Numerous supplier partners including Lufthansa and Nordic Choice Hotels have pledged their support for Winding Tree. More will likely follow. This momentum could also spread to the corporate buy side, as enterprises aim to cut costs and experiment with the new technology. One large enterprise integration could be enough to bring the market validation that Winding Tree needs to push ahead with its big vision.
How to throw a good party
Successful marketplaces need two key ingredients: Suppliers (product) and plenty of buyers. So far, the Winding Tree team has executed brilliantly on bringing supplier support to the table. Some big airlines and hotel groups have lined up to offer their financial, technical and strategic support. Many more will likely follow. At some point, the Winding Tree team will also need to secure buyers.
The enterprise hotel buyer
Travel buyers can be either people or corporations that buy in bulk. Individuals book their flights and hotels through direct channels or travel agencies, other intermediaries, and advertising platforms such as Google. These third parties spend billions on platform innovation and marketing to woo shoppers to their booking portals. Hence, any new player - centralized or decentralized - would face significant headwinds in this segment.
Consumers also love choice and OTAs are great at aggregating content. Booking.com spent the last two decades building direct relationships with hotel chains and with independent properties. Consumers win because they can compare prices across an exhaustive cache of hotel listings. No delusions, it will take Winding Tree considerable time to aggregate the long tail of boutique and unflagged hotels. But unlike individuals, corporations can live with less choice. And, batch loading i.e. working with the large chains will expedite the inventory aggregation process. As a reminder, Winding Tree is not competing with the OTAs directly. Rather, it aims to build the protocol and governance structure that would drive further adoption of blockchain in travel distribution.
Modern enterprises spend billions on travel services for their employees every year. They typically buy their travel in bulk negotiating favorable rates with preferred vendors, often through travel management companies. One particular global accounting firm (that will remain anonymous) spent USD 1.7 billion on travel services in 2017. Here is the breakout:
Approximate Share of Total Travel Spend
If Winding Tree can deliver on a searchable platform that can cost-effectively connect enterprises to multiple partners through a single integration, then the value proposition is there. This should be achievable, given their current momentum with signing on new partners. The 80/20 rule likely applies here. Eighty percent of total global business-traveler-friendly hotel inventory is likely covered by the world’s 20 largest hotel chains. The top five likely cover somewhere in the ballpark of 50 percent.
Successful integrations with the top five brands would mean that Winding Tree would have access to a solid swath of the inventory that big enterprises are looking for. A robust yet limited supply would also work. Corporates and TMCs would still use other platforms to source appropriate inventory.
Here, the business case for blockchain in travel comes into view. A Google or Amazon - for instance - might want access to that inventory on the cheap, and could see value in making the upfront investment needed to build their own portal to the WT blockchain. Priceline and Expedia could potentially become partners, as a way to save on travel spend. The big outsourcers e.g. TCS or Infosys and global consulting firms would also make sense. All of these players spend huge sums on corporate travel. Furthermore, they have a vested interest in experimenting with blockchain during these early stages of its evolution.
Total 2017 Revenue (USD Billions)
Horse before the cart
The technology needs to come first. Blockchain is not an out-of-the-box solution to better, faster, cheaper travel distribution. It’s a nascent and constantly evolving technology. This also makes it exciting and potentially worth the R&D investment for both buyers and sellers. Other initiatives aimed at standardizing protocols have moved frustratingly slow, especially for the airlines. Implementing top-down standards, however sensible, comes off as a burden and obligation, rather than a productive exercise and use of company time. Finding advocates for standards initiatives is part of the challenge.
Another reason for Winding Tree's popularity and momentum is the open-source format of the project. Participants e.g. suppliers and buyers that dedicate resources see an opportunity to influence outcomes and as a win-win to work on improving costs, but also to learn more about distributed ledger tech. Building a good open-source governance structure will be a key role for the Winding Tree team.
The bigger conclusion here is that WT need not boil the proverbial ocean to get moving on processing transactions. Connecting corporate partners with a limited yet satisfactory base of hotel inventory seems like a logical next step. Reducing the cost of distribution will likely play out as the first strategic priority. Growing competition from all sides is already putting pressure on established players to reduce commissions and overall cost of doing business. Today, Airbnb announced that it would open up its platform to traditional hotels at a 3% to 5% service fee - much less than what hotels pay to advertise on the OTAs. Once cheaper, Winding Tree will likely work on making the platform fast and better.
Have questions? So do we. Check out our LQ360 Framework for Travel Industry Predictions.