That’s right, they are selling vacuum cleaners, mattresses and other overstock merchandise to their massive mailing list of bargain hunters because their services-based voucher sales have slowed.

Is it really any wonder?

I mean, how long could the craziness last before merchants just stopped wanting to sell their services at a 75% discount? Investors have also taken note of the slowdown and have hit the company’s stock price hard, driving it down by over 80% since it went public.

But the slowdown in daily deals isn’t just being felt by Groupon.  Even its leading competitor LivingSocial has suffered this past year.

Amazon, which invested $175 million into LivingSocial in 2010, had to write down almost the entire value indicating that it had paid too much for the original investment. Not a very positive sign from one of the leading ecommerce companies in the world.

In April this year, Travelzoo CEO Chris Loughlin blamed the deal industry for “unsustainable practices” that affected Travelzoo’s ability to compete in the space.

In addition to the pain being felt by the big players, daily deal startups are finding it hard to stay alive too. According to Daily Deal Media and Yipit, over 798 daily deals sites closed down in the last half of 2011 and that number will undoubtedly increase in 2012 as the segment seeks to consolidate.

What seems most telling, for me anyway, was the noticeable lack of daily deal incumbents and startups at the recent PhoCusWright Conference. It seems as if the glamour of flash sales has winked out like some proverbial candle in the wind.

So what does this mean for tourism operators who made up a good proportion of the revenues for these daily deal sites? How on earth will they market to all those deal hungry consumers out there ready to take a sightseeing tour for 50% off?

I have argued in the past that daily deals are a race to the bottom and, despite my better judgement, I have even attempted to help tourism operators to avoid some of the common pitfalls associated with marketing using daily deal sites.

But the news that daily deals are on the decline is a welcome relief.

It means, hopefully, that small businesses are waking up to the idea that being successful requires a well rounded marketing plan, a solid pricing strategy, revenue management, and (most importantly of all) a service that people really like.

Living without daily deals

With all it’s pitfalls and headaches, the daily deal phenomena has reminded us of one thing, that hype based marketing is generally short-term.

Remember that daily deals didn’t really exist five years ago and local businesses thrived and survived without them by focusing on the fundamentals.

The group buying concept when taken at it’s core is not a bad idea.  Getting a better deal by getting a group together certainly makes sense for both consumers and for the business.

Most businesses still offer these kinds of group deals and will in the future.  Small tourism businesses just need to go back to basics and invest in marketing that will grow their business in a sustainable and profitable way.

The brochure is not dead

Despite many arguments to the contrary, the brochure is not dead, in fact it is as strong as ever.  According to PhoCusWright research, 30% of travelers who booked local tours and activities used brochures during their search.

I think the daily deal sites have given brochure companies enough of a scare to have them considering how they can be more creative with their distribution, printing, and value add programs.

Until the world is one giant free wifi hotspot, however, don’t expect brochures to go anywhere.  Businesses will need to be more creative with their brochure marketing perhaps by combining brochures with mobile marketing.

Tracking using custom web addresses or promotional codes could also provide better metrics for tracking the effectiveness of brochures as a local marketing tool.

Start Collaborating with other businesses

The daily deal business really seemed to pit everyone against everyone as it forced prices down.  I think there is more power in collaborating with other local complementary businesses in order to offer a deeper more engaging experience and provide greater value for customers.

A tour operator might work with local restaurants to offer a lunch option with their tour, or with a vineyard to include a wine tasting session.

Those partner companies return the favour by helping to market the other partner’s tour to guests who visit their establishments.  A group of non-competing (or even competing) operators might create a local marketing website that showcases all their tours increasing their search engine presence by providing more relevant content.

A group of operators and hoteliers might even work with their local or regional CVB or DMO to put a local marketing plan in place.  Oh, and don’t forget the hotel concierge.

In many markets a good relationship with local concierges can be good for business.

Don’t underestimate word of mouth

Part of the power of the daily deal is the network of users that deal companies have been able to harvest over time.

Most small businesses however don’t realize that they are building their own networks of users with each and every customer they acquire.

Simple marketing strategies like asking customers to opt in to a mailing list or offering customers a friends and family discount can go a long way to bringing in new customers.

Travel is tricky though because unlike selling to locals, travelers tend not to buy from the same local supplier more than once.  This has been one of my strongest arguments against using daily deals.

