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The New Travel Intermediaries

Speaker Transcripts

Neal Checkoway
President And Ceo
Worldview Systems Corporation

At a recent conference I described Worldview aptly, I think, as an arms dealer in this race and as arms dealer we tend to be relatively promiscuous so I hope to insult just about everybody in the room today, not just a few of you, and I will try to keep this rolling as I have quite a long presentation.

First you create something compelling on-line. Part of the discussion this morning around coffee was about just how big this market is in this country, in Europe, beyond the US. I think from experts elsewhere the notion is that the market is in development certainly and that we are currently entering this phase where beyond, say, the arms dealers up here, we're beginning to enter a phase where content and commerce really are in fact the drivers in the market.

If the Internet is going to be a mass market phenomena, then we are just at the embryonic stage. This is about a year old and the ramp is increasing but as you can see, relative to television and so forth, the Internet is happening, it is a worldwide phenomena.

Some distinction is made here in terms of the difference between the World Wide Web versus the Internet. I don't care. Frankly, the World Wide Web as a platform for distribution of content, multimedia as well as textual, is really what interests me because travel is an application that is best suited to that kind of, unfortunately, high data requirement but we at Worldview take the approach that we want to continuously push the limits of the bandwidth to make travel, travel planning and arranging an experience that the medium really can support well. In another chart it says its big outside the US in four to five years and it's also what this chart is saying.

The opportunity for travel, the number of sites on the World Wide Web today that relate to travel, I think I saw something from Graham about 45,000, some inordinate number of travel sites on the Web today. The good news is that there's a tremendously strong demographic and phsycographic correlation between the frequent traveller and the frequent on-line user. A little bit of discussion about that, certainly in terms of education, in terms of income, in terms of disposable time and income, there is a strong correlation and certainly the number of business and leisure travellers that use the Internet today and tend to use it for their travel is increasing.

This is from a study from Andersen Consulting a few years ago and it indicates that the market for travel transactions, for travel information and for event transactions and merchandising in general is quite large. In fact, I think some say that it's going to be six billion in the year 2000 and nine billion in 2001.

Our objective of course always is to connect suppliers, in this case, classified by these various types, those offering transaction services, those having venue or content to promote, those having merchandise to sell, with the buyers, whether they be individuals, corporates or affinity groups and the question really is, for this conference, "does the Internet represent a new medium for intermediation?" Hopefully we'll answer that as we go along.

As I said, there was a great opportunity but the problem really is that it is only six billion. The market is huge and yet only six billion is going to be distributed on line in the year 2000, nine billion in 2001. Terry Jones, a colleague and enemy of mine, said that our biggest competitor in this market is the telephone. When you look at ease of use issues, that's really what the medium has to contend with. How easy is it to pick up a telephone and talk to a knowledgeable agent and make a plan. So that's really what's limiting the size of the market through the year 2001. It is an incredibly fragmented, busy, noisy, troublesome market. Anybody and everybody thinks they can play in this market. Anybody and everybody who has an inkling that they want to be in travel or that they have something to offer to the travelling public. So there's an incredible lack of consistency on-line, an incredible lack of reliability and some of the presentation will look at that further.

A credit to Andersen again. Consumers will make the shift to on-line when their needs for consistency, customisation and convenience are met but today, looking at the traditional sources of information including the average Internet site, there is very little that the consumer is offered in terms of fulfilment of their needs from comprehensiveness to ease of search and use. Now you get to low cost and certainly the Internet is a low cost medium but, other than that, all of these other sources typically don't satisfy the user's unmet needs.

So, what will it take for consumers ultimately to shift on-line? I've referred to Steve Case this morning, I'll refer to him again. Steve Case talks about the six Cs which typically he uses to describe what's of value on America On-Line. I believe they're still applicable here and the six Cs are content; context - the environment in which the content is presented; community - that is linking users of like interests together clearly; commerce - so that it can be viable; connectivity - making it fast, reducing the issues of band width that currently limit us in terms of presenting travel in an effective way; and cost - it has to be cost effective.

