Travolution Summit - Philip Wolf Keynote Speech

PHILIP WOLF'S KEYNOTE SPEECH FROM THE TRAVOLUTION SUMMIT EUROPE

Philip Wolf, president and CEO of PhoCusWright, addressed the audience of the Travolution Summit Europe 2008 during the "Visions for the Travel Sector" segment. The following is a transcript of his speech.

MICHENER’S RUSTY NAILS
He published his first book at age 40, a Pulitzer Prize winner, James A. Michener was born three years after American brothers Orville and Wilbur Wright made the first sustained piloted flight of an airplane in 1903. A naval officer during World War II, he flew in almost everything that had wings and walked away from three complete crashes, including a downed DC-3 in the middle of the Pacific Ocean. Imagine what his excitement would be for the 555-passenger A380 with two decks, both the entire length of the fuselage and both longer than that famed flight at Kitty Hawk, North Carolina.

Michener grew up in a small-town in rural Pennsylvania. After dozens of famous titles, five honorary doctorates and decades of globetrotting, the author embarked on his most difficult work at age 85: The World Is My Home, an autobiography.

“When I was a country lad of five,” begins his exceptional memoir in the first person, “the farmer living at the end of our lane had an aging apple tree that had once been abundantly productive but had now lost its energy and ability to bear any fruit at all. The farmer, on an early spring day I still remember, hammered eight nails, long and rusty, into the trunk of the tree. Four were knocked in close to the ground on four different sides of the trunk, four higher up and well spaced about the circumference.”

“That autumn a miracle happened”, the plainspoken writer continues. “The tired old tree, having been goaded back to life, produced a bumper crop of juicy red apples, bigger and better than we had seen before. When I asked how this had happened, the farmer explained: ‘Hammerin’ in the rusty nails gave it a shock to remind it that its job is to produce apples.’

‘Was it important that the nails were rusty?’

‘Maybe it made the mineral in the nail easier to digest.’

‘Was eight important?’

‘If you are goin’ to send a message, be sure it’s heard.’

‘Could you do the same next year?’

‘A substantial jolt lasts about 10 years.’

‘Will you knock in more nails then?’

‘By that time we both may be finished,’ he said, but I was unable to verify this prediction for by that time our family had moved away from the lane.”

In business, like in life, we have some fairly large rusty nails hammered into our trunks. Not to be compared to the humbling rusty nails we encounter in life, the travel, tourism and hospitality industry nevertheless, has its fair share of nails, then apples. Nails, then apples.

PONDERING AND PROGNOSTICATING
PhoCusWright has been observing, pondering and prognosticating about travel’s rusty nails and juicy red apples for a very long time. From the first GDS, to the early online forays, to e-ticketing, to the dot.com boom, to the bubble burst, to the post-911 revival, to the strip-and-flip private equity chapter, to SaaS overtaking ASP, to a new wave of venture funding, to PPA and PPC rivaling commissions and mark-ups, to the sustainability mantra and then some… we reflect on how much has changed and how much will.

We observe, we forecast and we stick our necks out for a living; that is PhoCusWright’s currency. So know well those rusty nails keep on coming, followed by ever more juicy red apples. Our team has traveled a long road since the early days when “travel technology” first took on meaning. By reflecting from this rare and experienced perspective, we understand why current marketplace activity is the most momentous it has been since the first online travel wave hit. It is pregnant with potential. New ideas, new rules and new entrants are busy challenging the status quo. A new revolution is dawning.

RESEARCH AUTHORITY
Many of you know PhoCusWright for our research, where we combine consumer travel planning behavior with marketplace segmentation, sizing, forecasting, trends and analysis. We have just completed analysis for our most recent European Online Travel Overview covering the EU-15 plus Switzerland and Finland and our European Consumer Travel Trends Survey, which examines consumer behavior in four European markets – the U.K., Germany, France and Spain. We surveyed travelers who have flown commercially and stayed at a paid accommodation at least once in the past year.

In America, television sportscaster Warner Wolf is famous for saying... that's right, "let's go to the video tape." Since I am Philip Wolf, not Warner Wolf, I'll say, "let's go to the research deck" instead!

What we have uncovered is that the European online travel market is once again tracking similarly to the U.S. It appears to be bracing for some rusty nails. While still growing, it is beginning to show the first signs of a long maturing cycle. After all, you cannot grow exponentially forever!

So here are some ideas to jolt the market:

Loyalty points, video and podcasts help travelers decide where to purchase travel.

While search engines, user reviews and destination sites tell them what to purchase.

