Internet, Catalyst for Change

Article Published in Business Travel News, October 8, 1996

In July SABRE announced its intent to charge "value added" pricing to those who use the SABRE host to "front-end" Internet point-of-sale booking tools -- at about the same time that SABRE took wraps off its BTS corporate Internet booking tool; long after going public with their Travelocity. In October, SABRE applied their pre-booking fee to any "front end" booking tool.

In July Northwest/KLM established a different and significantly lower commission cap and commission rates for air segments booked using a "front-end" Internet type booking tool.

At about the same time, the city of Tacoma in the state of Washington decided to levy a tax on Internet services (presumably, Internet travel agency bookings) provided by companies that live within its city limits.

In the same timeframe the Intercontinental Hotels announced that they would pay travel agents 15% commissions for bookings that came across their Internet site -- citing the savings on GDS booking fees as a primary reason.

Of course, American Express and Microsoft ended the month by announcing their strategic corporate Internet/Intranet alliance. While many viewed this alliance as a "counter-punch" to the SABRE/BTS corporate gambit -- the announcement failed to note the role of the Microsoft/Worldspan link. Only a week earlier, the MS/WS tie had generated "heat" when Microsoft indicated it would offer direct hotel booking at lower rates (and implicitly, direct "other" bookings as well).

Among other "players", PCTravel, an Internet booking entity, imposed a $20 surcharge on Northwest tickets two days after Northwest announced its caps, and then "cut Northwest off" at the end of the month. XTRA On-Line received venture funding for its service bureau/Internet travel agency marketed corporate user GUI system ... not to mention the new E-Travel, TTG's link with GE Travel, etc. Further, virtually all airlines have announced or provide Internet sites -- most which will include booking and/of bidding solutions.

On balance, these are all actions taken by smart business people in the travel distribution business. Yet many, if not all, are in direct "conflict". The stability of the travel distribution structure is "under attack".

There is little consensus as to the role of Internet and/or Intranet in travel distribution. About the only thing clear is that the travel industry is finally beginning to "experience" the evolution of the travel distribution paradigm that many have projected in the past five years. Virtually every business entity with an interest in travel or travel distribution is attempting to "test" their particular "theory" as to the best solution(s) that meet changing buyer and/or traveler expectations. This mode of "trial and error" will continue through much of 1997 and, probably, to the end of the Century.

Much of this "testing" is taking place in the new communication medium, Internet. Internet represents the first real foray into the era of mass digital communication (as opposed to the historic base of mass print and analog telephone or television). It is an element of society in transition -- not just travel or travel distribution.

However, as it exists today, the technology of Internet remains too slow to become a viable commercial medium for the masses as they relate to most corporations -- and, except for the true "geeks", the slowness of Internet tends to wan on most users not tied to some specific interest group. This is an issue of applied Internet technology and will, in time, be overcome in one form or another; but probably not in 1997.

Intranet, on the other hand, has viable potential. It is typically corporate controlled and has functional uses beyond travel -- thus, it gets funded with structure and the speed necessary to make it work. It would appear that Intranet will be the "vogue" of 1997 -- at the forefront of other alternative booking solutions.

Implicit in corporate Intranet structures is not only direct booking -- but also direct settlement. "Ticketless" is teaching the airlines to match "sold seats" with electronic revenue received. Thus, corporations seeking price breaks in markets where they influence load factors, will concurrently offer direct settlement to airline vendors just as they currently settle direct with other major suppliers. The mutual derived cost advantages will spur acceptance.

With direct settlement will come a changed travel distribution structure. As smaller companies respond to the competitive cost advantage that large corporations gain through direct purchasing, these smaller companies will use their corporate travel agencies as the vehicle through which they will "collectively" commit to the same "risk" as the larger corporations. These agencies will be come risk taking business travel consolidators -- a few in 1997. Through direct settlement, probably facilitated by Internet/Intranet, the concepts proposed by BTCC will become a reality. Will BTCC "live" to see it happen?

Still, sometime in 1997, interested observers will see the beginning of a new "path dependence" evolving. "Path dependence" is the concept that small, usually random events, at critical moments, determine choices in technology that become extremely difficult and expensive to change over time. Implicit in this idea is that "the best" is not always the path chosen -- but rather, the "weight of numbers" as a function of volume, cost, and convenience, drive the choice of one technology path over another.

Some well-known examples of "path dependence" include the Betemax versus VHS standard, the QWERTY keyboard, Apple versus Microsoft, and now, the battle between network data stores (Internet) versus local data storage (the PC and LANs). A less obvious "path dependence" evolved in the travel industry when the airline inventory systems "evolved" into agent manned GDSs ... which became a "path dependence" of air-related car and hotel distribution -- and settlement.

In 1997, expect to see the emergence of a new "path dependence" to replace or supplement the CRS/GDS/Agent structure used for the past 30 years. It will happen mainly because the "old system" remains controlled by structures and controls tied to what was once, a paper and analog voice system. The new consumer/buyer driven era demands the speeds of digital solutions.

While the "hype" of Internet is here today, the role of Internet in travel remains a few years away for the mass of users ... but the Internet "hype" has become the stimulus for a transition of travel distribution to the Information Age. In that aura, Internet is spawning Intranet and other alternative travel distribution solutions tied to the new mediums of networked digital information. While neither the ultimate "structure" of the new distribution model, or the "end" of "testing" digital distribution solutions will become apparent in 1997, Internet has become the catalyst for change.