[austin-cheney]

Interesting and an excellent read. The death spiral at Travelocity (pre-Expedia acquisition) worked differently and was partially self-induced.

Some background is required first. Travelocity was the first online travel agency (OTA). I believe they started around 1996.

Through most of its life at that point all, I mean 95%+, of its success came from only two factors: best marketing in industry and growth of the internet. This is severely problematic because marketing only gets you so far in business. Conversely Expedia had really shitty marketing in comparison and yet came to dominate the industry because they were extremely aggressive at growing their supplier relations.

You cannot EVER rely on growth of media adoption, like mom and pop coming online, because once that stops you have no fuel left in the tank. Reliance on growth of a media platform is like a gravy train that you did nothing to build and returns amazing wealth if you are in the right place at the right time, but once it stagnates its like your train derails and everybody dies. That is because everybody expects growth to continue, except you did nothing to earn the growth and now have no answers and nothing to show for it. This was around later 2008 when I joined the company and became unavoidably obvious to everybody over the next year.

So, at that point what do you do? You competitors are far out pacing you by ignoring fun stuff, marketing, technology, and all the other bullshit that technology people look to. Instead they are focusing on core business principles and eating your golden goose while laughing at you. So, what do you do?

In the case of Travelocity all the executives leave. New executives come into trying to figure out what to do. Like every great web business they focus more aggressively on marketing and advertising. This was Travelocity's death spiral.

You have to understand that people DO NOT like advertisements. Really, I know its surprising, but when your site becomes littered with advertisements everywhere and all kinds of hidden telemetry people will leave and never come back. Your wonderful palace has become a trailer park.

The business loves advertising. Revenue from advertisements is immediate. That is really significant. In e-commerce there is a massive lag between each stage of profit, revenue, and sales because you have to account for the cost of operations, sales, and inventory. The more expensive the product the longer the lag and that lag really complicates projections. So advertisements are like cocaine, because they immediately return profit that requires no effort while rotting your health slowly until you are a hollow skeleton.

To be fair they were doing amazing things with inventory and pricing that was vastly superior to what the competition was doing after the leadership turn over. This was too little too late though. These innovations could have saved the business provided more time and the same level of discipline, but not when you are already in a death spiral.

My learning from this is that a business that earns profit from selling something directly should not fuck up conversion or go out of its way to make customers hate them. When I put that way it sounds obvious, but web business get that wrong all the time because they get distracted by shiny things.

[lotsofpulp]

>To be fair they were doing amazing things with inventory and pricing that was vastly superior to what the competition was doing after the leadership turn over. This was too little too late though. These innovations could have saved the business provided more time and the same level of discipline, but not when you are already in a death spiral.

I am curious what these amazing things were.

[austin-cheney]

So in the travel industry you have limited lines of business, primarily: air, hotels, and car rentals. Air is super low margin because its set directly by the supplier plus some arbitrary service fee, typically $7 per ticket. Air is high volume though and is the primary draw for OTA customers, so it cannot be ignored. Rental cars are super low priority because they are both low margin and low volume.

The real interest in the travel agency business is on hotel inventory. This is how Expedia came to dominate the industry, because they aggressively hired geographically focused hotel relationship personnel and Travelocity wasn't keeping up. So Expedia had much greater inventory from various different properties and stronger relationships with those properties for their business prioritization. Hotels, typically hate dealing with OTAs, because OTAs are a transparent barrier between the hotel and the guest staying at the hotel, but the OTAs bring people to the properties. The name of the game for hotels is "heads in beds" and while up-selling is beneficial if you get the "heads in beds" part wrong you cannot exist.

The margin on hotel properties is much higher and highly variable. Hotels in many cases will even eat the cost of airfare to get heads in beds if the pricing is right. That provides a huge opportunity for a marriage between smart hotel systems and OTAs because the hotels are doing the smarter inventory management and the OTAs are supplying the airfare volume and customers to populate that smart inventory management. The hotel data systems, Property Management Systems (PMS), were at that time much smarter than the inventory availability OTAs had, because they had to do much more to account for seasonal volume planning and various customer demands.

Where Travelocity was strong was in writing algorithms to account for these considerations and offer volume pricing discounts the competition could not and also air + hotel package pricing at massive discounts the competition could not compete with. In parallel Travelocity was slowly building up a corporate travel business to take advantage of that volume pricing intelligence and at one point had both WalMart and Lockheed-Martin as customers.

Again, both of those were amazing and could have really helped retake lost market, but conquering competition is a fragile slow process while advertising is immediate.

[lotsofpulp]

Thank you for taking the time to give a comprehensive and interesting answer!

[Mistletoe]

Thank you for this comment. Very interesting! And very applicable to everything we are doing again.