This is part one of our three part series on the online tours and activities market, focusing on the buzz around venture-backed startups in the space. Part two here.
The online and mobile tours and activities market may be the most-buzzed-about topic in the world of travel tech, but it has not been buzzy enough to catch on with consumers or with at least one travel meta-search company: Kayak recently ceased offering in-destination activities and sightseeing excursions through its mobile apps.
In so doing, Kayak terminated a year-and-a-half-old experiment and partnership with Berlin-based GetYourGuide, one of the hottest of the many new tours and activities companies.
Kayak’s decision symbolically places a pin into what some view as inflated prognostications about the tours and activities market. That’s especially true when you consider that mobile platforms are the most-suited — or should be — for travelers who are already at their destinations and are looking for something exciting to do.
These tours and activities options, which generally have to be booked a few days in advance, certainly didn’t seem to be a fit for Kayak and its mobile users. That’s because they didn’t book tours when they picked flights or hotels through Kayak, and tend to look to different brands, or purchase a tour offline, once they are already traveling.
“It seems to be a small addressable market, and there’s a lack of consumer dissatisfaction/compromise to improve through mobile delivery,” says one insider.
Hype or opportunity?
Was Kayak’s decision an abberation? Is there the potential to make big bucks in the tours and activities market? Is it hype or the next, still-untapped opportunity in travel?
Much of the interest in the tours and activities market over the last few years has been generated by dozens of startups looking for funding, tech providers seeking new business, and the trade press, most of which cite a 2011 PhoCusWright study on the U.S. tours and activities sector.
A superficial reading of the study would have investors scampering to collar a startup or two for their funding pleasure. The report states:
This landmark study uncovers a surprisingly large market: nearly twice the size of the car rental and significantly larger than the cruise and tour operator segments combined. Travelers [U.S.] spent nearly $27 billion on activities, attractions, events and tours in 2009.
Digging deeper into the study, PhoCusWright says tight supplier control of activities such as athletic events and theater performances reduces the “addressable travel activities market” to $20.8 billion.
But, in addition to tours and attractions, included in that $20.8 billion number are products ranging from spectator sports to pre-reserved taxis. PhoCusWright then whittles the online travel activities sector to $4.1 billion, pointing out that the vast majority of tours and activity sales comes from suppliers, largely through offline means.
Suddenly, the nearly $27 billion tours and activities market, which was nearly twice as large as the U.S. car rental market ($14.2 billion) and more than double the girth of the U.S. cruise market ($12 billion), becomes just one-third the size of the cruise market at $4.1 billion for online and mobile players.
Still, a $4 billion market in the U.S. alone — not to mention the rest of the globe — is substantial and nothing to dismiss.
A weird sector
The challenges of bringing the tours and activities sector online and into the mobile arena are legion: It is a tremendously fragmented market, and PhoCusWright found that fewer than 40% of the companies in it have an online presence at all, while the average transaction is just a tad more than $100.
Visit your local dive or bike shop, and you’re more apt to see the owner keeping track of available product on an Excel spreadsheet or legal pad than through a sophisticated inventory control system.
“There are tens of thousands of small operators, and they don’t think collectively at all,” Cuthbert says, adding that they don’t think of themselves as part of the travel industry or any industry, for that matter. “The owners of hotels and other businesses in the travel industry are often principally business people, but tour operators are often close to their offering.”
Current travel industry players in the tours and activities market include distributors such as Viator and GetYourGuide; a hybrid distributor/operator in Gray Line, tour operators such as Thomas Cook, and TUI; Expedia; tech companies, and dozens of startups ranging from Vayable to Triptrotting and Peek, offering everything from tours to local guides, and events.
It’s tremendously difficult to start from scratch in this sector. New-entrants have to get access to tour products in each new marketplace, and battle for consumer traction.
“It is entirely fragmented, and there are no big brands you can partner with to give you scale,” Cuthbert says.
Like several other analysts of the tours and activities sector, Cuthbert sees a bubble among the startups, and predicts “many of them will see a timely demise.”
That may be particularly true for the myriad of peer-to-peer startups, where margins are thin and brand recognition is fleeting.
Here’s the executive summary of the 2011 PhoCusWright report on tours and activities.