[back]

Century 21 - New Business Models in Travel

Speaker Transcripts

Marc Charron
The Online Travel Auction

Things are changing so quickly, so it is more about how you adapt and innovate nowadays.

I'm going to briefly introduce QXL, talk about auctions and then spend most of the time talking about a particular business case.

If it was 18 months ago, I would have talked about the potential of the Internet, 12 months ago, probably about new media and auctions, but today we've moved even beyond that, so that I can talk about a specific promotion and even give you details about how we drive sales. So I'm assuming a certain level of interest in the internet as a Channel and I hope to give you something to really chew on.

QXL was one of the first e-commerce companies in the UK and has been going since September l997 and was the first to really do auctions in a big way. We were founded by a journalist with e-commerce experience as a reporter, but he decided to take the bull by the horns and actually tried to make a business of it, rather than just writing about it. We launched travel auctions in October l998. That was a new start for us in terms of our business to consumer auctions and we have now moved into consumer to consumer auctions. We've also now moved into Europe, which was part of our business proposition. We are a European auction company. We have multi-currency, multi-lingual sites in France, Germany, Italy and the Netherlands and we're going to launch in Spain in early 2000. The UK is our core market and we are a European, rather than American, company. We completed an IPO in October l999 - which probably was the most prominent IPO after Freeserve. I believe it will become more and more conventional for companies to take this route to expand.

So what do we do? We help you sell on-line. An old idea and we do it a different way, but that's the core of it. And what we specialise in is moving discounted inventory - auctions use flexible pricing tools to maximise your yield.

To give you a context of what we do: we're not an agent, we're not a tour operator, we are a venue for direct sales. It is a business model that is unique to new media. We offer a community of buyers, we give you the tools and the platform, an exciting retail space to offer your products. We don't act as your traditional travel intermediary and, hopefully, when I talk you through what we're doing in our current promotion, that will become clear.

I'm going to talk briefly about customer experience, because auctions are not intuitive. Why buy travel in an auction? Anyone can look at our site, anyone can see what we have to offer. We're a shoppers destination. We sell everything from computers to electrical goods to collectables. Anyone can see what we have to offer. We have hundreds and thousands of simultaneous auctions. In order to bid, you have to register - this takes about 90 seconds. You have to register with a credit card if you want to bid on travel, which is a huge leap from the browser to the shopper. We have spent a lot of resources on trying to get people to take this leap - to become browsers and on-line buyers. If you bid on an item, it's all public. If you're outbid, you get an e-mail telling you you've been outbid. If you like, you can also put in a proxy bid or use software to automatically raise the bid, if you are outbid. So, if you see what you like, you just put in a bid and we communiacate by e-mail, you don't need to come back to the site, although people do seem to enjoy coming back to the site. It's a sort of "sticky application" (sorry to use a bit of internet speak) and people like to come back.

The business case I'd like to talk about is a promotion we have going with British Midland, which we like to call the world's biggest airline auction ever - I believe that's the case. We're doing 10,000 seats over a 4-week period and the reason I think this might be of interest is that I believe this represents a new scale. 18 months ago we could talk about how the internet could help you sell dozens of seats, 12 months ago we could talk about selling hundreds, but we've moved into a position where we can sell thousands and that's where it becomes very interesting for everyone. 

The concept behind it is familiar. It's usually through a readership offer. The airlines would traditionally go to a media partner - broadsheet or tabloid - and would promote their discount that way. But what this means is massive resources for call centres, huge costs of media buy and what we've done is take this business proposition on-line.

Here's how it works. We take the 10,000 seats - which sounds like a huge number, but if you chop it down it's actually about 350 a day and, if you chop it down a bit more, it's actually about 30 auctions of 10-14 seats a piece. So it becomes manageable. What we've done is set it on a schedule, so that every day, these 350 seats change. We communicate to our customers that these 350 seats change every day. We're not a retailer. We're not the place you go to get everything We're the place to go to get extraordinary offers. The auction closes every day at 2 o'clock and we are able to provide our airline partner - British Midland - with the results within 2 hours after the close of the auction. We are not a retail intermediary. We actually allow our partners the fulfillment opportunity to speak directly to the customers and they use that opportunity for added sales - to build a relationship of their own. What we're good at is driving demand. We're NOT trying to be an agent.

