Will Uber evolve into a major disruptor of the Travel Market?

The rapid migration of customer interactions to mobile devices undoubtedly poses a major challenge to travel businesses, who need to contextualise their booking path to users’ locations, as well as device size.

Clearly, this will allow some businesses to gain an edge for a period of time before the chasing pack copy all their good ideas, which they unfortunately have to publish to the world wide web!

With marketing costs remaining the biggest online cost of sale, it is difficult to see beyond the existing major brands in terms of who will dominate online travel in the near future. I say this because the likes of Expedia and Priceline have the resources to either copy new concepts and introduce them to a wider audience, or simply buy the innovative start ups.

The only threats to their dominance, that I can see, are likely to come from the domineers of mobile traffic, such as Facebook or Google e.g. Google Destinations or the sharing economy in the form of Uber and Airbnb.

Within the sharing economy, the massive valuations that Uber and Airbnb currently enjoy reflect the view of the financial community, that both are only just at the start of their massive growth potential. Obviously, financiers can get it completely wrong but in my experience, it is rare on companies of this scale.

Just as the online travel community has consolidated into two major camps, headed by Priceline and Expedia, I would not be shocked to see consolidation in the sharing economy given the major players’ abilities to raise the vast sums required to buy the likes of BlaBlaCar etc. The logic of combining Uber’s city-centric taxi services with BlaBlaCars’ 200 mile plus intercity service seems a highly synergistic move for territories outside of the US. However, given BlaBlaCar’s stated intent to avoid the US in order to concentrate on emerging markets, this deal may not be a high priority for Uber’s US-based financiers. A merger of Uber with Airbnb may initially appear less obvious, although audience synergies and cross-selling opportunities do exist.

The high transaction frequency of Uber makes it a logical creator of a “Western Super App,” in similar way to how C-Trip now dominates the Chinese travel market.
Apps allow a richer consumer experience, but “Appnesia”, where even customers who have downloaded the app forget about it, is a key problem. C-Trip overcame this by driving the frequency of use up, packing every conceivable travel service into one app in order to create a deep and broad travel vertical within a one stop shop.

High frequency usage drivers, like taxi services or domestic train/bus services could be the key bedrock for a “Western Super App.” Hence Uber with its high valuation and deep pockets, may be better positioned than Expedia to deliver this app via an acquisition drive. I say this because as an established player, Expedia can take less risk on acquisitions, as each one is expected to be earnings-enhancing. Conversely, the loss making Uber’s valuation is based on its potential and as such, it probably has more scope for riskier acquisitions.

Airbnb poses a major threat to hotels because its individual home owners often take a “Sunk cost” approach to pricing, looking to cover just their operating costs whilst making capital gains on disposal as house prices increase. This makes this accomodation much cheaper than traditional hotel stock.

I have recently invested in a start up called “Experiential Breaks,” which seeks to “package” private accommodation with tickets to “Events” e.g. NBA basketball and shopping/dining, to deliver a “Live Like a Local” holiday experience.

Ironically, the biggest problem with this niche type of product is that customers do not know they want it until they know it exists. Creating B2C brands to carry out this form of marketing is very expensive. Hence, Experiential Breaks’ strategy will be to work via travel agents on a B2B2C basis, selling ATOL bonded packages with the required H&S policies and insurance required to take this type of accommodation into a packaged environment.

However, this is just one niche and so far, sharing economy businesses such as Airbnb or Uber, have shown little appetite to disrupt the holiday market, focusing instead on the lower hanging fruit of the business traveller sector.

Disruption seems like an every day event in travel as a whole, but it’s hard to see the top online players loosing their grip on the current travel market.

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