But, what travelers lack in terms of providing recurring business, they more than make up in terms of potential referral business.  Past customers can serve as a great resource for reviews, testimonials, and referrals if prompted in an appropriate and respectful way.

Focus on value not price

In the end, being a successful local tourism business is just like being any other kind of business.  And believe me, I’m not against trying new marketing techniques.

I just think that businesses need to do their homework before jumping into something, especially when money is being collected and held by someone else.

All businesses need to focus on long term marketing strategies, building strong referrals and word of mouth, collaborating, sustainable pricing, and providing a great experience for customers.  Get out of the mindset that the best “deal” means the lowest price.

It doesn’t.

NB: Cut money image via Shutterstock.

A deal is something that offers great value for the amount paid. Local tourism flourished before daily deals and it will flourish without it.

Excited to purchase something for dinner, you reach out and pick up a can.  To your surprise the can is empty.  You take a closer look at the label and it states that the can is merely a representation of the food you are buying created exclusively by the grocery store.

In fact, once purchased, the grocery store will call the manufacturer to make sure the food you purchased is still available.  If it is, then you are instructed to take the can to the food manufacturer who will then happily fill the can with the food that you purchased.

Oh, and by the way, there is no guarantee that the food that you purchased will actually still be available when you arrive, so you may have to settle for an equivalent substitute.

Now, imagine that all the cans and boxes on the shelves are the same; empty representations of products that must be redeemed at their point of manufacture.  I think you would agree that consumerism as we know it would come to a grinding halt.

Although you are probably saying to yourself what a ridiculous way to distribute goods, many segments of the travel industry do, in fact, distribute this way.

I realize this is an oversimplification of the problem, but it’s not that far off the mark.  Heck, both the wunderkinds of the travel space like Airbnb and incumbents alike work on the premise I have described.

A customer looks at a vast catalogue of amazingly beautiful photos and descriptions of places they can stay or things they can do.

They select one, pay for (or pre-authorize) their selection, and then wait for a message to go to the property owner or tour operator to confirm that they can accept the booking.  If the booking is confirmed then the customer’s card is charged and they receive their proof of purchase or voucher.

If the operator rejects the booking, for whatever reason, the customer is out of luck and has to pick something else thereby repeating the cycle.  Sometimes this process can take up to 48 hours or more.

Into tours and activities

In the last few months I’ve watched with some satisfaction, the number of stories on Tnooz relating to the tour and activity space.

As an outspoken evangelist for the segment for many years, it is certainly nice to see that the segment is getting some much needed love.

But what worries me is the number of start-ups and innovations that are popping up that are not dealing with, what I consider to be, the number one problem plaguing this segment; the empty can.

Let’s be clear, I’m not talking about a lack of supply, I am referring to a lack of access to real-time supply. There are, as PhoCusWright confirmed in its study, tens of thousands of small tour and activity operators in the North America alone.

There is no lack of supply in the tours and activities marketplace.  The issue still remains however that, as of 2011, only 14% of these businesses have electronic reservation systems, and of those, I would estimate that less than 10% have systems capable of supporting electronic distribution with real-time availability.

I doubt highly that the number has changed much since that time.

So what can be done to make sure that the cart is placed firmly behind the horse?

Those who are interested in distribution need to open up instead of creating walled gardens of supply.

Look under the hood of any OTA specializing in a niche market, whether it’s vacation rentals, tours and activities, or people’s couches, and what you will find is a proprietary extranet designed to allow suppliers to load their content into the OTA’s database.

Some are fancier than others, some have nice features, and some might even pass as a basic management system, but they are all proprietary and by virtue closed systems.

Ask yourself these questions:

• So why wouldn’t an OTA just open up it’s extranet and allow suppliers to use their extranet as a tour operator software or property management system?

Because managing product for the purposes of distribution is very different than managing the supply of products.

• Is an OTA really going to allow a supplier to use their technology to sell direct to a consumer?
• Is an operator going to allow an OTA to be the sole repository of their content, both marketing and availability?

The answer to both those questions is most likely to be no.

One answer to the real-time supply problem is to build inbound APIs.  The APIs that are currently available (from a distribution standpoint) are outbound APIs.

This means that they are designed to push content out to marketing partners rather than pull content from suppliers.  In order to access real-time supply, the onus is on the large OTAs to connect to third party systems for the purposes of accessing availability or to process real-time bookings.