The first mistake we made was that we under-estimated demand. When British Midland did their last readership promotion of this kind, they had 40,000 phone calls on the first day and they didn't have the means to cope with this. You can double staff, you can triple staff and, although this explosion of response is exciting, it's not manageable, so ultimately you calculate the lost opportunity by the number of phone calls you couldn't answer. But, what we can do on-line, is actually capture the interest. We remove the process of dealing with leads and deliver actual customers. So you'll find on-line all the terms and conditions and details, destination information, specifics of how it works and we can convey a lot more information than could appear in a newspaper advert. This is one big advantage of the new media. So what it gives to British Midland is that they have two dedicated staff to manage thousands of new bookings. So what we've seen over the last 2 ½ weeks is the power of the new media to move and act quickly. We provide management information that tells exactly what was sold, exactly what the bidding was and, in that way, we are collecting demand and the offers change accordingly. On the first day, we found that there wasn't much demand for the East Midlands-Stuttgart route (which wasn't wholly surprising) but there was a lot of demand for East Midlands-Frankfurt (which we didn't know before) so we could make adjustments on a daily basis - we knew we could sell Prague and Dublin well but, the fact is, there are lots of niches such as Warsaw that had surprisingly high demand and British Midland could capture this demand, which they didn't know was there previously. They're also happy not to have to collect thousands of tokens which readers send in from traditional paper advertising. They could make a nice bonfire - but customers also prefer not to send them in. They also get the advantage of ease of use - it's much easier on-line. We've seen a huge uptake.

I think the key to it is building a marketing inter-relationship with our partners. Everyone on our site is branded. It's their choice. It's not ours. They want to be part of the auction environment. They see it as a key promotional opportunity. First and foremost, they see it as an opportunity for sales. Certainly, British Midland saw the opportunity to use our media - and by that I mean capturing eyeballs. We drive a lot of traffic - first, on-line through banner advertising, tactical promotions. We also did a drive-time radio promotion with Virgin. We also do significant e-mail marketing - it's opt-in e-mail marketing, it's not spamming. We send millions of e-mails every month to our customers who want to know what our offers are and, if they don't want to know, they e-mail us to tell us. In fact, e-mails are incredibly powerful and perhaps someone will address this later today.

E-mail marketing puts the offers directly in front of the customer - "one click away" as they say, so the impulse buy is made all that much more tangible. It's not a thought process. You don't have to get from the newspaper to the phone. It actually happens much more quickly. When you're dealing with these core impulse sales, you think it's fair to say most people weren't thinking of going to Brussels until they found out it's only £19. Or January/February/March aren't the ideal months to go to Palma, but for £39!! That's what we're trying to capture and, hopefully, we're doing it with our partner in such a way that makes it very easy. 

The core is not just 'Can we help you sell?', but 'Can we help you sell easily, by minimising the resources it takes?' We have a process by which you can distribute through us that makes sense. Our partners like the fact that they don't have to produce 20-30 brochures for every booking. They like the fact that it doesn't require one booking out of 20-30 people that walk in the door. Even in the off-line readership offers - of those 40,000 phone calls, the conversion ratio is about 5 to 1. But, in our case, there is just one outbound phone call, with average time of 3 - 5 minutes to make to sort out passenger names, offering them a car rental through their partners,etc.. 

This is, of course, new for everyone, even for the media commenting on it and we were shocked at the level of uptake - it had tremendous uptake. The fact is that this is unique, because we're using a different business model. But the convention of selling discounted seats through readership has been exploited by most people in this room at some time or another and we just want to help you do it better. We have decided, as a consequence of the British Midland experience, that we have two things we can offer our partners. One is a constant presence on-line as a distribution outlet - as a place to connect with people - as they would through Teletext or though the Classifieds. That is more our proposition than, say, an on-line agent who might be distributing in the more traditional way on-line. We actually combine advertising - in the sense that we can capture a lot of eyeballs and we can drive interest. But, of course, you don't pay us unless we're successful, so you don't have the up-front costs that you would have, say, with traditional advertising. We are in a position to work based on our success. So it's a nexus of the advertising promotion that you might do and as you might sell through your traditional distribution -through your agent.

That covers it. Thank you very much.

[back]