No Devo Here:
Whiplash Snaps Travel Industry
to Attention

The travel industry is a lot like the first cockroach that emerged from the primal diluvial soup – it has remained basically the same since its inception. When computer technology became available, the travel business adopted it at a languorous pace, simply digitizing the most obvious analog functions – searching schedules, and brochures, and printing itineraries and tickets, and usually doing it via expensive, private networks. True inflection points in this industry have been rare. One of those rarities was that initial wave of computer adoption, as promulgated by American Airlines and their Sabre reservation system. Sabre impacted the business far more fundamentally than just providing a computerized reservation system. It provided a computerized reservation system that altered the entire structure of an industry by showing American’s flights ahead of other airlines' flights. Since American flights were listed first, those are the ones that agents booked most frequently. This helped raise American into the top tier of carriers around the world. Sabre gave American a significant unfair advantage in the marketplace, which is only now being leveled, as the first wave of technology that was introduced into the travel industry nears the end of its lifecycle.

Whiplash, a Lisle Illinois based startup, contends that they have the right combination of technology, product, marketing, and concept that will mark a new, major inflection point in the evolution of the travel industry. The company believes that they have developed the first, second-wave technology innovation for the travel industry, a business-to-business, Internet-based and Web-enabled, leisure travel and experience booking engine that not only aggregates a huge inventory, but can actually book those products in near real-time. This has the potential of substantially altering the dynamics of the leisure travel business by making it possible to locate and book a complete leisure travel itinerary, including transportation, lodging, adventures, events, restaurants, limos, and so forth on-line through a Web-application – the Whiplash engine. Heretofore, sourcing and booking each of these items has been a multi-step process that included locating the product from computer systems or brochures and catalogues, then making the booking, usually by contacting each individual provider.

The Opportunity

Whiplash is taking advantage of several conditions that exist in the leisure travel booking market. These are:
  • The cost to travel agents to source and book leisure travel options is high because the provider side (those offering products) is very fragmented and not automated.
  • The cost of customer creation for many experience providers has historically been high, but can now be reduced by application of the Internet.
  • New wealth has created an insatiable appetite for the unique and complete leisure experience.
  • Alternative systems are expensive, out-dated, and based on private networks

Market Assessment and Competition

Whiplash generally competes in the market for computer-based travel and booking systems. While the obvious competitors seem to be the major booking travel booking systems, such as Sabre and Apollo which focus on commodity travel, Whiplash believes that their product compliments those booking systems. Over time, the Whiplash will be able to leverage their customer relationship into a significant knowledge base about the leisure travel experience business and this knowledge may ultimately prove more valuable than transaction fees. It is the other computerized booking systems that have a specific product or industry focus, are the true competition. These would include the internal booking systems for major hotels, vertical reservation third-party ticketing services/brokers such as priceline, and event ticketing organizations, such as TicketMaster. Additionally, the company is also perceived to compete with consumer oriented Internet-based travel services, such as Expedia, GetThereNow.com and Travelocity.

The overall size of the travel industry is more than $500 billion in the United States. Of this approximately $260 billion relates to leisure travel: the segment targeted by Whiplash. But while the market may exceed $250 billion, the actual revenue potential that Whiplash is a fraction of the $250 billion. That fraction can generally be calculated as the percentage of the gross revenue that would represent the agents’ commission. For the $260 billion market, the actual maximum market potential would be $26 - $39 billion, representing a 10%-15% commission. Note that the market size may actually be smaller and shrink as airlines and other provides reduce commissions.

Additionally, for travel agents using Whiplash, the engine provides a lower cost alternative to private network based systems, such as Galileo and Sabre – Whiplash uses the Internet as its communications infrastructure. This allows the agent to use existing personal computers and standard phone lines. They need only an ISP to connect them to Internet.

For the provider, Whiplash can be viewed as a zero-risk opportunity. There is no charge to list their inventory.