Fig.1 – Current OTA connectivity model

For anyone other than the largest of suppliers, getting the attention of an OTA is simply an impossibility.  For most OTAs, creating a custom integration is generally not a priority because the revenue levels don’t justify the cost of a direct connect to a single supplier.

But, if the OTA had an inbound API that was standardized and properly documented, the OTA could stipulate the methods for sending and requesting content, availability, and booking transactions.

Fig. 2 – OTA with an inbound API

By opening up such an API, the OTA could connect with an unlimited number of third parties with only a single API build.  If the API were built using Open Travel Alliance Schema, the potential to reduce build time and improve the likelihood of connectivity would also increase.

The burden to connect and maintain compliance would shift from the OTA and land firmly in the lap of the supplier or the supplier’s reservation system provider.

But how does this help get more small suppliers to adopt electronic systems?

Opening up channels for distribution can act as a strong motivator for suppliers to adopt systems that will allow them to distribute.  Small system providers would jump at the opportunity to build to a distributor if it meant more suppliers adopting their systems.

Just look at the increased adoption of systems in Australia as a result of Tourism Exchange Australia.  An OTA, or any large distributor for that matter, advertising that they have an API that is accessible for real-time availability push, means that thousands of operators who offer availability restricted tours and activities could distribute without the fear of overbooking and without the headache of back and forth emails.

Even if those suppliers are not ready to distribute yet, taking that step towards distribution by adopting a reservation system will increase their ability to book directly with consumers, which is still the primary booking channel for the in-destination tour and activity segment.

From a purely technical perspective, I am a bit surprised that this hasn’t happened already.  My guess is that it is not a technical issue but a commercial one.

Maybe now that it has been brought to light, we’ll see some innovators or forward thinking OTAs actually build distribution platforms without the requisite half-hearted but still necessary extranets that tend to go along with them.

Maybe, just maybe, these organizations will have an API first approach, with a big banner that says “want to distribute through us, connect to our API and feed us your content”.

Maybe – just maybe – then we’ll see the vision of last minute real-time mobile bookings become a reality for the tour and activity and other niche segments.

Hey, I can dream can’t I?

NB: Grocery store shelves image via Shutterstock.

Overall the results are positive and intent to visit is up.  This is the first time that the US has had a national marketing strategy and marks an interesting and exciting opportunity. But is something missing from the strategy?

The strategy outlined by Brand USA includes promoting the US, enabling travel into and within the US, providing world class customer service, coordinating across government, and conducting research.

The one key piece I see lacking in the strategy is a national product distribution strategy designed to promote small businesses who offer the bulk of the unique and interesting experiential offerings. A distribution strategy, however, is not an easy endeavour and takes a significant amount of work to develop and implement.

Getting it right?

One country that has shown leadership in the development of a national distribution strategy is Australia.

The Australian Tourism Data Warehouse (ATDW) and its distribution network, known as the Tourism Exchange Australia (TXA) Alliance, has been providing education, technology, and distribution for the Australian market since 2001.

The driving force behind TXA, a joint government and commercial partnership created in 2007, was a recognized need by Government to assist in providing online booking capabilities, in particular to the SME sector.

A secondary driver was to provide ATDW online distributors with additional revenue opportunities.

The strategy that led to the creation of the ATDW and TXA preceded the creation of either.

Wendy Smith, the TXA Project Manager explains:

“The State and Territory tourism organisations saw the benefits of a shared resource model, shared hosting and distribution on the national platform.

“Initially, its primary purpose was to collate and distribute tourism information to consumers, but this has grown to offer additional services and adding a booking component to this commercial offering was a logical step in response to consumer demand.”

But should Governments be responsible for developing technology standards?  As Wendy explains, the TXA is actually a partnership between Government and industry.

The XML standards used for distribution purposes was developed by the TXA’s technology partner V3 (pronounced VCubed).

In absence of a recognized standard, this seems a reasonable solution, however, the OpenTravel Alliance has a number of schemas that support a variety of travel and tourism sectors.  Using an open standard that is already supported by industry could make adoption by industry easier.

There are of course several challenges with developing a national strategy, besides just the technological ones.

Where to go from here?

Unlike Australia, the US has never had a national tourism organization to bring cohesion to the relative granularity that exists in the current US tourism landscape. State and city based DMO/CVBs all compete for eyeballs online, in print, and other media sources.

