Problems in the Travel Industry

Despite being one of the world’s largest and oldest industries, global travel consumption is still rapidly growing, driven by emerging markets like China (Which contributed 21% of international spending in 2016), fresh demand by a new generation of travelers and technological advancements that make traveling easier and more accessible.

The industry is plagued by monopolized interests and a centralization problem. A few powerful middlemen in the market effectively dominate the data, content, and traffic and have created a lucrative business model in monetizing them. While such centralization may have brought about certain efficiencies, it has also led to the creation of a bottleneck in relationships between businesses and consumers, a great many of which have become one-sided in favor of the middlemen.

Monopolization of the Middlemen

Over the past two decades, built on the revolution of the internet, Online Travel Agencies (OTAs) started to aggregate accommodation, transport, and experiences, selling them to consumers online. Through a series of mergers and acquisitions, a powerful few conglomerates now control between 60-95% of the market.

The largest online travel agency (OTA) in the western world is Booking Holdings (Previously called Priceline Group), which owns travel aggregators and metasearch engines like booking.com, priceline.com, agoda.com, kayak.com, rentalcars.com, and opentable.com. In 2016, consumers booked 556 million room nights and rented 66 million cars on their platforms. In the eastern hemisphere, there is Ctrip, the Chinese travel behemoth that in 2016 generated net revenue of 3 billion USD and recently went on a global buying spree acquiring qunar.com, elong.com, skyscanner.com, and trip.com. It is no coincidence that Booking Holdings also holds a significant stake in Ctrip.

These conglomerates hold a centralized monopoly on the following:

  • Market pricing

  • Traffic flow

  • User ID

  • Transactional data

Unleveled Playing-Field for Businesses

By using their scale, user base, and data, these powerful intermediaries dictate the terms of the business and charge superior margins, causing double marginalization for both consumers and suppliers. Hotels typically pay 15-25% in commissions to the centralized platform. They reduce hotels and other service providers’ abilities to better serve their customers by taking large shares of their income and restricting access to important user data and insights. Consumers are losing out as they bear the inflated cost of supply.

The centralized and highly concentrated nature of the market means that startups in the travel business face a highly unleveled playing-field. The monopolies have little incentive to innovate as they pour resources to lock in the status quo through ad-spending, traffic acquisition, and/or price bullying (Booking Holdings and Expedia are two of the biggest spenders on Google AdWords, and together spent over 7Billion USD in digital marketing in 2017 alone). This is money that creates no real productive gain in the ecosystem except enriching pockets of the platforms and Google.

A collaborative ecosystem that changes from “centralized + monetization” to the “decentralized + collaboration” model would be a more efficient solution, which is made possible by blockchain and Smart Contract Technology.

Lack of Incentive for Content Creators

A core component of the travel industry is the business of travel content and reviews. More than 80% of travelers make purchase decisions based on them. In the current ecosystem, content platforms take full ownership of the content and sell the data and traffic for advertising revenue. This centralized data ownership model is the core business for companies such as Facebook and TripAdvisor.

TripAdvisor, for example, has over 315 million registered users and hosts over 500 million reviews and opinions about hotels, restaurants, attractions, experiences, which are created by users but owned and monetized by the platform.

This system is inherently unfair because the creators do not receive a fair share of the economic benefits from the value created. There are no incentives for more in-depth participation, and the quality of the content suffers. TripAdvisor’s posts pale in comparison to the creativity and quality of paid travel blogs and articles. To realign interests at a large scale, we need a decentralized incentive protocol for content that is scalable, trustworthy, and self-governing. A tokenized economy run on blockchain and Smart Contracts offers an ideal framework to solve this.

Ineffective Loyalty Program and CRM Engagement

The travel industry is the most prolific user of loyalty and CRM programs. Hotels, Airlines, restaurants, theme parks, museums, and other establishments all tried to sign up consumers on their loyalty programs of various formats, the most common being a point system in which different tiers of rewards can be redeemed. However, the results have been mostly unsatisfactory due to the following three reasons:

1. Mistrust of consumers over data security and usage of their data.

2. Inefficiency in acquiring complete and authentic user info, as filling in different loyalty programs is time consuming and non-standardized.

3. Redemption processes are cumbersome and options are limited mostly within the vendor’s offering.

55% of CRM programs that focus on promotions and offers via push notification and direct messaging have not proven to deliver results. One key factor is that consumers see CRM engagement as a solicitation rather than value-adding/opt-in.

Businesses also have no access to large-scale, cross-vendors, authentic user behavior, and purchasing data, which are currently controlled by centralized platforms. This limits their ability for effective marketing and CRM engagement. This kind of data bias is one of the reasons that platforms like Booking Holdings, Amazon, and Alibaba are gaining a larger market share as they continue to stack more and more user data.

An ideal loyalty system should provide consumers true ownership and control over their identity and data, more tangible value in rewards, and the ability to redeem goods and services across different vendors in the entire travel spectrum.