, user reviews and activity tagging all in the same search. On its own none of this is revolutionary. It is "just" content, plus functionality plus supplier/inventory connections. It is not these choices and combinations that makes VibeAgent different it is the execution. The user interface and layout look good. Really good. This is a website designed with customers in the mind. It is easy to search - but more importantly it is easy to refine search by price, location, activity, requirement, category of activity and more. It is even fun to play with. Searching Paris and then refining by Historic, Nightlife and Gourmets and seeing what the hotel results makes hotel searching a game again.

It is not all roses - the load time is slow (though the interstitial manages it well). Also the mapping functionality appears to favour some supplier/inventory provider address formats. These thing can be fixed.

I don't think the VibeAgent idea is revolutionary (the revolution was meta-search itself) but the site is a winner. This led to my discussions with Adam about whether or not a fantastic site and product is enough. In my rules for content companies I said you need content and lots of it to get the traffic from Google. Healey says he will look to more than natural search fed by user generated content for traffic generation. The aim is to take the product and...well...productise it. In Healey's words the web and particularly networks life Facebook and MySpace are containers and VibeAgent is an application that sits in the container. This means that marketing efforts will be built around widgets & applications that can be imported into all of the "containers" sitting around on the Internet. First announcement - a Facebook application.

My Take

I see the rationale for this strategy. PPC is too expensive for a start up with just angle funding (from Trip Davis of TRX). Content acquisition takes a long time. But it is also risky as it takes a lot of developer time to build and there is a lot of noise in the containers (ie application spam).

In a lot of my start up interviews I reach a common conclusion around the enormous challenge of attracting traffic once the product is right. I see that same theme here with VibeAgent. In this case Healey and team (including founder Charles Seilheimer and marketing VP Dennis Ortiz) have a top class product, a clear strategy and (a little bit) of money. The container strategy is the new piece and an untested one. To make it work Healey and team have to keep the costs low and the product sharp.

The Bezurk Sessions: Interview with Bezurk CEO Martin Symes on News Digital Media investment

Meta-search stories have been dominating the news in the last month, naturally driven by Kayak’s purchase of Sidestep. This has (unfairly) stolen a little of the deal buzz around the investment by News Digital Media (one of News Corps online arms in Australia) and OWW Sinapore's investment in Asian meta-search company Bezurk (my first mention of the story here).

I have a connection to the Bezurk deal through some consulting work that I did for them in early 2007. So it would not be fair to give my thoughts and any commentary around the deal. However I did have a chance to chat with Bezurk CEO Martin Symes today about his post-deal plans around Brand, Product and ongoing relationship with News. Here are some of the points that came out of our conversation.

Maintaining independence

Bezurk will maintain its independent operations from other News online assets. This is important (says Symes) to ensure that Bezurk can continue to work with other media partners and reflects that New has taken a minority stake. Symes and team will work hard to integrate activities with other News online assets (mainly in Australia) but this is not guaranteed. Will only do it where it makes sense. I read this to mean that the News properties such as News.com.au or truelocal.com.au or Moshtix nor Bezurk itself are compelled to link to each other but that each will have the inside running on a a pitch to the other. Bezurk is already an important part of the travel section on News.com.au but this occurred prior to the investment deal.

The other important factor for continued independence says Symes was that Bezurk needs to continue to think and operate like a start-up. This is both in the sense of cost control and lean operations as well as the need to have the flexibility to innovate.

New Plans - Some more people, some more product and some more markets

The deal has brought some much needed money into Bezurk that Symes intends to use for the following:

• New Markets – about to launch in India off the back of a “portal deal”. Will open a small Sydney office in the next few months;
• New people – will be announcing soon a new SEM manager and senior marketing appointment; and
• New products – cars and packaging to come very soon. Will also allow them to uncut some of the corners around QA and testing that were required given their pre-deal budget restrictions.

So what does the Kayak/Sidestep deal mean for the meta-search market and for you

Symes (not surprisingly) sees the Kayak buyout of Sidestep and Yahoo! upgrade of Yahoo! Travel through the relaunch of Farechasee as a “fantastic validation of the model as people are prepared to put a lot of money into the sector.” He is sceptical that Kayak can deliver on the integration plans they have as quickly as they want (see my Interview with Kayak’s Kellie Pelletier for more on the integration plan).