The concept of having a singular voice, let alone a singular strategy, as exciting as that seems, is a complete unknown.  Before any strategy will work, there will need to be some agreement on standards of delivery and concensus amongst stakeholders.

In the case of Australia, this meant state and territories coordinating education of local businesses based on the content developed for the Tourism ekit, which contains over 50 tutorials designed to help operators make the most of online opportunities.

With all this coordination and education, however, the ATDW and TXA’s biggest barrier has been communicating the concept of coordinated national strategy.

Knowing this, Brand USA and other tourism boards considering a distribution strategy could learn from the Australian experience and use the extensive network of local and state DMOs & CVBs to spread the message and help build support for the strategy.

Strategies are, by nature, long term.  A long term approach to marketing and operations that does not include a distribution strategy and supplier engagement could be considered a half measure.

A vision

If Brand USA, or another national tourism organization, is looking to develop a full circle strategy to increase visits and tourist spend, then surely including a national distribution strategy would:

• help enable small business to offer local tourism products
• use that product data to increase the variety and diversity of experiential offerings at the local, state and national level, increase revenue opportunities for upstream distribution
• improve customer experiences by fostering nationally recognized standards of delivery

The path that Australia has forged should not be ignored.

I hope that national tourism organizations like the newly formed Brand USA follow the lead of Australia and develop strategies that target all steps in the travel buying cycle; marketing to target the dream phase, tools and content to help with planning, distribution and supplier booking enablement to drive purchase, and measurement & research tools to make incremental improvements.

In an industry as global as tourism, it makes sense to learn from those who have innovated regardless of location.

Although there may be regional and cultural differences, the core strategy developed and used to implement the ATDW and TXA should work anywhere in the world.

But why is this and why should it be considered status quo?

• It’s true that the majority of operators working in this sector are small businesses.
• It’s true that many built their businesses around a love for what they do, rather than based on business fundamentals.

That’s part of the beauty and charm of the tourism industry.  Entrepreneurs can find something they love to do and build a business around it.

As charming as this is, however, it does make it particularly hard to ensure consistency and quality in the development and delivery of products and services.

Tourism boards around the globe are recognizing that there needs to be quality standards in place for tourism businesses and they are starting to develop best practices programs for their stakeholders.

Many of these programs, like the one developed by the Australian Tourism Data Warehouse are focused on providing guidelines for marketing, sales, customer service, and technology.

Consulting companies targeting small business have also popped up building on the quality standards and online booking best practices.

These consulting companies, like UntangleMyWeb for example, are helping small businesses restructure their processes around best practices.

“What I find in the small tour business industry is that very few have anything different than a diary. The Ekit has raised awareness about online booking systems for tours and provided a solution that doesn’t only offer online bookings but also back-end bookings to replace the diary.

“I also believe that there are many more affordable accommodation booking systems than there are affordable tour booking systems.

“Thanks to the Ekit and the industry training that UntangleMyWeb provides I feel that operators are now aware of alternatives to the legacy systems. Such alternatives offer excellent value for money and a very simple DIY interface.”

The challenge is that there are simply too many small businesses out there that require best practices but don’t know it.  The question then becomes, how do we as technologists and innovators help small businesses adopt best practices?

Understanding tourism best practices

It’s not enough to build solutions for an industry without understanding the requirements of that industry.  Just as applications like Quickbooks were developed to serve accounting needs and are built off of decades of accounting best practices, so too should reservation and distribution systems.

Defining best practices is not an easy thing to do and it cannot be done solely by industry, especially industry providers like reservation system developers.

Why? Because there are too many conflicting interests.

The best practices are best defined by organizations like the tourism boards who work for the whole industry or in the case of data and messaging standards, associations like the OpenTravel Alliance.

Before developing, or in some cases re-developing, a system for the tourism space, consider whether or not the system is supporting business best practices or perpetuating the status quo.

Built-in best practices

Once an understanding of tourism best practices is reached, the systems need to be built to enforce best practices.  A good example of enforcing best practices is PCI compliance and support for payment systems.

Whether the business is selling tickets, t-shirts, or shoes, if they are selling and taking payment online, they are considered an ecommerce merchant and should be following PCI (Payment Card Industry) best practices.

The challenge of course is that many small businesses don’t understand or abide by PCI as a natural course of business.  Building PCI best practices into systems makes it easier for small businesses to follow best practices because they will do so by default.

The same could be said for product, distribution, accounting, and even customer management.

