Most startup acquisition stories are interesting to those in the sector, or investors, but a week later, the world mainly continues revolving how it always did.
In reality, the startup is consumed into some larger entity and life goes on – at least that is how it has been in the tours and activities sector in recent years when acquisitions (including my own) were announced.
But Fareharbor selling to Booking Holdings this week is different – the market is shifting in a tectonic fashion.
The tours and activities sector will structurally change as a result of this sale (that is still subject to closing conditions).
The current industry model has three simple layers:
Online travel agency
Each supplier is on one reservation platform and each reservation platform connects to all online travel agencies.
Online travel agents, obviously, do not distribute to each other (although some do have upstream affiliates with much smaller entities (and hotel chains/airlines) that take product content and in return refer bookings).
The new battle is for what industry-wide model will replace the current approach.
OTAs are going to have to buy the other reservation platforms (quickly), just to neutralise the first mover advantage that Booking Holdings just created.
Booking Holdings did not buy Fareharbor to enter the reservation platform business but to lay the foundations for winning the full-service consumer travel opportunity.
I expect Booking Holdings will adopt a simple, four-layer model and mould the industry around it:
- OTA (other OTAs)
- OTA (Booking.com)
- OTA reservation platform
The technology that Bookings Holdings has bought – i.e. FareHarbor – becomes the dominant supplier of product, supplying other upstream OTAs, much like Booking Holdings does with OpenTable.
This creates some challenges for suppliers not natively on Booking Holdings technology as they will need a channel manager-type solution to interface through.
Due to low transaction value versus hotels, and comparatively low transaction volume, product channel managers (independent of reservation platforms) have not succeeded yet (although several have tried).
Other companies will be battling to ensure that their preferred model is the one that is ultimately adopted – for example, TripAdvisor this week buying Bokun.
Any costs that these suppliers will pay for this technology will put them at a disadvantage to suppliers using Booking Holdings technology directly.
Impact to reservation platforms with traction
There are a number of outcomes that are likely to take hold as the deal unravels:
- Short term – there will now be new exit opportunities for the few who are attractive to OTAs (such as TripAdvisor-to-Bokun). The genie is now out of the bottle and now that one OTA has acquired a tour and activity reservation platform, others acquisitions will follow.
- Long term – there are probably only two or three more exit opportunities. OTAs don’t need to buy supplier technology to gain product supply as there is not much technical work required to move a supplier from one platform to another (at the long tail), as we have seen with issues that faced Zozi and Zerve in recent years where suppliers were transferred to new platforms over a couple of weeks. It’s worth noting that onboarding suppliers at the head of the market is much more complex, with projects taking several months of tech integration work with accounting systems, CRM systems, ticketing systems etc, so the platforms in that part of the sector do have more supply lock-in than the long tail SaaS platforms.
- Booking.com – reservation platforms will have to supply the site via FareHarbor. Suppliers will demand it. Yet this creates existential risk for the reservation platforms as suppliers may wonder why they need to be on two reservation platforms (their current and FareHarbor). This is FareHarbor’s/Booking.com’s first-mover advantage, creating the dilemma for other platforms to address.
Impact for those wanting to get into the booking platform business
Issues have now surfaced almost overnight, primarily because of the scale of the deal. They include:
- Reduced opportunity now for startups or funding for existing companies that are still needing to grow. The cut has been made and there are already more platform providers than exit opportunities.
- New opportunity to be a tech provider for part of the solution – e.g. solving a specific problem within the new industry model. You will have to wait a few years though for it to settle down and the new problems to become evident. Or you go for something now and get lucky.
Impact to FareHarbor suppliers
This is where things could get tricky in the short-term. Here are some assumptions to consider:
- Assume your Viator, Expedia, GetYourGuide or CTrip commissions and booking volumes have already been exposed to Booking Holdings as part of acquisition due diligence (at a top level) and once sale is complete, will be fully available on a supplier-by-supplier basis.
- Assume that over time Booking.com will begin to see your customers as their customers. We know that suppliers selling other supplier’s products is a massive revenue opportunity (Bokun, for example, says that 30% of its network bookings are created this way) – Booking Holdings will now be benefiting from that, not the FareHarbor suppliers.
- Assume that FareHarbor will change focus away from creating supplier specific functionality to projects that will benefit Booking Holdings directly. This is exactly what it did with Open Table (restaurants), converting over time a “single player mode” supplier-facing technology platform into a consumer-facing marketplace. Ask the restaurant suppliers if they like how that went down…
Interestingly, one long-term scenario is that the deal gives Booking.com all the tools to create its own branded tours, if it goes down the Airbnb model of controlling distribution and product in a vertically integrated way.
Impact to suppliers not currently using the FareHarbor platform
There are, of course, suppliers who are not customers of FareHarbor.
They have to make a decision as to whether to be double-listed, so that they can be on the inside of any opportunity that may come up in the near term (or at least hear any client privileged news).
However, this becomes “another extranet”.
Most suppliers have an allergic reaction to anything that looks like double listing using extranets, but other methods will not be in place for the northern hemisphere summer season that is imminent, so some degree of short term double-listing may be necessary.
Impact on competitors to Booking.com
There are going to be some decisions required – not least, are they going to give their customers to Booking.com?
Over time, we are moving to personalised tours, personalised suggestions, and this can only happen with additional customer details transferred from OTA to supplier than in the current industry-wide API architecture.
While not perfect, leading OTAs are going to have to buy the other reservation platforms (quickly), just to neutralise the first mover advantage that Booking Holdings just created.
They can’t put genie back in the bottle but this will buy them some time to consider next strategic steps.
In the longer term, they are going to have to think about a strategy that creates a more powerful consumer and supplier proposition than Booking Holdings/FareHarbor. This is not trivial (but I can think of a few!).
Impact on well-funded tours and activities-focused online travel agents looking for exits
One of the key outcomes of this deal is that it looks for certain that Booking Holdings will not need to buy an online travel agency that specializes in tours and activities (we’ve all heard the rumors over the years).
It will just put the Booking.com brand in front of its reservation platform tech, with no need for another (brand) layer between – such a move doesn’t bring any value at this point vs the integration complexity that it would create.
So this has closed some exit opportunities, especially those who are looking for $500 million-plus exits where Booking Holdings was one of the players with deep enough pockets to buy at that price.
It’s worth noting that global distribution systems could deal with online travel agencies (they have done in the past) but they are much more naturally going to work with reservation platforms, especially reservation platforms owned by OTAs, so that door looks like it is also closing shut.
This sale is more than just a sale of a well-respected startup with solid technology (it’s worth noting how little funding that FareHarbor took in order to get to this stage – just a low six-figure sum).
What it signals is the beginning of a new industry model.
Those that operate in the sector need to adapt their thinking immediately and look at all current and roadmap projects to check that they are all still useful and viable.
Many will not have been doing so.