Travel tech's "platformania" may be cooling off. One reason is fiercer competition, according to a new study.
Every online travel company is calling itself a platform. Travel tech businesses used to market themselves as mobile-first, or big data, or as driven by artificial intelligence. Now the hip marketing word is platform.
It makes sense to aspire to be a market-wide intermediary. Who wouldn’t want to build the next Airbnb, Amadeus, Expedia, or Uber?
“Platform” may soon lose its shine as a label, though.
“The bubble of ‘everything is a platform’ will likely burst,” said Annabelle Gawer, a professor of digital economy at Surrey Business School in England. “That’s because of competition.”
A less loose definition of a platform is a company that is an intermediary, meaning it lets other companies buy and sell products and services, and that it is large enough it is marketwide and often global.
Gawer has spent a few years in researching platforms along with fellow academics Michael Cusumano and David Yoffie. The professors have summarized their work in a new book, “The Business of Platforms.”
The book says the golden age of platforms is here to stay in travel and other industries. “It is only starting,” Gawer said. “Platforms are going to play an increasing, not a decreasing role, in all industries — and in travel, too.”
However, not all of today’s aspiring platforms will succeed.
The researchers believe they know which types of platforms will tend to become true powerhouses. They also have advice to legacy companies struggling to adapt to the presence of large platforms.
Keys to Platform Success
The authors counted 43 platforms among the world’s 2,000 largest public companies. Of these, only a few are in travel, such as Booking Holdings, Expedia, and TripAdvisor.
Some of these platforms are transactional. They act as digital marketplaces, bringing buyers and sellers together.
Consumer-friendly transaction platforms like Airbnb — which brings travelers and rental accommodations together — have soared. Business-focused transactional platforms like Amadeus — which connects airlines with travel agents and travel management companies — have thrived, too.
Other companies are “innovation” platforms. Some offer software building blocks for companies to build services on them, such as how Amazon Web Services provides cloud-based storage and computing.
The best platforms mix both models. They create marketplaces, but they also stimulate the creation of products and services that would otherwise be less likely to exist.
Expedia’s and Airbnb’s Success
Exhibit A is Expedia Group, which calls itself “the world’s travel platform.” The giant did more than simplify consumer travel booking. It also helped travel businesses innovate with new tools and models, the researchers said.
Expedia created an affiliate program, sharing for re-sale its hotel, flight, and rental car inventory. Expedia then used methods of exchanging data called application programming interfaces, or APIs, to enable third-party developers to use its databases. Other businesses can re-use Expedia’s hotel imagery, descriptions of destinations, and other content as part of their own.
Airbnb is another example. From the start it encouraged property owners to rent out their urban homes by simplifying the process, the authors argued. More recently the company’s Experiences service has been persuading people who haven’t offered tours and activities before to start doing so, Gawer said.
Some marketplaces have more momentum than others. These rare companies achieve skyrocketing growth and remarkable market power. One way they often do that is by combining transactional and innovation platforms like Expedia and Airbnb have.
Successful platforms also fight something called “multi-homing,” a term that refers to the habit of buyers and sellers to use more than one company for the same purpose. A case in point: riders and drivers often use more than one ride-hailing service.
Expedia has attempted to combat multi-homing by introducing a loyalty program, the researchers noted. It has also rolled out a series of other conveniences and tools that, in a never-ending game of oneupmanship, try to distinguish it from other marketplaces, like Booking.com’s and Ctrip’s. Airbnb has done the same in its segments.
Pricing can be hard for platforms to get right, too. Uber and its arch-rival Lyft haven’t priced their ride-hailing services sustainably. Profit pressures will likely force these companies to change or merge with other competitors worldwide.
Similarly, Oyo’s heavy subsidizing of budget hotel franchises in its new market of China isn’t profitable or sustainable.
We’d agree that while Expedia and its peers Booking.com and Ctrip.com are clearly platforms. But none of them truly deserve to be called “the world’s travel platform.” As of today, those three companies, for example, handle probably perhaps 5 percent of all travel transactions, as a group.