Best practices and innovation

I can imagine that many would see best practices as a limiting factor or a constraint, much the same as the argument that standards are a constraint.  But I disagree.

I see best practices as an opportunity to level the playing field in terms of HOW rather than WHAT products and services are developed and delivered.  The tools and processes that go into the development and delivery of the product or service are different from the product itself.

What innovators need to understand is that constraints are good, they feed creativity and foster out of the box thinking.  It’s hard to think out of the box, if the box is not defined.

Small tourism businesses make up the vast majority of businesses that deliver services to tourists in any destination.  Across the board, 90% of businesses are small (US Stat), so extrapolating that to include the tourism sector is not a stretch.

What is concerning is that the turnover of these companies is very high, as high as 50% after five years.

Although there are numerous factors that could lead to the failure of a business, a lack of available best practices should not be one of them. As the recent level of technical innovation in the in-destination tour and activity segment has shown, there is a thriving opportunity within the sector.

The question is whether or not those of us who build systems for the sector will help lead these businesses with best practices or cater to the status quo.

NB: Web practices and via Shutterstock.

The Federal Trade Commission is looking into why almost 600,000 credit card numbers including expiry and security codes, were stolen over a three year period in three separate data breaches, resulting in over $10 million in fraudulent losses to cardholders, banks, and credit card companies.

But the biggest loss, I would argue, is a loss of consumer confidence that Wyndham – and the wider industry – might incur as a result of these breaches.

In a recent post titled Credit card safety and cyber attacks in travel – everyone’s responsibility, I argued that protecting sensitive customer credit card data is paramount to maintaining consumer trust. In the Trustwave 2012 Global Security Report, hospitality ranked at the top of the list for data breaches for the fourth year in a row.

So, in short, what the heck is going on?

Don’t get me wrong, I fully understand that system security is probably not on the top of every hotelier’s skill sets but strong security practices should be built into every business process.

Weak passwords and a laissez faire attitude towards property management system usernames and passwords should never be an excuse for a compromise.

It doesn’t just happen in the hotel industry though. I can’t tell you how many times I’ve seen general computer users (regardless of industry) use weak passwords for logins into systems that are business critical.

In the case of Wyndham and many other targets of cyber attacks, weak login credentials in property management systems are a key vector for data breaches.

So, I guess we can blame the property management system, right?  Whoa, not so fast.

As I mentioned in my previous post, security is not confined to one system. Security is a chain that links almost every aspect of a business from the front desk to the senior staff.

Any weakness in that chain means a possible compromise.

According to the FTC, Wyndham Worldwide had many points of weakness in their security chain including; storing credit card information in plain text, storing sensitive security codes (aka CVV/CVS/CVC data), not using firewalls, not enforcing strong passwords, not using updated operating systems, and not having adequate logging.

What is surprising (or maybe not) is that every one of the vulnerabilities claimed by the FTC is also addressed by a requirement under the PCI DSS (Payment Card Industry Data Security Standard) and outlined in the PCI DSS v.2.0 document.

Clearly Wyndham as well as each of its properties is subject to PCI audit and scanning requirements, and yet it would appear that basic security measures were either not in place or being enforced.

What has happened at Wyndham should be taken as a serious wake up call to the travel industry.

The security practices, or lack thereof, that resulted in the breaches at Wyndham could have happened to anyone.

The old saying “it’ll never happen to me” just won’t cut it when some unscrupulous 19-year-old cyber criminal decides to target your website or data center.  The safety and security of customer data is not a game, it should be considered business critical.

After all, how long can a business survive if it no longer has the trust of its customers or the ability to accept payments.

I wouldn’t be surprised to see significant penalties levied against Wyndham by the card companies as a result of these breaches or class action suits similar to ones Sony faced after their massive breach.  The financial impact of these penalties, however, will be nothing compared to the loss of consumer confidence and erosion of Wyndham’s brand.

If the hair on the back of your neck is tingling right now… good.

That means you’ve recognized the acute possibility that what happened to Wyndham could happen to you.

Luckily for Wyndham, they have the financial and human resources to make this right and turn this negative experience into an important learning experience for themselves and the industry as a whole.

Now, stop reading and go update your weak password… you’ll thank me in the morning.

NB: Credit card hotel image via Shutterstock.

You can only go to so many conference that tell you that mobile is just over the horizon before you realize that, at the time, no one was ready for mobile.

