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The tours and activities sector has some conventional wisdom: The brutal cost of acquiring customers will drive margins down. Curated travel listings can’t scale. Walking tour operators will reject the soft branding of their offerings. Consumers travel too infrequently to become loyal to one online aggregator of experiences. The online travel giants will eat the lunch of small startups.
But GetYourGuide, a Berlin-based travel startup, has often defied that conventional wisdom. Investors seem to like GetYourGuide’s somewhat contrarian path. The startup has raised $175.5 million in funding.
What’s more, GetYourGuide may soon close an approximately $300 million funding round, with participation by possible new investors such as Temasek, a Singaporean sovereign wealth fund, according to multiple news reports. The company had no comment. Yet if the news pans out, such an investment would likely place a billion-dollar valuation on the company.
Sales are up. Between June 2018 and March 2019, GetYourGuide sold 10 million tours. It took a prior decade to sell its first 15 million.
Here are some of the pieces of conventional wisdom that GetYourGuide appears to defy.
Belief: Margins Can Only Go Down
Customer acquisition is the critical piece of the puzzle to some experts.
One reason: Attraction vendors have begun to protect their trademarks. Case in point: the Empire State Building now prohibits paid search advertisers bidding on a large range of terms with its name. Museums and other attractions are jumping on board, too. The trend disadvantages unfamiliar brands trying to get a foothold in customer acquisition. Aggregators with strong demand sources, such as direct, will gain an edge.
In a sense, GetYourGuide and its rivals compete at a disadvantage for customer acquisition with the travel conglomerates. Between a third and a half of visitors to Booking.com, Expedia, TripAdvisor, and Airbnb come direct. When customers come for flagship products like lodging, those giants can easily cross-sell tours to them.
GetYourGuide said it’s holding its own in customer acquisition. It receives more than 20 million unique visitors monthly, up from 9 million a month two years ago, across all its website and mobile app domains, it said.
However, TripAdvisor, for example, gets 490 million unique visitors across its domains that it can cross-sell to.
GetYourGuide has to pay for most of its traffic, either by what is effectively a revenue share with its partners, such as in a partnership with EasyJet, or directly via digital advertising, such as by buying ads on Google and Facebook. An unanswered question is how much of its traffic it derives from partnerships like EasyJet.
This year, GetYourGuide will make a significant investment in brand marketing in Europe, said co-founder and chief operating officer Tao Tao.
“Consumers have a maximum of one or two particular brand associations with particular categories of products and services, such as Uber and Lyft for ride-sharing in individual markets,” said Tao. Whichever company becomes a household name for online tour booking will gain an edge that will be hard to displace, he argued. Cross-selling is also harder than it looks, he said, using this example: If you, as a consumer, have ever gone to a price-comparison engine to book flights but then gone elsewhere to book a place to stay, you’ve shown how consumers develop habits.
Brand marketing may be an uphill battle for startups like GetYourGuide, its arch-rival Klook (which has raised $300 million to date), and other players.
Skeptics say that to afford traditional brand advertising, GetYourGuide would have to cut its margins. Typical industry margins are about 20 percent.
GetYourGuide waves away talk of margin pressure. The global tours and activities market may be about $150 billion a year, estimates Skift Research. Operators still sell about four-fifths of their experiences offline, said tech vendor TrekkSoft. So there’s plenty of attractions inventory for everyone to bring online and sell, as Tao argued at Skift Forum Europe last year. As of today, GetYourGuide’s inventory may represent only 3 percent of the total inventory available.
Consumers make half of GetYourGuide’s bookings today via mobile web and the company’s app, suggesting that the brand already has in-destination awareness among some consumers.
Belief: More Is More
When it comes to online sales of hotels, the conventional wisdom is that “whoever has the most inventory in the end wins.”
GetYourGuide currently offers more than 36,000 experiences in more than 140 countries. However, TripAdvisor and its sister brand Viator which together are the largest drivers of volume list more than 200,000, as of Monday. Klook, the Hong Kong-based rival, lists more than 50,000 activities.
GetYourGuide is selective, depending on the category. For attractions, like access to popular sightseeing spots like the Burj Khalifa or the Petronas Towers, it grabs all the content it can get. It wants a breadth of geographic coverage for every significant tourist attraction worldwide.
“But for walking tours and other activities, we take more of a selective approach,” said Tao. “When we consider, say, walking and Segway tours in Rome, do we think all of them are really great? Probably not.”
However, curation has a mixed track record. Case in point: HotelTonight typically limited search results to 15 hotels per search. While its acquisition by Airbnb is respectable, some critics say the limited offerings contributed to constraints in its popularity.
“This is one of the biggest misconceptions we hear from analysts, this assumption that all travel products are like hotels,” said Tao. “Lodging is an availability-constrained, commoditized product. But experiences are a service, or a more discretionary want.”
“If you need a place to stay, you’ll accept what’s on offer,” said Tao. “When I was a student, I might have paid for the worst hotel in Paris because at least it was cheap and I needed a place to stay. But I wouldn’t pay for the worst walking tour in Paris. To earn repeat customers for experiences, we have to be selective.”
