00:07 — Morgan Stanleys perception that Amazon could enter travel in a easy and large way quickly
00:30 — Disney ‘evil empire’?
00:53 — Airbnb Takes on the OTAs – be our friend so we can beat OTA’s and then you’ll end up hating us
00:57 — Four stages of how hospitality handles threats to the industry – ignore it / continue to ignore it even after being told / panic / capitulation
01:03 — Expedia offers a sponsored survey that OTA business is more valuable than non OTA business
01:22 — Valyn reviews some of the curious perspectives from ITB
01:27 — the top reasons why startups fail
01:36 — Pegasus at ITB talks about a new CRS and DHICO got there switch rebuilt
02:00 — GDPR compliance rut roo, May 25th is a potentially challenging issue.
02:07 — Lyrebird
TOPICS – LIVE SHOW #136:
1. Alexa, Let’s Book a Vacation (From a Morgan Stanley Research Note)
Online travel has proven to be immune to AMZN disruption so far. But as we have seen with other categories, that doesn’t mean AMZN won’t try again, and they should. We analyze why AMZN should enter travel and how it could conservatively add ~$600mn of annual profit, with a bull case of $1.5bn+.
Will Travel Follow the Path of Grocery? In Which Industries Could Be Safe from Amazon? we analyzed sectors more/less exposed to AMZN disruption and noted online travel was relatively more insulated. Indeed, we have seen AMZN attempt to enter travel twice (Local and Destinations) without success. But as we saw with grocery – AMZN tested, struggled, and learned for over a decade… eventually acquiring Whole Foods to enter the space – we don’t count AMZN out of any sector indefinitely. So while we are not aware of any specific new AMZN travel offerings, we would rather be proactive and today we analyze and
size the opportunity.
AMZN’s Leading Scale and Loyalty = Opportunity for Better Travel Unit Economics: The online travel industry is built on ad spend efficiency and conversion…and AMZN’s platform of 300mn+ estimated buyers and its entrenched position in consumers’ lives lay a foundation to compete in online travel. Further, AMZN’s focus on selection/service, pricing, and frictionless payment that drive conversion and stronger user economics also translate directly to travel. Our rough ad efficiency analysis (ad spend/transaction) speaks to AMZN’s ability to drive repeat/direct traffic…as its estimated $0.75 ad spend/transaction is a fraction of what BKNG/EXPE spend. Note too that AMZN’s 92% contribution margin (after advertising) is 1.5-2X higher than the OTAs.
Dollar Investment Not Large, Though Execution Would Take Time: We acknowledge that driving loyalty/repeat online travel business is more difficult given lower purchase frequency and high dollar expenditure per trip, which lead to more price/”experience” comparison. This makes price and selection even more
important. But as we have seen with BKNG/EXPE, this just requires sales & marketing teams and execution signing up hotels. The required dollar investment
isn’t large versus some of AMZN’s other investments (consider the estimated $6.4bn AMZN will spend on streaming content this year and the $1bn+ in annual
India losses) as we estimate that BKNG/EXPE spend ~ $620mn each on their global hotel supply team annually. But execution could be difficult and take time
(BKNG/EXPE have nearly 1.6mn/0.6mn properties only after 20/22 years of work) but we would argue that
1) AMZN’s history of aggressive pricing could prompt it to offer hotels lower commission rates, which hotels would like and
2) AMZN’s leading scale and ability to use data to drive conversion would be appealing to hotels. Potential partnerships, affiliate relationships, or acquisitions could enable AMZN to move faster.
Conservatively a ~$600mn Annual Operating Profit Opportunity: We argue that a robust hotel selection combined with AMZN’s ability to use data/machine learning/personalization would change travel consumer behavior and drive adoption. The integration of the Amazon Prime Rewards credit card and 5% cash
back would likely accelerate it. The opportunity is large, too, as our sensitivity table shows that if AMZN could build an online hotel business even 50% the
size of EXPE’s hotel business with ~15% lower gross profit/transaction (from lower commissions) and BKNG-level ad spend/transaction it would add roughly
~$600mn to operating profit. An even larger business (or better ad spend efficiency) would add $1.5bn+ annually.
What Would This Mean for BKNG and EXPE and GOOGL? The entrance of AMZN could be disruptive to 1) hotel commission rates (if AMZN led with lower rates for hotels) and 2) volume growth and market share. That said, it is important to remember that it would likely take time (likely quarters, but potentially years) for AMZN to build a scaled supply to compete with the OTAs.
For GOOGL, the near-term impact of AMZN entering travel would likely be positive as it would add a deep-pocketed and competitive spender to the travel
search market (one of GOOGL’s most important categories). That said, over the long-term, AMZN’s ability to drive more repeat and direct travel traffic (as we
have seen in retail) could pose a threat to GOOGL’s travel search business. This threat is likely to increase, in our view, as voice search capability grows and Alexa increases her presence in consumers’ homes and televisions.
2. Hotel industry wants to pay for their workers’ college degrees
3. Disney in the News
1. Hospitality Is a Real Weakness for Walt Disney Co Stock
5. Key quotes: Four owners address brands, distribution
6. The Influencer Playbook (L2 Inc – Winners & Losers in a Digital Age Video)
7. Airbnb Takes on the OTAs
1. Airbnb courts hoteliers in crusade against OTAs
2. Expedia claims it brings a “premium” customer to hotels
8. Hotels and OTAs duke it out over customer acquisition
9. A New Kalibri Labs Special Report Reveals Increased Intermediation in the Groups and Meetings Segment of the Hotel Industry, the Associated Costs and Future Projections
10. Top reasons why startups end up in the deadpool
11. Google hotel reviews more than doubled in 2017, drive overall increase
12. New Report from Switchfly Forecasts How Travel Technology Will Evolve to Deliver Higher Revenue and Stronger Loyalty by 2020
13. Lyrebird allows you to create a digital voice that sounds like you with only one minute of audio
After training the system with a voice, one can enter any text and produce something that sounds a lot like the speaker, even though I have never uttered these words…. With technology like this, what could possibly go wrong…?
For example: https://lyrebird.ai/g/IymvjeaE
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