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Every time a major advancement is made in the tech world, and some new technology starts being covered by the mainstream media, the main focus is always on the transformative impact this will have on the status quo. But so very often this does not transpire. Instead, the hype overshadows the major shortcomings the tech has to overcome for mainstream adoption, distinctions that are now more important than ever in these times.
In the travel industry, we have been talking about the ‘transformative power’ of technologies like virtual reality, augmented reality, artificial intelligence, blockchain, and the internet of things for many years. Granted, technologies like artificial intelligence have had a major impact, and AI’s impact is only growing. Other tech, however, continues to slow-burn on the fringes.
In Emerging Tech in Travel 2020 we discuss four technology buckets which have been discussed most in the travel sphere, to establish their current and potential future impact on the travel industry.
Last week we launched the latest report in our Skift Research service, Emerging Tech in Travel 2020. Below is an excerpt from this report. Get the full report here to stay ahead of this trend.
Distributed Ledger Technology
- There is major buzz around blockchain, but also much misunderstanding.
- While there are theoretically strong use cases for distributed ledger and smart contract technology, these are largely unproven in travel and have shortcomings.
- Vested interests might be the greatest barrier to be overcome for distributed ledger technology to make a transformative impact on the travel industry and beyond.
Distributed Ledger Technology Explained
In October 2008, Satoshi Nakamoto (claiming to be a 37-year-old Japanese man) published a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System in an obscure mailing list. A few months later in January 2009, Nakamoto released the first 50 bitcoins, starting off the cryptocurrency and blockchain craze.
Bitcoin, or cryptocurrencies more generally, are often seen as the face of this emerging technology, but the technologies reliant on the blockchain also includes distributed ledgers and smart contracts, which arguably have more far-reaching impacts on the travel industry.
So what is the blockchain? The main reason for Nakamoto to introduce bitcoin was to cut out the middleman when transferring assets. He (or she, or they — the identity of Nakamoto remains a mystery) envisaged a peer-to-peer system without a central authority like a bank taking a cut of each transaction.
Bitcoins do not physically move around, but are instead digital tokens that move between users using wallet IDs. To reduce the chance of fraud, Nakamoto introduced the blockchain. This is a shared digital ledger (it’s publicly available to see here), where every transaction is recorded publicly. The ledger is replicated on computers around the world, which makes the record theoretically immutable and irreversible.
Today there is not just the original bitcoin blockchain that was created by Nakamoto, but many other distributed database platforms. One of the most popular alternatives to the bitcoin blockchain is the ethereum blockchain with a currency called ether, created by Vitalik Buterin in 2013.
Ethereum attempts to solve two of the main (intentional) shortcomings of bitcoin.
Firstly, bitcoin blocks are capped at a maximum size of one megabyte which can be added to the blockchain every 10 minutes. This means that the bitcoin blockchain can handle around five transactions per second, much less than the capacity of, for example, financial company Visa, which processes around 1,700 transactions per second.
Secondly, bitcoins were created as a way to store and transfer value only. Ethereum can store more information, and allows developers to build decentralized apps on top of the blockchain technology. Ethereum can therefore transfer assets, but also track supply chains, and store digital agreements known as smart contracts.
How Might Blockchain Impact Travel?
This is already being put into action at a small scale. For example, a consortium of airplane maintenance companies launched the MRO Blockchain Alliance, piloting the use of distributed ledgers and smart contracts to track aircraft parts.
While the blockchain was originally thought up as completely decentralized, a host of private blockchains, with a central controlling party, have sprouted up. European tour operator TUI hit the headlines a few years back when it introduced a private blockchain to increase efficiencies and create a single database of its hotels across all countries.
The interesting part of this is the theoretical future potential of this undertaking. If TUI decides to open up its platform, in effect decentralizing it, and enough other players join, this could lead to a data commons of all accommodations available without the need for middlemen like Expedia or Booking.com to reach the customer.
Talk about the potential negative impact this can have on online travel agencies (OTAs) assumes that these major OTAs work in a static vacuum, which is obviously far from the truth. If TUI’s blockchain evolves as explained above and starts to get legs, Booking and Expedia will undoubtedly respond in kind. Meanwhile, decentralizing accommodation stock and getting all major players on board in a highly fragmented market is easier said than done.
You only need to speak to some of the startups that have been at it for years. Early waves in travel blockchain were made by Winding Tree, backed by players like Lufthansa, Air France/KLM, and Nordic Choice Hotels. The startup looks to cut out the middlemen and connect consumers and travel suppliers directly. This is a similar mission as another startup, Arise. Getting buy-in from big players, and enough players, however, has been hard for these players, stumping real progress.
There are also major vested interests in the status quo that these players are trying to break down. Winding Tree co-founder Maksim Izmaylov previously told Skift that “a lot of people are asking me whether the online booking sites or GDSs [global distribution systems] have to go, and the answer is no. … What has to go is the rent-seeking business models, the abuse of power that they’re exercising and that they are able to exercise today.”
Similarly, CEO and co-founder of Arise Nadim El Manawy said in previous conversations with Skift Research that his company is looking to “bring way more transparency into the data flow from the moment it leaves the hotel system up to the point of sale. Today hotels have zero control. Intermediaries that currently control distribution can do whatever they want with the [hotel] data. OTAs can cut their own commissions, resulting in issues of rate parity; wholesalers can leak wholesaler rates wherever they want. There is no transparency or accountability. Our technology can bring way more transparency, trust and control back to the hoteliers. … Over time we are looking to replace the global distribution systems and the wholesalers, both which have different users, but both are a black box running on old tech.”
Another area where blockchain could have an impact is in travel loyalty, and the increasingly convoluted system of loyalty points. Startups like M2O and Loyyal are attempting to shake up the loyalty game by converting points from a host of different travel providers and retailers into a single digital wallet.
According to an article in the Harvard Business Review, the future of loyalty schemes will exist asfour to six major schemes which have one major player like an airline or hotel, and many other smaller players attached to it. Consumers can collect and spend rewards with all retailers attached to the scheme. Blockchain can play an important role here.
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