Luckily, however, Apple and Google stepped up their game and it is now fairly safe to say that mobile has arrived.

But are businesses, specifically of the small tourism variety, any more ready now than they were ten years ago, when WAP and cHTML were the name of the game?

You’ve undoubtedly heard me previously mention the PhoCusWright report When they get there and why they go.

I’m going to mention it again because, in 2011 when the report came out, one of the most interesting snippets of data showed that 63% of consumers intended to use their mobile devices for booking in-destination tours and activities and that 39% had already done so.

This data is interesting because it shows that consumers – primarily those in the US – are already using their smartphones and tablets to do their bookings.

Based on our own Rezgo booking data, we know that the majority of bookings of direct to supplier in-destination bookings are made between three and seven days in advance of the activity date.

We have also seen booking using mobile devices grow from 12% last year to over 21% for the first and second quarters of 2012.  For some of the operators we work with, bookings through mobile are as high as 30%.

Since travellers are favouring their tablets and smartphones during travel more than their laptops, I think it is safe to assume that this consumer intent will likely increase over time.

The issue is, however, that the majority of small tourism businesses that provide local in-destination tours and activities who are already struggling with how to handle e-commerce and advanced payments are now faced with the challenge of making their businesses mobile friendly.

Marketplace dominance

For now, marketplace players like Viator and GetYourGuide have done a good job of making their websites mobile-friendly and building mobile apps.

These technologies allow their partners to benefit vicariously through their innovation. Do a search for “tours and activities” in the Apple App store, for example, and you’ll find that all of the applications are for services that re-sell other operator’s services.

The chances of finding an app produced by an actual operator are extremely slim.  The primary reason, besides the cost of creating such an app, is that an app for a single operator has little usefulness.

On a recent trip to Miami, we booked a dolphin encounter, a jet boat ride, and a sightseeing tour. Despite the fact that none of have had apps to download, there is no way I would have bothered downloading an app for each of these providers because I would most likely only use the app once and then delete it.

I did, however, visit the operator websites while in Miami and, sadly, none of them were mobile friendly.

Location-based service irrelevancy

In addition to app irrelevance, an issue that doesn’t seem to get discussed very often, is that location based services (which are a big part of the mobile ecosystem) are not relevant for many in destination tour operators.

Why? Because very few in-destination tour and activity operators operate out of their place of business.

Showing a traveler how close they are to an operator’s business address doesn’t really help. Almost all of the popular mobile location-based services work well for fixed locations like restaurants, attractions, or points of interest, but they don’t work well for tours.

Being able to show tours or activities regardless of operator however is much more relevant.  This is where companies like Viator and GetYourGuide shine.

The Viator iPhone app, for example, shows you all tours close to you. Compare that to Google Local, for example, which will show you businesses (based on their address) close by.  These are completely different searches with completely different relevance for the traveller.

[NB: Compare the results from the Viator app on the left and centre versus the Yelp app on the right. The Viator app shows actual tours and allows you to book in destination. The Yelp app shows a travel agency listing - not very useful.]

Mobile is about communicating

So what are tourism businesses supposed to do when it comes to mobile? Is being listed in the Yelp app or the Yellow Pages useful to a tour operator looking for impulse travel customers?

In the pay-to-play world of mobile, small businesses simply cannot compete head to head with the big guns. Frankly there is little point in competing head on with the big players.

Generally speaking they have the marketing and development budgets to outspend any small operator. If possible, small operators should try to partner with the marketplaces so their tours and activities are available in their apps and mobile websites.

In addition to distributing through these channels, there are lots of web applications available now that allow small businesses to create mobile websites that are relatively inexpensive.

Services like Dudamobile, for example, allow small businesses to create a mobile friendly website with maps and click to call buttons for less than $10 a month.

If the operator is already using a platform like WordPress, there are plugins like the WPTouch that will automatically detect and convert a WordPress site into a mobile friendly version.

The key to winning the mobile battle for small business is understanding what travellers are likely to do when they are in destination.

If the traveler is looking for things to do, and therefore shopping around, a good portion (over a third of them) are likely to pick up brochures or rack cards to find out more about local tours and activities.

They may even do a search on Google for “Things to do in X”.  If they find one they want to do, they will call or go online on their mobile device to book.  In this case, having a well optimized website with a mobile friendly interface and clear instructions on how to book are critical.

If the traveler has already booked the tour or activity and is looking to confirm their plans a day or two in advance, they will most likely refer to a printed voucher or email for contact information to call.