How Whiplash Makes Money

Whiplash has a simple business model – charge a small transaction fee to the suppliers (read: commission) for each transaction booked through their engine. The transaction fee amount varies depending on the product and will most likely be less than the commission rates assessed by legacy booking models. Most transactions are likely to have transaction fees of less than 5% associated with them.

As travel agent’s margins come under more pressure, Whiplash may elect to offer other, travel related products, such as luggage, travel clothes, books, etc. This would be in an attempt to provide the agent with other, potentially more lucrative products to offer.

Technology

The heart of the Whiplash product is the Whiplash travel engine. This is a proprietary engine based on industry standards that aggregates information about various leisure travel options. The product has differentiated itself from other travel aggregation services by also supporting the actual booking of the travel products and services offered in near real-time. The company’s key technology edge is the creation of efficient, Internet-based protocols and data connectors that facilitate interactions between the Whiplash engine and the systems used by the travel option providers. Other engines, such as Galileo and Sabre, have historically used private networks with proprietary protocols. Whiplash anticipates tapping into those (Galileo and Sabre) for commodity products, such as airline tickets. What makes this possible is that the Whiplash engine can integrate these commodity products with the leisure and experience products, delivering an integrated itinerary in near real-time.

A key component of the Whiplash technology is their ability to host the travel experience provider’s inventory. This is a crucial feature when the operator is a small, remotely located operation. In most cases, we suspect that Whiplash will provide a private label web site template that is likely to become first web sites ever for many of these operators.

Customers

Whiplash has two distinct customer types: travel/experience operators who provide the products and services that Whiplash books, and agents who use the Whiplash engine to book those products and services. The accompanying block diagram depicts the Whiplash environment:

Net/Net

Whiplash believes that its travel engine represents the next generation of automation for the travel industry and that it represents the first complete digital marketplace available to the travel industry. By leveraging the Internet as a communications infrastructure, the company has created a leisure travel and experience-booking engine that should enhance product availability while increasing the productivity of the agent by reducing the cost of product sourcing. By offering an Internet presence to smaller leisure experience providers, the company can control their rate of growth. That is essential since for Whiplash to succeed, since they must create a critical mass of providers that can attract a critical mass of sellers – travel agents doing bookings.

There are two major impediments that Whiplash needs to overcome. First, there is a high degree of fragmentation in the market – many buyers and many sellers. Whiplash will have to coalesce a critical mass of providers and agents from a widely dispersed and diverse population. The company will have to have a virtual and rapid way to sign-up the smaller players. If not, the business will not scale fast enough and reach critical mass. Secondly, there is a very established pattern of behavior that Whiplash will have to alter – agents have been using the same technology and systems for a very long time and the industry does not have a strong penchant for adopting new technology. Travel agents have been using the same systems and technology for 20+ years.

Clearly other bait that will attract experience providers will be having Whiplash create and host their web site. To meet this need the company must be able to efficiently create web sites for their providers and use a template approach. One aspect of Whiplash that helps in meeting this need is their relationship with divine interVentures, whose philosophy of “working within the family” may benefit Whiplash by providing fast access to Mercantec and LiveOnTheNet – companies with key technology or market pieces that may well meet the need that Whiplash will have for small-business hosting and merchant services.

Another challenge that the company faces is creating a clear marketing/product position. While many travel agents may understand the product, raising the visibility of not just Whiplash, but the problems they address will be paramount. It will be natural for people and the investment community to position Whiplash against the other consumer oriented Internet-based travel sites.

If the company is able to create a critical mass of buyers and sellers, they have the potential to fundamentally alter the leisure travel business by connecting a huge body of buyers and sellers who heretofore have been unaware of each other’s existence. While it may be hyperbolic to say that Whiplash will help build nations, consider the role that tourism plays in driving the economies of many developing and exotic areas, not to mention San Francisco. The combination of extreme new wealth and an insatiable desire for the next greatest experience, makes it is easy to see that being able to easily book the most exotic and remote leisure travel experiences in the world could be a factor in the development of emerging markets and nations.