Sector Initiation February 2012 - INDEPENDENT TECHNOLOGY RESEARCH SECTOR INITIATION FEB 2012 SOCIAL TRAVEL SOCIAL TRAVEL – THE HUMAN TOUCH Arise Social Travel Social travel is on the rise again and about to finally take the place it deserves in the social sphere. New and exciting models offer full integration into the main social network platforms, ease of review / advice upload from geo- localised smartphones, and easier monetisation. Reputation and Trust are Key As with all disruptive business models, initial challenges must be overcome. For social travel, these are establishing reputation and trust. Companies that want to embrace the social element must first tackle the inherent concerns that individuals have when the social internet and offline worlds combine (especially in the case of collaborative consumption). A large number of start- ups complement the efforts of incumbents such as TripAdvisor and increasingly Google, and are creating a healthy disruption. An Exciting Opportunity for Investors Now that social networks have evolved and entered the mainstream, social travel start-ups can prosper. Renewed interest is illustrated by Google and TripAdvisor’s increasingly serious foray into the sector, meaning this is a space to keep an eye on. This report presents the main reasons behind social travel’s coming of age, and analyses some of the more interesting models and companies. GUILLAUME BONNETON [email protected] London: +44 207 101 7578 MALCOLM FERGUSON [email protected] London: +44 207 101 7595 Important disclosures appear at the back of this report. GP Bullhound LLP is authorised and regulated by the Financial Services Authority in the United Kingdom SOCIAL TRAVEL – THE HUMAN TOUCH SOCIAL – THE NEXT DEVELOPMENT IN ONLINE TRAVEL? Travel first moved online in 1996 with the launch of Expedia, providing consumers a more efficient way to book hotels and flights. In the early days, the services were identical from traditional bricks-and-mortar travel agencies, but lowered barriers for companies wanting to target consumers with information on the full scope of travel related products from flights to hotels. This led to a boom in the amount of travel products and services available and led to the natural development of travel meta-search engines such as Kayak, which pulled together the best information and prices from a wide array of different sources, not only saving time for the user, but also making information much more accessible. What online travel agencies and travel search engines did well was provide factual information about the product. They neglected, however to provide independent, qualitative information, which came into the mainstream with review aggregators such as TripAdvisor, Zoover and Holidaycheck. Travel reviews are so effective because they provide would-be travellers with trusted, non-biased information about what companies trying to sell. Doubts about the quality of the reviews (bias, different demographic profiles etc.) disappear when you can use your social graph to source even more trusted information from friends and family motivated to enhance your travel experience. S OCIAL T R A V E L E VOLUTION Online Travel Social Networks Social Travel Source: GP Bullhound Many companies use social tools (e.g. Facebook “likes”, viral advertising etc.) in a way which helps improve their customer acquisition and brand image, but for a company to fully capitalise on the benefits of social they must incorporate the human aspect (trusted sharing of information, utilisation of the travel knowledge of friends and family, interaction etc.). In our opinion, companies have been largely unsuccessful in achieving this goal, at least in Europe. 2 GP Bullhound LLP SOCIAL TRAVEL – THE HUMAN TOUCH THE SOCIAL TRAVEL LANDSCAPE – THEN AND NOW It has widely been thought that travel lends itself particularly well to online socialisation, and that as a result it would represent one of the largest and most successful activities for social web 1.0 and 2.0. This was predicated by several factors. Travel Online is Huge The traditional travel industry, with the dematerialised nature of its products, historically high level of regulation, complex cost structure, myriad of more or less efficient players, and lack of price transparency, was ripe for a significant web-led shake up. Indeed, it was more profoundly impacted by the development of the internet, and at an earlier stage, than most other sectors of the economy. Today, travel represents: The single largest expense online for European consumers 30% of the total B2C e-commerce market in Europe (source: PhoCusWright, eMarketer) in 2010 An industry where 35% of transactions occur online (versus 10% for total retail) (source: PhoCusWright, 2011) Travel is Social Travel plans, past, present and future, count as some of the main discussion topics among colleagues, friends and family. Comparing notes on a destination and dispensing advice on where to stay are some of the surest ice-breakers in all cultures. People are typically proud of their travels and like to discuss them. As important as where you travel, is who you travel with, showing how core socialisation is to travel. Travel is Heavily Researched and Opinions Matter Travel, and in particular holidaying, is not only very expensive, but in many cases, people only get to go once a year. As a result, opinions of trusted parties matter hugely. This explains why we spend more time researching our travel than for most other expenses. % OF UK C O N S U M E R S W HO C O N S U L T R E V I E W S B EFORE M A K I N G A P URCHASE Booking hotels, holidays or travel tickets 27% 41% 68% Buying a car 21% 38% 59% Buying or renewing insurance 11% 26% 37% Chosing a bank, mortgage or loan provider 10% 23% 33% 0% 10% 20% 30% 40% 50% 60% 70% 80% Always consult reviews Often consult reviews Source: Reevoo, September 2011 GP Bullhound LLP 3 SOCIAL TRAVEL – THE HUMAN TOUCH A Difficult Start Despite this auspicious environment, social travel has not yet reached the potential that many foresaw. In particular, the first wave of “Social Travel” start-ups was by and large unsuccessful. While communities in games and dating benefited from huge viral user growth and impressive revenue streams, social travel communities such as WAYN and Dopplr suffered from several challenges in our view: Lack of critical mass for the communities: Community fragmentation, with a plethora of sites purporting to connect users to their fellow travellers, and little or no integration between networks, meant that no particular site managed to reach the necessary critical mass of travel-oriented members Limited monetisation: Users who visited the site in search of travel recommendations were in general only at the beginning of their decision-making funnel and as such not ready to make a booking through the OTA (limiting ability to effectively monetise). The main revenue stream was through advertising, but limited audience, often spread around many geographies, meant that CPMs and percentage of inventory sold were low Unappealing community profiles and content: Although most of us travel at least once a year, frequent travellers tend to belong to rather disparate groups: backpackers, business travellers and wealthy people. Online communities found it difficult to segment between members, and built heteroclite communities, less likely to create adoption and loyalty among users. Also, the social profile of these communities, with higher representation of frequent travellers, did not reflect the average person’s network of friends, and made them less attractive to the general population. As a result, most profiles were inactive, leading to content of limited interest Social Travel 2.0: Reload In 2006, Facebook opened its doors to the wider public (having previously restricted access to a selection of US universities), making the second wave of social travel possible. Facebook were able to do what the travel-focused communities had difficulty. It was able to grow its loyal user base at such a rate that it achieved a critical mass internationally. Today, Facebook has over 800m users - a reach of almost 40% of the global internet population. Today, this new wave of online social travel operators is emerging, which harness the improved environment and hopefully offer answers to social web 1.0’s challenges, namely: Critical mass through integration with established generalist social networks (Facebook, Twitter, Linkedin, Google +): - Facebook is doing to the social travel world what roads did for the Romans. The Facebook infrastructure and community allows social travel sites to not only reach a vast number of users, but also act as a tool for simplified account creation, viral audience acquisition and granular social information, among other things. And that is without 4 GP Bullhound LLP SOCIAL TRAVEL – THE HUMAN TOUCH taking into account Linkedin (business users) and Google+ (early adopters) - On top of this, integration with Twitter will become increasingly important. This platform has been evolving and is now much more able to help users discover things in which they may be interested. With the advancements in semantic search, travel could leverage the platform to help would-be travellers find new and exciting places to visit Attractive community profiles and content: - By mirroring the social graph of the member, the core community of activity/advice/review sharing offered by social travel operators is much more likely to fit the member’s