Where to buy. What to buy… an important distinction, especially considering travel, tourism and hospitality is the world’s largest industry, responsible for 8% of worldwide employment, 9% of capital investment and 10% of global GDP. In fact, millions of citizens will leave their borders for the very first time this year. What is your strategy to get them for customers?

Our research goes on to reveal that things like targeted offerings, ease of use, and fraud security would actually influence a traveler to purchase travel online instead of offline. Over 70% told us they are interested in buying their holiday travel online in the next 12 months, provided a couple of things changed.

We can advise you with confidence how to increase margins by selling add-ons such as room upgrades, extra bags, spa treatments.

And although we identify growth opportunities in Europe, particularly Italy and Spain…

We project even bigger growth opportunities elsewhere. I sit on the board of directors of India's largest OTA and can therefore attest that a marquis group of venture capital firms has collectively invested over £50 million in the online travel agency space there.

PREDICTIONS, PREDICTIONS
We also make predictions… pretty good ones, I might add.

Three years ago at The PhoCusWright Conference in the United States, everyone observed how many entrepreneurs were replaced on stage with lawyers, bankers and executives from bigger businesses. Controversial talk was muted. We witnessed Travel 1.0’s swan song – its final act.

PhoCusWright uses the term “Travel 1.0” to describe the massive transformation of purchasing travel from offline to online: the grand poobah of our industry’s rusty nails! It began in earnest circa 1995 and has traveled eastward every since. Recall that established travel sellers and suppliers originally rejected the online wave en mass, claiming those cold, cruel, calculating computers would never replace the old way. PhoCusWright was very lonely back then because we insisted nothing short of a revolution was pending.

For over a decade, PhoCusWright tracked and analyzed this revolution as online travel went from a zero billion euro industry to the notable tipping point of today, braving many a metaphoric rotten tomato along the way. Over 50% of all U.S. travel is seamlessly booked online now. And similar tipping points will be reached around the world, sooner than most of us probably think.

TRAVEL 2.0 CONFRONTS THE ESTABLISHMENT
In 2004, PhoCusWright was first to coin the phrase “Travel 2.0,” to describe our industry’s collective application of Web 2.0 technology. Then, in early 2006 we cast a Hollywood-size spotlight on the topic, when we announced “Travel 2.0 Confronts the Establishment.” This message eluded most everyone back then… but not now.

The rusty nails came in succession, one at a time into all sorts of travel tree trunks: transparency of data, information and images; peer collaboration; RSS feeds; AJAX apps.

The social networking floodgates opened, liberating the buy side of the travel distribution chain like never before. The landscape was permanently altered. Advantage customers. The entrepreneurs were back! Travelers and visitors took control: finding and creating their perfect trips, not just their cheapest trips.

Some Travel 1.0 companies forged ahead, confronting and embracing Travel 2.0, while other Travel 1.0 pioneers ironically resisted Travel 2.0. And, of course, many companies slow to embrace 1.0 were similarly reluctant to embrace 2.0, so they are now busy with expensive catch-up.

It’s a fascinating phenomenon: the continuous challenge new entrants pose to the very companies who themselves challenged the status quo just a short cycle prior.

How quickly the market has evolved to where social networks influence what and where travel is purchased.

THE LONG TAIL
After Travel 2.0 became mainstream – and yes, it is indeed mainstream – came the next big rusty nail. Customers communicating with customers, or C2C, triggered a resurgence in the Long Tail economy which has a huge impact on travel in a good way. The alleged “leveling of the playing field” which was supposed to have occurred during the 1.0 era, with a re-try in the 2.0 era, finally became reality because of the Long Tail catalyst.

Wired Magazine editor-in-chief Chris Anderson, author of the book called the Long Tail, said it best with his subtitle: The Long Tail is about selling less of more. In a Long Tail economy, especially for travel, embracing niches wins because the aggregation of value in the tail of the curve becomes greater than the aggregation of value in the head of the curve.

Let’s summarize the Long Tail rusty nails.

The little guy’s (product, channel, site, business) significant influence.
Embrace the sum of the niches.
Debunks 80/20 rule (“law of the vital few”).
The size of your reputation matters more than the size of your marketing budget.
Value of distressed, “out of print” or discontinued.

Next came the baskets of juicy red apples, lead by the likes of Amazon, eBay and Netflix. A retailing explosion occurred around so-called “non-hits,” for example, out-of-print publications, one-of-a-kind things and documentary films. We have entered a period of unlimited choice online. Finally, being a needle in a haystack is a good thing. Consumers can now readily find you and vice versa.