It’s generally unlikely that they will email an operator to confirm a reservation that’s only a day or two away, but they might.  These travelers will most likely visit the operator’s website to check for directions and to confirm travel times once in a location.

What to do

So an operator can focus their mobile optimized site to provide the following information:

• Address information and a map (preferably linked to Google Maps or the new Apple Maps application) for easy directions.
• A click to call button so the traveler can call the operator without having to dial the number.
• A click to email button in order to send an message to the operator.
• A mobile booking interface so that a traveler can book a tour or activity in real-time and get a confirmation on their phone.

That last one may be a bit of a stretch for most operators, but it is eventually where they will want to be. In the meantime, making it easy for the traveler to connect with the operator is a great place to start.

It’s pretty safe to say that the age of mobile has arrived and that this year “is the year of mobile” .

In the same way the web became a ubiquitous part of our daily lives back in the 90s, mobile is now becoming just as commonplace.

Thankfully, the cloud and software-as-a-service (SaaS) web applications are making it easier and more cost effective for tourism businesses of all sizes to get mobile ready.

The challenge now, as back then with the internet, is ensuring operators understand the benefits of being mobile friendly and that they make the appropriate investments.

The consumer intent is there – the ability for tourism business to deliver is still in question.

NB: Phone and pin image via Shutterstock.

The target of these criminals is predominantly credit card and identifiable customer data.

According to the 2012 Global Security Report from Trustwav, however, the vector for obtaining access to the target data was not direct network attacks but through malware unsuspectingly installed by workstation users or staff.

In a recent article, I discussed the lack of payment systems for small tourism businesses and the effect that this has on local economies and access to diverse travel products.

But payment systems are nothing compared to the complexity and arbitrary interpretation that is PCI compliance and the world of credit card data security.

Background

Given the global nature of travel and the vast diversity of merchants that make up the travel supply chain, is credit card security simply too difficult to achieve?

The Payment Card Industry Council is an organization made up of all the major credit card brands. They have developed a set of minimum security requirements to which every merchant who accepts credit card payments must adhere.

The purpose of the PCI data security standards (aka DSS) is to ensure that a minimum level of security is maintained when processing, transmitting, or storing credit card data.

The reason for the security standards is to improve awareness of the importance of security credit card data and to protect consumer credit card data from criminals.

The PCI DSS v.2, released in October of 2010, is a detailed 75-page document that outlines each security requirement and appropriate testing criteria. Reading and understanding the document is no easy task, which is why Qualified Security Assessors (QSA) and Approved Scanning Vendors (ASV) were created.

These specialized security companies, such as Trustwave, exist primarily to assist businesses to navigate the sometimes complex path to PCI DSS compliance. For small merchants, they provide vulnerability scanning and self assessments and for larger merchants they provide full onsite auditing and documention services.

In order to be PCI DSS compliant, every merchant or service provider must use the services of a QSA and ASV to validate compliance.

Thankfully, PCI auditing requirements are tiered based on the volume of transactions handled by the merchant or technology provider. For small businesses, the costs of auditing compliance are quite low, perhaps a few hundred dollars are year.

For larger merchants (those processing 6,000,000 or more transactions) or larger service providers (those handling over 300,000 transactions annually) the costs of Level 1 PCI compliance can range from $15,000 to $250,000 or more per year.

The amount will vary based on what PCI refers to as scope and the number of physical locations that need to be audited. Merchants or service providers that have a limited scope and only one physical location will have lower auditing requirements than one that has to certify it’s own data center environment and several offices.

The number of transactions and how the transactions are made will determine the type of security requirements a merchant must have in place. What is not known by many travel related companies is that capturing credit card information online in any way, means that the merchant is an ecommerce merchant and is subject to additional security requirements.

Even if the business is not an online merchant, the security of their supply chain can impact their compliance. For example, if you are a travel agent taking credit card information over the phone from a customer for a vacation package, you have to control how that credit card information gets used through your supply chain.

But PCI compliance is only valid if the entire credit card information flow is PCI compliant. This means that everything from the hosting environment, website, payment system, gateway, and reservation system needs to be PCI compliant.

What to do

There are several ways for businesses, especially those in the tourism industry to ensure they are protecting valuable customer credit card data.

Firstly, all businesses should be processing card payments through compliant payment gateways. Many travel related businesses tend to hold on to credit card information in order to process payments over time.

