Amazon has started a soft launch of virtual experiences so Jeff Bezos’ e-commerce behemoth will undoubtedly expand into offline tours and activities, and steal a chunk of competitors’ businesses.
GetYourGuide, Viator, Klook, Expedia, and Booking.com/Musement, you’d better cash in your chips now, and run for cover.
Well, not so fast.
As officials at Amazon, Booking.com, Airbnb, Vrbo, and GetYourGuide would undoubtedly concede, online travel is a lot harder to execute in practice than it often appears from the outside.
The barriers to entry in sectors such as vacation rentals, hotel booking, and tours and activities are ones that have often humbled executives of big travel companies who found a seeming opportunity too enticing, and then learned some hard lessons when a bitter taste set in.
Amazon Launched a Hotel Booking Service in 2014
Consider Amazon’s fraught experiences over the years as a hotel-booking company.
For many years, hotel bookings have been the engine that drove the growth of big players such as Booking.com and Expedia, so Amazon debuted its own hotel-booking service — the latest of serveral attempts in travel, actually — around November 2014, but dropped the idea without explanation a year later.
Then-Expedia CEO Dara Khosrowshahi, in a CNBC appearance on November 25, 2014, welcomed Amazon to the hotel fray, but seemed relatively non-plussed about Amazon, which at the time was contracting with individual hotels to scale its nascent hotel-booking service.
Expressing confidence in Expedia’s almost two-decade head start, Khosrowshahi said his company had “over 300,000 hotels now in our system on a global basis. It is going to take a lot of catching up to do for any global player to get to the size and scale that we have on a global basis. So we are really confident of our prospects going forward.”
Booking.com Admits Vacation Rental, Attractions Shortcomings
In their actions and in statements, Booking.com officials have conceded that on-boarding individual vacation rentals — as opposed to those controlled by big property managers — and building a tours and activities business, have been harder than envisioned.
At Skift Global Forum September 22, we showed Booking Holdings CEO Glenn Fogel a 2015 Skift article that had HomeAway co-founder Brian Sharples warning rivals that it would be tough to catch his company because of its scale in offering second homes from individual owners.
“I think the barriers to this business are much bigger than what people typically assume,” Sharples was quoted in the article as telling a Goldman Sachs conference in June 2015.
At Skift Global Forum last week, Fogel said that Sharples had been correct, echoing comments Fogel made in August that Booking.com had a weakness in its lack of single-owner vacation homes.
“It is certainly harder, it costs more money in terms of the effort you have to put into it to get them on board,” Fogel said at the Forum, referring to vacation rentals owned by individuals, and the added costs of dealing with these types of homes. “And then, by the way, when they are on board, then there are more contacts with that owner to talk about how do you work this whole thing.”
Like Airbnb, Booking.com saw tours and activities too hot a commodity to abstain from when it acquired activities distributor FareHarbor in 2018, but had to restructure Booking.com’s attractions business starting late last year, and ultimately outsourced the on-boarding process to Musement, which is a TUI brand.
In essence, Booking.com officials realized that it was way behind competitors in building its attractions business, and it was a lot harder to do than it might have initially thought.
Waiting for the Numbers of Airbnb Experiences
Airbnb’s confidential registration statement for its potential initial public offering has not been publicized yet, but it will likely offer some insight into the trajectory of Airbnb Experiences, which took shape starting in 2016. The Wall Street Journal reported earlier this year that Airbnb Experiences “racked up losses totaling nearly $1 billion” in 2019 despite earlier projections that it would be profitable.
The tours and activities business is often a low-margin enterprise, and the names of travel startups that saw attractions as irresistible, but went out of business could fill pages.
Commenting on the complexities of the tours and activities business — and these cautions are highly relevant for Amazon, Airbnb and Google — GetYouGuide co-founder and CEO Johannes Reck said at Skift Forum Europe in June that tours and activities require a lot of tech, knowing the business complexities, and making it a company’s number one priority to scale globally.
Referring to the Booking.com-GetYourGuide competition in experiences, Reck likened it to Disney versus Netflix in streaming, and Apple Music versus Spotify in tunes.
“People typically underestimate the young startup that is 100 percent focused while there are all eyes on the incumbent who is typically a very large and slow company,” Reck said. “I think there is really something to David versus Goliath, and I think David is typically faster and more agile and can really get things done.”
Amazon’s intentions in virtual experiences and beyond is unknown. The company didn’t respond to a request for more information. Its beta so far seems a mix of tours and retail product offerings.
If Amazon does eventually seek to launch real-world tours and activities, it would have to face the issue of whether consumers could be convinced to look to Amazon for such ventures. It could have parallels to Tripadvisor’s challenged efforts to convince travelers, who came to Tripadvisor to read hotel reviews, that it was also a place to book hotels.
Never underestimate Amazon, though, considering the consumer traction it commands.
However, new entrants in both experiences and vacation rentals should never downplay the power of focus, and the complexities that might not be readily apparent.
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