As many followers of the search space know, there’s lots of action in the emerging travel category. Barely a week goes by when there isn’t a news item in Techcrunch or some other outlet about a company launching a product, announcing a deal, or raising money. Even the Wall Street Journal recently commented on the VC activity in the space, given the monetization potential it offers and the history of successful travel dot-com businesses.

However, all this information flow begs the obvious question: is there any real difference between all these emerging players, and perhaps more importantly, which differences matter? Whether you’re viewing the noise from 50,000 feet or 500, it’s helpful to understand the components of the travel ecosystem, and which models offer the best chance at ultimate business success.

Some entrepreneurs coming out of the traditional world of the online travel agencies look at the travel space through the lens of the classic consumer purchasing funnel, and their goal is rather narrowly defined as getting as close to the transaction as possible. They think about search in the context of how they can best bring the consumer from looking for a hotel in Denver to buying a specific hotel in Denver. At that point, their job (save for a bit of upselling/cross-selling) is essentially done. These companies typically compete on price, diversity of product offering, and quality of the transaction experience, with little extras thrown in here and there in an attempt to differentiate. Their business model is one of paying for traffic (either with brand ads on TV or with clicks from Google) and then monetizing that traffic by owning the transaction. Expedia and Travelocity are two of the best-known examples.

Conversely, entrepreneurs coming from a search engine background tend to gravitate toward the meta-search model, where their goal is to get consumers in and get them out, with the “out” part being effectively a piece of the ultimate merchant of record’s margin. Their mission isn’t necessarily to brand themselves or highlight the quality of the transaction experience; instead, it’s to become a highly efficient arbitrage engine, acquiring traffic and then monetizing that traffic for slightly more by sending referrals to companies actually managing transactions. Of course, the lower the variable cost of the incoming traffic, the better the margins, which is why companies like Kayak are investing in SEO even while they having a highly efficient SEM program and a great product.

Unfortunately, as both the traditional online travel agency business and the newer meta-search business have matured and become saturated, and as suppliers (airlines, hoteliers, etc) increasingly focus on driving direct bookings, the margin left on the transactional side of the business keeps getting squeezed and more and more gets accounted for in marketing dollars passed around and around between competitors—witness Expedia advertising on Kayak and Kayak advertising on Expedia Inc.’s TripAdvisor. This is referred to in the industry (somewhat crudely) as the “cost-per-click circle jerk.” As a result, you see the “media model” (i.e., advertising) making major inroads in businesses traditionally focused on transactions, since it takes a lot of margin on bookings to counterweight a $100,000 ad campaign that’s virtually pure profit once the salespeople are paid.

So, back to the emerging companies. Where does that leave us? Well, first of all, as in any startup environment, there will be many companies that just won’t make it. These will typically be companies that are trying to build a better mousetrap, but lack the funding, technology, or partners to survive the inevitable multiple iterations required to truly create value (you almost never get it right the first time).

Second, there will be some “lifestyle” businesses that emerge. These companies will offer enough value to enough customers to survive and perhaps even thrive; they offer the prospect of a nice small business for the founding team. This outcome is something to be proud of, because just getting here isn’t easy, and small business are in fact the bedrock of the economy, political rhetoric notwithstanding. However, it’s unlikely that they will truly break out of the pack to create sustainable long term value. Ultimately, that’s going to require innovation in the value proposition as well as a good business model to wrap around it.

NileGuide believes that in a content-rich, transaction-rich, big-ticket, and experiential environment like travel, innovations in the search space must be accompanied by innovations in linking the “finding” of things in a traditional search (or even in a new semantic or meta-search experience) with a more holistic discovery of content in a way that mirrors how people research travel in the offline world. This incorporates elements of serendipity as well as an authentic, savvy voice of  recommendation, rather than pure algorithm-driven results. And it means creating some of our own content, not just relying on third party information and abdicating that responsibility. In a way, it’s back to the future—building a scalable virtual trusted travel agent or concierge, who can help consumers cut through the clutter of information. Moreover, the search process only reaches its zenith of value creation when combined with applications that make that content actionable—after all, the reason consumers are looking for things in travel is because they actually want to take a trip. That’s why we strive to provide tools to help users organize the content they find via search (into lists, into itineraries, sharing/collaboration, etc), and productize that content into a guide-to-go (in our case, a dynamically generated customized PDF, or on your iPhone).

We believe that we need to innovate in all three areas to really break out of the pack. It’s a broader vision of what “search” means, in that it’s based on a deep understanding of why that search is happening in the first place: because consumers want to find cool places, organize a trip, bring that information with them, and ultimately have a great travel experience.

When a company can put the pieces together to offer great content to attract customers (through SEO, word of mouth, etc), great functionality to help those customers organize that content (being sticky, monetizing through advertising and transaction referrals), and a great product with high perceived value, then that company will be on a pathway to break out of the pack and become the Next Big Thing in travel. We believe NileGuide will be that company, but there are plenty of others with an eye on that prize.

Josh Steinitz, CEO
NileGuide