If the 20th century was about sorting out supply, the 21st is about sorting out demand.

THE PERFECT STORM
For those of you who have been living under a rock, the next set of rusty nails and juicy red apples is upon us. With the Travel 2.0 floodgates open and a Long Tail economy in full gear, a plethora of searching and shopping tools continue to evolve, making it easier than ever for travelers to plan the perfect trip – or rather, the perfect trips. After last year's successful thee "Braving the Long Tail" and "Travel 2.0 Confronts the Establishment" the year before, this year’s rusty nail is "The Perfect Storm: Search, Shop, Buy."

A phrase popularized by Sebastian Junger in his book of the same name, a perfect storm is formed when several events occur simultaneously, which, taken individually would be far less powerful than the result of their combination. Unlike the meteorological kind, this digital one is strengthened by new rounds of intense innovation giving rise to a positive, advancing force that holds great promise for travel, tourism and hospitality.

Travelers visiting many different sites create numerous customer touchpoints, often obscuring the point-of-sale. The growth of ad and referral-based revenue is challenging the dominance of traditional bookings-driven business models. Hybrid business models are appearing, with suppliers and intermediaries alike mixing and matching their offerings to assume new roles in the search-shop-buy process.

Let’s define them…

SEARCH: Search is the starting point for travel planning, in which travelers move from an undefined universe of possibilities to a well-defined universe of possibilities. General search engines wield enormous power as the starting point for travel search, with travel companies battling it out over keywords and organic search. Vertical search, traveler review sites and metasearch are just three activities that incorporate both searching and shopping. There is still an enormous amount of unmonetized search. Technology innovation will make it possible for travelers to start at some type of search engine and instantaneously arrive at the very specific travel content – and price – they seek.

SHOP: Shopping takes place once a more defined set of possibilities has been identified. Travel 2.0 tools have made shopping for the perfect trip into a consumer sport; many travelers are inspired by the ”thrill of the chase.” Travelers shop on myriad sites, many which didn’t exist three years ago. Social, media, intermediary and supplier sites are all part of the mix, with referral and online advertising serving as a new type of booking fee. PPC and PPA are the new commission and mark up. Travel intermediary business models are under unprecedented scrutiny while supplier confidence vis-à-vis sales, marketing and distribution strategy is renewed.

BUY: The implications are less obvious. Partners continue to vie for ownership of the customer, the itinerary, even as competitors have the potential to become suppliers and collaborators. Yet in this new marketplace, as The Perfect Storm redefines intermediaries, could the debate over who owns the customer ultimately grind to a halt? The rising impact of search and shopping can tip the transaction scales either to suppliers or intermediaries. At the same time, deep-linked referrals obscure the point of sale, so many travelers cannot distinguish among search, shopping and transactional sites. But does that even matter?

New types of intermediaries are bringing every stage of the travel value chain online, attracting travelers with tools and services they can use before, during and after their trip. Not only are these “new intermediaries” facilitating contact between travelers and travel companies, they are making it possible for travelers to share photos, memories and advice with other travelers.

THE PERFECT OPPORTUNITY
This perfect storm affords the perfect opportunity, provided that companies do two things:

1) exploit fantastic advancements in technology and momentum, and
2) focus less on “business model preservation” but focus more on solving big problems for customers.

Excellent leadership in our industry is defined by those who actually fuel the storm, and in turn their own cause, by aligning their businesses with the contributing forces. This is the whole point of the “perfect storm” metaphor, so let me repeat. Excellent leadership in our industry is defined by those who actually fuel the storm, and in turn their own cause, by aligning their businesses with the contributing forces.

As with prior travel industry transformations, aggressors will seize the moment by riding the waves, catching the wind and rising with the tide; they represent our marketplace change agents. Laggards, on the other hand, will batten down the hatches, get to dry land and assess damages afterwards. New winners and losers will emerge... once again.

SUMMARY AND WELCOME
Have we witnessed travel, tourism and hospitality’s last rusty nail? Of course not. So when the next batch of rusty nails comes your way, do not be defensive, or even worse, do not be in denial. Expose yourself and let those nails be hammered into your trunk. After all, we need heed James Michener’s advice. We must “act like the sensible old apple tree and resolve to bear fruit” once again.

Ladies and gentlemen, on behalf of the entire Travolution and PhoCusWright team, we cordially welcome you to an unprecedented day where fresh ideas, incredible energy and serious business will prevail.

Let the show begin!