What I want to focus on a little bit is the content area. Content by itself and compelling content will drive use of the Web and specifically aggregators of content, whether they be horizontal or vertical, will in fact be among the winners in this race of providing content that will drive usage and satisfy unmet needs of users. Those sites that will be lucrative are those that will offer content that is broad and currently unstrained by technology limits of the Web. There's a lot of content that's available, much of it is re-purposed as opposed to specifically designed for implementation and availability on the Internet. So coming back to this, I'll add six more Cs, specifically regarding content. It must be comprehensive and if any of you have done searches on the Web for information about destinations and come up either with broken links or empty handed, you know that the user is frustrated typically by the kind of research they are doing on the Web if they cannot find comprehensive information. It must be believable, it must be credible, it must be creditable or reliable and the next C sort of ties into that - it must be consistently reliable. If the user comes back a second time and the information is no longer there, then the user is not going to trust the medium or, at least, the length that they've gone to before. And it must be up to date, current and, finally, going back to the Andersen study, the information must support the ability to be packaged in a way that the individual user can best use it. I'll add one more ingredient. Another C actually. This one comes from today's headlines. I've used this before but this was from an article in the Orlando Sentinel six months ago. "She was a homemaker with a nice family life and then she went on-line." The C in here is that seventh ingredient, that seventh C, - compulsion. You must create a sense of something that's compelling, something that is addictive.

Video.

I like to call this plane spotting as opposed to trainspotting and perhaps I should change the title here. Instead of creating something compelling on-line, we should create compulsion on-line and from my perspective there are a number of characteristics. You have to provide a lot of free stuff, whether that's content, merchandise, hard goods. You've got to give a lot of free stuff, today at least, as the market develops. You have to support the interaction of peers. In this case, we have a lot of people interested in travel, in destinations and you've got to support the interaction of those people in order to create something that's compelling because you want them to come back, you want them also to contribute through a shared dynamic. The users that have a similar experience or very different experience, particularly on-line, have a desire and a compulsion, if you will, to share that information. Through that interaction, through these features, you want to have frequency of use. Again, I was reading something from Graham on-line, I think, that typically a user, even if it's a frequent traveller, maybe we're going to get them to come on-line two or three times. There's a notion that we want them to come on-line more frequently, not just when they're planning but when they're dreaming, perhaps also when they have something to share. We want them to come back with great rapidity.

Ultimately you want to create a reliance on the service that you are offering in particular and finally sell them stuff. Maybe you can sell them stuff along the way but clearly the notion here is that you just don't want to have a great place for people to come and share their experiences, we're in this to make money. So I call this plane spotting. You may have heard it referred to as the heroin marketing strategy, hence my reference to trainspotting. Clearly the characteristics are make it so compelling, make it so addictive, make it such fun that the commercial enterprise is something that happens as a matter of course.

So let me quickly go through some of the characteristics from our perspective of what makes something compelling. Clearly you have to attract them. Get them to come. If you were a commercial Web site and said that you'd got 180 hits, you might as well fold up your tent and go home. Clearly you need to have traffic and in order to have traffic, you need to attract people to your site and there are ways to do that. Once there, you need to encourage the interaction of the user with other users and with the site itself. Call it a need to be satisfied once they're there and while they're there so that they come back, so that they get addicted and so that they are hooked.

We were really sort of smug about creating the brand Travelocity until Paul reminded me this morning that it's pronounced every way. In France, travelo is a rather derogatory term. It means transvestite apparently. So Travelocity was an unfortunate choice of name for France. They are getting a lot of hits. They're not quite getting what they thought they were getting when they log-in.

So in terms of how do you get people to come, its traditional marketing. Marketing 101. Just the basic building blocks. In addition, what we find is that it's very important to leverage the brand and distributional and promotional strengths of partners, whether those partners be suppliers or whether they be content providers. Graham mentioned Worldview is happy to have its brand disappear in lieu of stronger brands that perhaps can help with the attraction of traffic. Our experience also was that in the creation of Travelocity, it takes a lot of money through advertising and public relations to create a brand new brand. Now many of you have brands, you don't need to create a brand and therefore it probably isn't going to cost quite as much although I've got another slide later that sizes that a little bit. Clearly you need to use the tools on-line to help drive traffic, whether those are search engines which are not entirely reliable and I'll deal with that a little bit later, but also establishing relationships from other sites that can drive traffic to yours.

In terms of interaction, allowing users to commune with one another as well as with the experts, whether those experts are writers, whether they are people with destination expertise, whether they are people who understand how to get deals on-line. These are the traditional community building features that any site that is going to be compelling must have. Your presentation, your content, your information must be accurate, reliable and we believe that it needs to be continually refreshed, whether events that change on a daily, weekly, monthly basis. The information has got to be current and broad as well as deep. We believe in a notion of mass-personalisation. The notion of customisation, but customisation on a very broad basis because today it's extremely difficult, even though the promise is there, that when you log into a particular Web site, you're going to have a completely customised interface and a completely customised presentation. Today that's not really true. There are some sites that purport to do that. So instead, we take the approach that you want to do that on a mass basis layered against a high-performance database that can openly support full customisation. Engaging the user to contribute to the content store in terms of ratings and recommendations. If the user in Europe has something good to say about a restaurant that the user in San Francisco can learn about, then the content store can be dramatically increased as well as the satisfaction and repetition.