Does meta-search need to be local market focused? Why should a consumer care that Bezurk is an “Asia Pacific market specialist”? Wont Kayak give a consumer all they need?

The last area of questions for Symes was around why he thought customers needed a local meta-search provider and what he thought Bezurk offers that is better than Kayak.

Symes says “Great question. We are still developing exactly what it is that each market needs by figuring out the local practices and booking patterns. I argued during my time at Zuji that you have to be as nimble as possible locally to access local content. Same is true in meta-search. You can get 80% of the way to meeting your customer’s needs by being a generalist but if want to be the player in a market, the authority then you need to do the last 20%. Need to be local.”

Congrats again to Martin, Craig and Ross on this deal.

Kango Sessions: Interview with with Kango CEO Yen Lee

Back in September I reported on the rumours of Kango having raised money to set up a company to "help family's plan travel through organisation tools, reviews and editorial content". Just before the end of the year we received confirmation that Kango had in fact raised a very respectable $4mm in series A funding from the web 2.0 loving Shasta Ventures (also backers of Techcrunch40 winner Mint, Turn and Flock).

We also saw the beta for Kango and found out it is meta-search product but from a different angle from what we have seen. In the past we had two types of meta-search:

1. the free form search players such as the now combined Kayak/Sidestep where the interface looked like an online travel agent but with the back end fulfilled through aggregated search; and
   
2. the advertising/deal hunter driven model such as Travelzoo and Cheapflights.
   

Kango's angle is to be the aggregator of content, reviews and travel information - not deals. Destination, hotel or activity searches on Kango produce a result that takes all of the unstructured data out there from web based sources (TripAdvisor, Travelpost, Expedia, Orbitz, Travelocity, etc) and combines it into a structure data result. In other words aiming to be a contextual summary of all of the editorial and user generated content relating to a travel term. Is a dramatic contrast to the manual page build approach of the high profile Mahalo.

I had a chance just before the end of 2007 to talk with Kango President and Founder Yen Lee about Kango, meta-search, raising money in online travel and how to deal with "too much information". Here are some of the themes and ideas from that conversation.

How did you come up with the idea?

Yen and his co-founders are search junkies. They love search, need search, trust search. Yen told me that the idea for Kango came from a desire to develop a targeted search product for a sector with lots of unstructured data, a sectoral ontology, vertical structural options and a need for subjectivity (ie editorial contribution). That is a sector with too much information - hence they naturally ended up in the travel sector.

What is the background of you and your founders?

Alongside Yen (ex-Yahoo), the other founders are Elliot Ng (ex-Necentives) and Gene McKenna (ex-Acxiom Digital and Bluedot Software). Experience in search, customer loyalty and product. More on the founders here.

How hard was the product to build? How much human intervention is needed to make the unstructured data structured?

The content is accessed through the same methodologies as general search - crawling sites and normalising/structuring the data. At the content access and search level they operate just like the traditional search market. It is at the display and refinement level that Yen claims Kango is different. Instead of relevance (and therefore ranking) being based on inbound links it comes from a number of weighted dimensions based on the link between keywords. For example "spa", "private", "hideaway" in hotel reviews are linked to searches for "Romantic". Similarly "kids club" etc is linked to "Family Friendly". The relevance and ranking comes from the quality of this semantic analysis, not inbound links.

Needs editorial input to provide the knowledge that links search terms to themes, destinations and activities. All about going after what Yen put as 10 billion travel related searches a year.

How hard was it to raise money? How are you going to make money?

Yen made the raising of $4mm sound easy. Says they were able to raise the money before they had a product - that is based on the team and idea only. This is an uncommon story in travel 2.0. As to making money - Yen and his team are hoping that by giving an meta-index to travel content will give Kango ownership of the long tail of travel search. From this the cash will flow from travel advertisers.

What do I think

Talking to Yen was like lifting the bonnet on a search engine and looking under the hood, seeing how the words, algorithms, spiders and links combine to generate the answers that Google and Yahoo churn out. The search knowledge of the Kango team is clear. Also the product looks good. Search and search refinement are easy - modelled more like an OTA than a search engine. The big challenge is that to build on the travel ontology and develop the semantics takes time and manual energy. This why the beta is limited to only two destinations. This is why they need a round of $4mm to fund the building of more destinations and product lines. This is a case where if they can get the product out right, the traffic will flow (easy) and the money will follow the traffic (even easier). Very impressive stuff.