Not everyone agrees. Viator used to have a curated model, but around the time of its acquisition by TripAdvisor, it “went mass.” Its calculation was that breadth is what the market wants. In Asia, Ctrip has been rapidly onboarding attractions content globally. In 2017, Expedia processed more than $500 million in tours and activities, with plans to double that volume soon.
“Many players just want to get as much inventory as possible,” said Tao. “But if you increase your inventory faster than you increase your volume, then that just means you generate less demand for some suppliers. We’re instead prioritizing being better partners for our suppliers.”
Still, the verdict on selectivity is still out. Airbnb’s experiences offering, which is much more strictly curated, has reportedly remained small, contributing less than $20 million to its revenue last year based on roughly 1.5 million bookings, according to The Information.
Belief: Suppliers Won’t Like Soft Brands
Last June, GetYourGuide began soft branded tours, testing an effort in which it would take tours run by independent operators on a white-label basis and market them under the GetYourGuide brand and vet them according to brand standards.
Since then about 50,000 people have taken GetYourGuide branded tours. GetYourGuide employees handpick tour guides, give them training, and have a say in the content, such as tour length and itinerary.
The conventional wisdom says that suppliers will resist external branding. The types of people who go into the experiences business are often independent-minded people who balk at ceding control.
Ownership, rather than partnering, is a way around this. Taiwan-based KKday, has sold branded, or “KKday signature” tours, since 2017. About 20 percent of KKday’s inventory of 20,000 attractions is made up of its official tours. KKday arranges the itineraries, picks the tour guides that wear KKday vests, and hires and brands the buses (such as on this Taipei tour).
Outside observers might note that branding by KKday or GetYourGuide or another startup might appeal to investors like SoftBank’s Vision Fund, which has invested in Oyo, which soft brands budget hotels, and WeWork, which standardizes co-working spaces.
Skeptics doubt that branded tours will scale globally. If consumers and suppliers truly liked it so much, all the players would be trying it.
GetYourGuide said it’s still early days but that the first results are promising. Consumers rate its tours higher on satisfaction surveys than the industry averages, Tao said.
“Local operators like that we can drive pretty predictable and consistent business volumes,” said Tao.
Belief: Online Giants Will Muscle In
TripAdvisor, which sells tours under its own and the Viator brand, remains the leader in producing the most online revenue for suppliers, according to tour operator software providers who made that judgment based on the booking volumes that pass through their systems.
“Looking at the future, it’s worth looking at the Spanish- and the Mandarin-speaking markets, the two most spoken languages in the world,” said Jens Thraenhart, CEO of the consultancy Chameleon Strategies.
“While Civitatis leads the Spanish-speaking market, Ctrip has recently announced a major focus on activities that will appeal to the domestic and outbound Chinese travel market,” Thraenhart said. “Ctrip might be the most interesting player to watch overall.” For context, read “How TUI and Rezdy Fit Into Ctrip’s Growth Strategy Outside China.”
In 2018, other online giants became more serious about attractions. Booking Holdings acquired FareHarbor, an experiences booking-software provider. TripAdvisor acquired Bokun, a tech vendor. In theory, the companies could use their vertical integrations to try to drive a wedge between suppliers and other aggregators. Operator management software typically collects data on activity sold and can reveal customer volume, a supplier’s retention rate, and other data that the tech giants could use for their own aggrandisement.
GetYourGuide said it isn’t worried.
“At a high-level, we haven’t seen any impact to our business yet,” said Tao, referring to the reservation software acquisitions. As of now, both FareHarbor and Bokun continue to offer multi-channel distribution. If that strategy changed, suppliers might revolt, he said.
“It’s not in a supplier’s interest to give all their data to what are basically monopoly companies,” said Tao. “The platform players are incentivized to optimize for distribution through their channels, but you as a supplier ought to be maximizing your volumes, which requires having access to multiple channels.”
Other competitors include TourRadar, Withlocals, Civitatis, Tiqets, Veltra, Exest, Evaneos, wholesaler Hotelbeds’s Isango, and TUI Group’s Musement. Bus tour operators like Grayline also do direct sales. For more context, see Skift’s deep dive “Tours and Experiences: The Next Great Untapped Market in Online Travel.”
More venture capital will flow into the experiences category. Marketplace businesses like GetYourGuide aggregate demand and match it with supply, and venture capital can pour jet fuel on that growth. For example, GetYourGuide’s product is now available in 22 languages, more than any of its competitors, it said. The company’s headcount recently topped 500, and later this year it will move into a new headquarters in Berlin.
“The more scale you have, the more attractive margins you can negotiate to afford more marketing,” said Tao. “Scale gives you a lot of data for product improvements and customer acquisition.”
Last December, Veltra, one of the pioneers of online tour booking, debuted on the public markets. A smallish company, it nevertheless represents the first initial public offering in the space and probably not the last.