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Summary:

How many web travel startups make a bubble? We’re not sure, but it’s starting to look like one. Yesterday Groople said it has raised $6 million led by ArrowPath Venture Partners and FA Technology Ventures for its group-targeted travel. Every week we get news of online […]

How many web travel startups make a bubble? We’re not sure, but it’s starting to look like one.

Yesterday Groople said it has raised $6 million led by ArrowPath Venture Partners and FA Technology Ventures for its group-targeted travel. Every week we get news of online travel companies raising money, adding social and community features, and trying to diversify their sites in a variety of ways. Online travel is a relatively low capital business, a lot of investors and startups figure: why not try it out!

With Americans spending $78 billion on online travel this year, it is hard not to think about getting a piece of the action by focusing on small niches or offering special services. And if one of them actually works, the big boys, such as Expedia, could buy them. Expedia certainly has the money – this morning the Bellevue, Wash-based company reported second quarter revenues of $598.5 million, up slightly from $555 million for the same period last year. (Net income is up $95.5 million versus $73.4 million.)

Still, the recent geopolitical turmoil, bomb-plot arrests in UK and heightened security is bound to have a negative impact on the travel business, even the online travel business. Will the bubble pop because of that? Paul Kedrosky calls the recent events’ air travel tipping point and so does Seth Godin.

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  1. You could have a million travel startups and it still wouldn’t be a bubble. A bubble isn’t driven by startups but by smart/idiot financiers in VC firms and investment banks. Not by startups, especially not ones entering a $78bn market.

    If investors spend $100m on these companies and one of them sells to Expedia, or IPOs, or some offline travel behemoth acquires it for $500m then overall that $100m has been a sound investment, even if 9 out of 10 of those startups ultimately dies.

    Of course no VC can hedge their bets across the entire startup market, but it suggests that there is value there – the skill is in choosing where the value lies. Startups do not need to worry about this stuff, just to focus on a) the user experience and b) a solid business plan.

    I think we all need to quit talking about the Second Tech Bubble. The mechanics of today’s internet marketplace is entirely different to 1998-2000, as that ‘Americans will spend $78bn on online travel’ proves.

    Wikipedia’s definition of a bubble (*keyword: ‘speculation’):
    http://en.wikipedia.org/wiki/Bubble_(economics)

  2. Somethingis wrong with travelers. It is amazing how a company that has really bad reputation (EXPEDIA) is still operational. EXPEDIA is listed in the top ripoff link at the bad business bureau (http://www.ripoffreport.com )
    and has two “dedicated” websites due to poor customer support and lies: http://www.victimsofexpedia.com/templates.htm (read some lies here) and http://www.shameonexpedia.com.
    Maybe the key is that they expanding worlwide and there are a lot of people that don’t know how bad this company is.

  3. I still don’t know why people don’t use the airline’s own web site and a hotel corporate site. I’ve put on 500,000 airline miles in the last 4 years and use Expedia ONLY for querying hotels. Then I buy directly from the hotel itself so I don’t have to worry about getting a non-smoking room.

  4. One reason people don’t use the airline is because they don’t market. If you watch TV, you mainly see ads by online travel agencies, not airlines. For instance EXPEDIA spends a lot of money (I think 170 millions dollars this year ) in advertising. With that money of course they can be very popular and “silence” bad reports. Another thing I found is that the media (with few exceptions) has no interest in investigating these companies (thus, few people are aware how bad these companies are). For instance, the WooGO case, (read the story here: http://www.woogosucks.com , actually there is an interestign video by Atlanta Fox News) was a hotel scam in which the names EXPEDIA, hotels.com and Orbitz were mentioned but you can hardly find now in the internet any news about that .
    Travel forums are also marketing tools for online travel agencies not airlines. They make money by advertising online travel agencies and they prefer to ignore “very bad” reviews on online travel agencies.

  5. I’ve found Lastminute to be the best of the lot for booking hotels, and Webjet/Zuji here in the land of Oz for domestic and Intl. flights.

    The online travel startup that really excites me is Farecast, which doesn’t get as much coverage as I expect it would. It’s only in beta, but if it all works out it could be genuinely disruptive. Airlines would have to come up with a better pricing model to beat it.

    LG

  6. I still don’t know why people don’t use the airline’s own web site and a hotel corporate site.

    Mostly because people don’t want to query the website of each individual airline separately. Also, at various times the individual airlines have had absolutely awful user interfaces, even worse than the big comparison sites.

  7. Like FareCast, new online travel upstart, cFares ( http://www.cfares.com/ ) has introduced some compelling features that are pushing the envelope to help consumers get even better deals than even the newere metasearch sites can offer. cFares is the only online travel site with exclusive relationships in place with access to $20 billion of wholesaler/consolidator inventory that is not available anywhere else online. cFares also has a Priceline killer service that takes a consumer’s target price for a bargain airfare and then acts as a virtual agent to continuously search online for that fare and any lower ones, until it is found. The automated service then reserves the fare for 24 hours, and circles back to inform the consumer of all the details in advance. Consumers still get the final word on whether they wish to proceed with a purchase or not. This service beats having to purchase tickets blindly with sites like Priceline and Hotwire.

  8. Allan Simpson Tuesday, August 15, 2006

    It might not be a bubble yet, but it’s certainly an attractive market. I run one of these startups – we started because we saw an opportunity caused by the sheer size of the main players in the market and what they’re doing to their customers (hoteliers and buying public alike). Let me give you some examples:
    Most agency websites limit the way in which hoteliers can sell themselves – making it almost impossible to differentiate your hotel business on the web. This can mean that the hotels don’t even try (we found one the other day with an opening line on their advert, “rooms have carpets”). The standard of marketing and copywriting is usually extremely poor on these sites.

    Just this week, you have a situation where one of the biggest online businesses (Ebay) has upset many of its’ vendor members with dramatic increases in fees. Coming shortly after their announcement that they are to enter the travel business, you’re left wondering what they’re playing at?

    What each of these operators is doing is playing into the hands of smaller, more nimble, eager-to-please websites – just like ours. We don’t want all of the market, we just want the bit that makes us money while we trade and keep our customers coming back for more – and we’re prepared to work for it!

  9. In regards to the comment above about Expedia’s customer service being so terrible, often times it’s not so much Expedia causing the grief as it is the hotel (in the case of a hotel booking, I can’t speak for air and car). I manage the relationship with Expedia for our company and in virtually every instance there is an issue with a guest either myself or a member of my staff is contacted in an effort to make the situation “right” in the eyes of the guest.

    This may not be the case for all of Expedia’s hotel partners simply because the market is huge, and many of them don’t take the time to foster a strong relationship with this client. However the value of such a relationship is evidenced to me each and every time I’m given the opportunity to make up where I fell short in the eyes of my guests.

  10. The term bubble doesn’t seem to apply to online travel startups. The time of the mega travel start-ups like Expedia and Travelocity – the only two truly huge – Orbitz was an airline backed venture at the start – seems to have past. In the last few years traditional travel companies, especially in Europe have entered the online market and compete strongly with them. What many people consider travel start-ups, like Kayaka, FareChase, Mobissimo and the like, are not really travel companies but advertising revenue based meta search outfits. So, to speak of a bubble in online travel is not appropriate. The shift to supplier’s own websites is quite strong, especially for brand loyal travelers and the meta-searchers have made it a lot easier to track the prices of these suppliers. When it comes to actually booking an entire multi-component trip, it is still more convenient, however, to use an online travel agency and will remain so for quite some time.

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