ARE ‘Private Sale’ sites – where luxury accommodation is beautifully packaged and sold at a heavy discount to a members-only database in ‘flash sales’ – the next big thing in online travel? Yes, if you believe the hype; no if scale is all you care about; probably not if you’re a fiscal realist.
After all, the Private Sale sites have only just begun and their turnover is drop in the ocean compared with the industry giants. But this nascent online travel sector led by Jetsetter.com, Rue La La and now Kayak demands attention because they challenge the traditional OTA model, which hasn’t changed for a decade or more.
Pioneered and perfected by the likes of Expedia, Travelocity, Priceline, Orbitz, Hotels.com etc, Jetsetter.com founder Drew Patterson says traditional OTAs are good at processing travel transactions but suffer from the “paradox of choice”.
“If you look at the major Online Travel Agents they don’t really do a great job in inspiring people to travel because they are built on GDS style architecture,” Patterson says.
Huh? “What I mean to say is the information design of the OTAs is identical to the questions agents ask of GDS … they assume the consumer wants to know where they want to travel.”
There’s nothing intuitive, personal or inspirational; type in a query, get a response… fine for suits with a meeting in Sydney, Seattle or wherever but leisure travelers often don’t have a clue – they just want to go on holiday.
“Choice is the problem,” says Patterson.
And he says this can be exacerbated by the research sites such as TripAdvisor – “an amazingly powerful tool” – but one carrying too much information, some of it undoubtedly compromised by the quality of reviews.
“Its search paradigm is so bad”.
This is where Private Sale sites enter the picture.
Born of the Global Financial Crisis, operators such as Gilt, which has backed Jetsetter.com, started flogging unsold prestige goods a couple of years ago, are moving into travel by leveraging distressed upper-end room inventory.
Properties are chosen by ‘curators’ and the whole sales pitch has the look and feel of an upmarket magazine or website – big beautiful images with a focus on lifestyle and status accompanied by an ‘independent’ review.
Yet for all the lovely packaging, prices are straight from the bargain basement, and here’s where it all gets a little contradictory because there’s no getting around the fact discounting is tacky and mass-market.
But, says Patterson, yield managers are prepared to cut prices through Jetsetter.com because its high-end presentation offers are only advertised to its ‘exclusive’ database of 80,000 mostly US consumers, around 10% of whom are active.
As for consumers, Patterson argues: “It’s about idea generation as much as low prices.”
The time-sensitive nature of the deals – generally only open for a couple of days – which are regularly emailed to members is also an effective sales stimulant.
Patterson says Jetsetter.com, which when live on September 30 last year, has “moved hundreds of thousands of dollars of inventory” in a single sale, and offers hotels a new and viable alternative to fill booking holes without putting distressed rates on the open OTA market.
It works for the likes of Jetsetter.com, which makes money from getting net rates from accommodation suppliers and marking them up.
By how much Patterson, former VP of marketing at Kayak, won’t say though he claims it’s less than US industry merchant model standards.
“Twenty five per cent looks a bit piggy to me and I don’t think we need those kinds of margins to build business. “
Scale will be the big challenge for the private sale sites.
Exclusivity contradicts mass market, which is needed for large profits, though Gilt now has more than one million members and seems to have preserved integrity.
However, there’s also strong evidence that anyone can join despite claims these sites are invitation only.
For example, I was able to sign up through the site (a slot had just “opened up”) and clearly other unqualified prospects could also do the same.
Patterson laughed when told this and said “you were lucky a space came up” but claimed exclusivity can be preserved.
Going forward, he says personalization will be crucial as the private sale sites grow while on the profit side the “unit economics hold up” and there are opportunities to move beyond accommodation into areas such as cruising.
“Growth opportunities certainly come with challenges,” he said.
But that’s in the future.
Right now private sale sites are hot and may very well be the next big thing, for the time being at least.