Addiction: if you have a good compelling site then you want to increase the user switching costs by continually engaging them, by continually asking them to contribute, by making sure that it's going to be incredibly expensive for them to go to another site and by also making it fun.

Now in terms of retention, you're going to need all of these features and, of course, the objective once you have these is to drive the transaction which, as we've mentioned before, represents the ultimate objective which is connecting suppliers to buyers.

We happen to see the market developing in a few ways, some of which are troubling, some of which are interesting, nonetheless they are inevitable.

Today, there are the international mega sites and I'll talk a little bit about those in a minute. The Expedias and the Travelocities of the world. There's a lot of discussion about the supplier going direct and finally we're seeing the emergence of a new channel which has been alluded to today, which is a channel of local and regional branded sites for which travel is not necessarily strategic but tactical. We're also seeing that these two today are somewhat related. The supplier direct is more evident. The regional branded sites are emerging.

So the international mega sites - I'll include Preview Travel in this. The jury is still out whether they in fact will eventually become as prevalent as Expedia and Travelocity from a branding and a visibility perspective but these will prevail and they are categorised typically by one-stop shopping, by an incredible amount of money being spent to maintain and promote the sites and by limited visibility for particular suppliers. You may look at an Expedia or a Travelocity and see occasional promotions but generally Microsoft and Sabre don't care about individual suppliers and that's in part because those companies have an historical difficulty in partnering, despite perhaps some of your own experiences in this room, because they have to be, what I call the alpha dogs and they find it very difficult to partner.

In terms of supplier direct and of course these are the traditional air, car, hotel venues. I'm sure I'll insult some of you. There's this tremendous confusion today about what they are doing on the Web. Are they promoting themselves from a corporate/PR perspective or are they trying to sell something? Are they willing to accept the cannibalisation that is likely to occur by going on-line, embrace it and then figure out a way, either around it or through it, or are they closing their eyes to it. Apart from frequent flyer programmes, there's not a lot of evidence that in the retention area that suppliers have developed a strong ability to keep the customers coming back. Certainly a lack of compelling content and context. There is a focus almost exclusively on the commercial site, on the transaction, and finally there's a reliance on search engines for consumers to find their site.

Let me digress briefly. This is from a study and it's representative of the mixed results that people can get when relying on search engines to drive traffic to their site so I would ask is the use of search engines to drive traffic comprehensive and reliable and if you were building a Web site, would you trust Yahoo to drive traffic to your site? And the answer should be no, it should be part of the mix but it definitely should not be what you rely on. Now, unfortunately, when you build a Web site and you have to fund it and you don't want to use just the search engines, it can be quite costly. This chart represents the different types of Web sites that may be built from purely marketing and promotional all the way through to a full comprehensive one-stop shop and you can see that at a minimum, and I say at a minimum because we have personal experience of developing these sites and what they cost to build and maintain today, 1997, plus $4 million is a reasonable amount for a fully transactional, promotional and content rich site.

Going back to how the market is evolving, the requirement for a great deal of capital to support an independent Web site has led to the emergence of this third channel which we see as composed of companies like this. Telephone companies - I drew ISPs in there because eventually all the telephone companies and ISPs essentially will be the same thing - financial institutions, ie banks, credit card issuers and so forth and publishers, and these tend to be characterised by strong, well established, well funded brands, BT. These are Mastercard, Citibank, Barclays, Random House, Conde Nast. Very often these brands have an historical ability to establish and retain a constituency and maintain that constituency. As I mentioned before for many of these travel is not strategic. I talk to many companies that have a folder that says travel initiative and I joke about whose going to be the next big player in travel. It maybe General Foods. Whatever companies have strong relationships with large constituencies are going to be able to do that because they have the brands and they have the customers. Unlike our friends at the mega sites, they have a history of being able to partner and outsource; those things that are non-strategic.

I include in this some travel agents, large and small, who recognise that they have a constituency that tends to be loyal if they interact with it frequently and even though they may not be as well funded as some of these others, they can maintain that loyalty through this kind of interaction with their customers.

As I mentioned before, there's a relationship between these two segments that, within the next year or so, we would see as further devolving just down to a single segment which is speciality branded sites. Whether it's Visa or perhaps Rosenberg Travel, the sites will be strong brands and have a relationship with the constituency. Of course, the six commandments apply in either case regardless of which segment you find on the Internet. You'll see that what will make them successful will be these characteristics that we've already talked about.

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