The Enterprise Software Exceptions
The book isn’t perfect. It focuses heavily on consumer startups. It overlooks travel tech companies like Amadeus that are arguably platforms, too, only for businesses.
The rules may differ somewhat for business-to-business companies. Many enterprise software providers loosely use the word “platform” to describe their services though their models are slightly different.
“The B2B market traditionally takes a lot longer to change than the consumer market,” said Kevin King, the chief commercial officer of Shiji — a tech provider to hotels and restaurants.
“Things like service level, security, and integrations play a much larger role than in the enterprise market than the consumer market,” King said. “Our core work isn’t building a marketplace but building an infrastructure platform that hotel companies can leverage to grow.”
Shiji isn’t trying to scale quickly but is instead playing a longer game, King said. It aims to build trust through projects that sometimes take a great deal of work on its end.
Shiji’s approach is similar to many other enterprise software companies in travel.
The technological and economic factors that gave rise to today’s giant digital platforms are here to stay, but the regulatory environment will change dramatically, Gawer said. Last week, for example, a Google executive had to defend the company’s business practices before a U.S. Congressional committee.
New regulations and consumer wariness will rein in the abuses of market power that proliferated under what until now has been a lax era of oversight, the academics said.
“We’ll have better-functioning platforms in the future, which will allow wealth to be created and distributed better,” Gawer said.
Airbnb, for its part, has spent years cutting deals with local regulators worldwide over the legality of short-term rentals.
New legislation regarding online travel agency contracts in Europe is another example of increased regulation, Gawer said.
How to Cope With the Platform Giants
Many conventional businesses struggle to cope with the rise of platform giants. Will the titans like Facebook, Amazon, Google, or Oracle get deeper into online travel than they already are? How about Alibaba, Microsoft, or Salesforce?
A strong signal that any platform intends to come into travel is if it starts to acquire small tech players in the sector.
“Platforms don’t go naked into a new industry,” Gawer said.
In the next year, few of the global giants like Amazon and Facebook are likely to enter travel. They’ll be busy defending their reputations from antitrust charges and other consumer complaints.
But platform giants will eventually enter travel. Established players with conventional business models of selling standalone products or services may wonder how to cope. The researchers shared some advice.
“Building your own platform from scratch is very risky, as is partnering with the giants,” Gawer said. “We tend to suggest, based on our historical analysis, that it’s often better to buy an existing small tech platform and incorporate it into your business.”
Hotel group Accor’s decision to acquire OneFineStay, a marketplace of vacation rentals the company doesn’t own and that competes with Airbnb, is one example. American Express’s acquisition of Resy, a reservation marketplace for restaurants that competes with the larger OpenTable, is another.
The Risky Path for Upstarts
Many younger companies see themselves as platforms that will become big enough to become household brands and public companies.
Some examples: GetYourGuide, a tours booking company, has raised $659.5 million. Mafwengo, a social travel site that has raised about $500 million. TripActions, a business travel startup, has raised $481 million. Omio, a travel search company, has raised $296 million. These are but a handful of travel tech companies that talk about someday going public alongside the Expedias of the world.
Competition will cut many platform dreams short, however.
Fierce competition from conventional companies and platform giants will be hard to overcome.
Recent examples highlight the case. Airbnb’s acquisition of Hotel Tonight, the last-minute booking site, was a respectable outcome for early investors. But it wasn’t the creation of the world’s next public company success. Hipmunk, a travel metasearch company, was acquired by Concur in a similar outcome.
Over time, venture capital firms may become less interested in funding the next generation of potential platforms. They may fear that larger players will acquire startups at stages that are too early. These early exits could deny investors the higher returns they would have otherwise gotten if the startups went public instead. Funding worries related to this have caused startups to stall, as in the case of Tripping.com and in the case of Utrip.
A tarnished reputation to the word platform is bound to make free use of it less frequent over time.
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Photo credit: Cvent Founder and CEO Reggie Aggarwal at Cvent Connect 2018. Cvent is a provider of software to the meetings and events industry that aims to be a platform player. New research suggests why some companies, like Booking Holdings, Expedia, and TripAdvisor, have become platform success stories. Cvent / Flickr