Despite travel slump, online firms flourish
Remember that economic downturn? 9/11? The war in Iraq? Spiking oil prices, and airline fuel surcharges?
While that witches' brew sent much of the travel industry into a prolonged funk, online travel firms based in the Boston area hardly noticed. They not only survived, they flourished.
"When the travel industry overall was doing very badly, online travel kept growing," says Terry Jones, founder of Travelocity, one of the most popular travel sites. "Travel is now bigger than the next five categories of e-commerce combined."
This year, US consumers will spend $51.5 billion booking travel online, according to Forrester Research. That's expected to soar to $110 billion by 2009.
Jones, of Dallas, is chairman of a start-up called Kayak.com, which has offices in Maynard and Norwalk, Conn. Initial funding came from the Cambridge venture capital firm General Catalyst, where Jones is a partner. Kayak aspires to be the Google of online travel, providing the Web's most comprehensive search for consumers who want to make sure they're getting the best possible deal. Kayak will compete against a handful of other start-ups -- and possibly Google itself -- in an arena dubbed "multi-site search."
Another firm, Lexington's TripAdvisor, which collects reviews on hotels and destinations, was sold in April for $200 million to Barry Diller's InterActiveCorp. It had just 35 employees, and had raised only $4.5 million in venture funding. Cofounder Langley Steinert says his company has plans to offer multi-site search this year, in part to compete with Kayak.
SmarterLiving, a profitable Cambridge company that has eschewed venture capital, is adding employees and expects its revenues to double this year. Its roots are in an e-mail newsletter that founder Daniel Saul sent to his friends, alerting them to last-minute air fare bargains. Founded in 1998, the company has evolved into the Filene's Basement of the Web, offering page after page of information about air fare sales and dirt-cheap cruises. It launched a separate site last year, BookingBuddy.com, which allows users to search multiple sites for air fares, car rental quotes, hotel rates, or cruise packages.
Only one Boston-area site of substance, Somerville-based BizTravel.com, vanished for good after Sept. 11. VacationCoach.com, which offered guidance in selecting a vacation spot based on user preferences like travel time and available activities, went dark in 2002 when it was unable to raise additional venture capital. But its former chief executive, Rob Roberts, recently bought back VacationCoach's assets (except for its domain name), and revived the same service with a new name: TripSight.com. He paid less than $1 million, he says, for technology investors had put $5 million into, though he did give old investors a stake.
ITA Software, of Cambridge, supplies e-commerce technology to two of the top 10 most-trafficked travel sites, Orbitz and Cheap Tickets. This year, it has grown from 50 people to 75, and chief executive Jeremy Wertheimer says he expects revenue to be up about 60 percent. (Like Saul at SmarterLiving, Wertheimer runs a profitable company that never took venture capital money.) Later this year, ITA plans to debut a more sophisticated search engine for hotel availability. Small, independent hotels sometimes don't show up in the big reservations databases, Wertheimer says, and bigger hotels may advertise different prices on different sites. "Rather than forcing you to look at pages manually," he explains, "we're going to be able to say, 'We've looked at everything, and now we're showing it to you in some easy-to-read form.' "
Everyone seems to be interested in multi-site search, in part to stop consumers from shopping around. And everyone's anticipating Kayak.com's takeoff, waiting to see what the new site will do better than its rivals. Some competitors scoff at the idea of trying to launch a travel site in 2004: "It took us 4 years to get where we are," says Steinert at TripAdvisor.
The main thing that makes Kayak worth watching is the team behind it. Jones from Travelocity is chairman, Steve Hafner, a former Orbitz executive, is CEO, and Greg Slyngstad, a founder of Expedia, is on the board. "This is a start-up that comes with people who understand how quickly this industry mutates," Jones says. They picked the name Kayak to evoke the watercraft's lightness and maneuverability.
Kayak will need that maneuverability, since its rivals include not just TripAdvisor and BookingBuddy, but SideStep, Qixo, Mobissimo, Yahoo (which bought a company called FareChase last month), and potentially Google and Microsoft. All face the challenge of comprehensiveness; some airlines, like Southwest, don't seem eager to play in the sandbox. Others may not want to pay each site for customers referred their way, a key source of revenue.
"It's going to be incredibly difficult for all of these guys to survive," says Forrester analyst Henry Harteveldt.
Perhaps. But even though many dot-coms disappeared, travel sites have shown an amazing propensity for staying aloft.
Scott Kirsner is a contributing editor at Fast Company. He can be reached at skirsner@verizon.net.