Although this is fairly common practice, it is frowned upon because of the risk to the card holder information. Many modern payment processors now offer recurring payment support. In this case, the original transaction is used to establish the payment profile and issue a token (in place of the credit card data).

The business can process additional payments to the same profile by sending the token along with appropriate payment details. This type of process is most common in higher priced packages or tours where multiple partial payments are made over time.

Still other businesses, including those in the daily activity space, capture credit card information at the time of booking which then gets processed at a later time, for example when space or weather conditions are confirmed.

The most common reason for this is so that the operator doesn’t have to refund the credit card if the tour cannot be confirmed or is likely to be cancelled prior to the tour date.

Real-time and up-front

This problem can be solved in two parts; firstly ensuring that availability is managed in real-time so that post booking confirmation is not required and secondly, by processing payment upfront and then refunding only when required.

The challenge of course is if the business has a very low confirmation rate, then this may result in more refunds than the operator may like, however, if that is the case, then the operator may need to evaluate the reasons for this and work on improving their processes.

Replacing any written credit card processes with electronic versions that use either a card swipe terminal or virtual terminal. As I mentioned in my payments article, there are many new service providers such as Square and PayPal Here that now support mobile credit card processing using smartphones.

These systems protect customer card data and ensure an electronic transaction trail that can be used for auditing and reporting purposes later.

Lastly, for all electronic transactions, look at what systems touch customer credit card data and be sure they are PCI compliant. Using a service provider that is already PCI compliant means that the business doesn’t need to worry about the portion of the process managed by the service provider.

This may be the website hosting provider or the software as a service reservation platform. The Trustwave 2012 Global Security Report says:

“The majority of our analysis of data breach investigations – 76% – revealed that the third party responsible for system support, development and/or maintenance introduced the security deficiencies exploited by attackers.”

As the report states, it is not uncommon for service providers to inadvertently put their customer businesses at risk. In this case, for example, the most vulnerable businesses are small businesses who generally outsource their infrastructure and systems to third parties.

To ensure compliance, the business should ask for evidence of compliance. This means ensuring that the systems meet compliance for the services that they provide for the business.

In other words, if the service provider is a reservation platform, the business should be ensuring that the service provider is being audited and is compliant as far as transmitting payment information on behalf of the operator. This is known as service provider compliance rather than merchant compliance.

At the end of the day, the security of the traveler should be the number one priority of any travel business. Whether the business is an airline, a hotel, an excursion operator, or a travel technology provider, if the business has reason to process, transmit, or store credit card information, it should be looking to not only meet but exceed PCI DSS best practices.

As more innovators look to develop systems for the travel industry, they need to keep in mind that consumer trust in travel is dependent on our ability, as an industry, to help ensure security throughout the entire purchase life cycle.

If consumers lose faith in the security of their credit card information, the travel industry, which is dependent on credit card transactions, will be negatively affected.

NB: Credit card lock, laptop attack and credit card cash images via Shutterstock..

That truth is the support for international payments, especially those for SMEs, is broken.

It is not just a case of payment systems not working or being too expensive for many small businesses, which in many cases they are, but the fact that for the most part, they simply don’t exist in many emerging markets.

Take a look at any of the recent startups in the tour and activity segment and you will see a familiar trend, they are mostly “marketplaces” where the startup takes payment on behalf of an operator and then sends money (less fees of course) to the operator (or guide) once the tour has been taken.

Most of these startups, not surprisingly, are also based in the US where online payments and transferring money via Paypal or an automated clearing house are not an issue.

Pain points

Why is this payment model so attractive for startups?

Firstly, it is an inflated measurement of revenues. When you are collecting 100% of the funds, it’s easy to say you made X amount of revenue and it’s just as easy not to mention that you only actually keep 10% or 15% of it.

It’s the same measurement that got Groupon into trouble during its IPO. It’s also attractive because it means the startup gets the money, first ensuring they get paid, rather than trying to collect commission from hundreds or even thousands of small operators.

Move outside of the US, however, and the problems become much more significant. You don’t have to go much further south than Panama to find that, although Paypal is accepted, a small operator can only withdraw funds to a US bank account. Not a very practical or cost effective solution for a small local business.

There is nothing innovative about the remittance model used by these startups, it has existed for years and is the same one used by companies like Viator and Expedia.

Even relative newcomers like AirBnB use the same payment scheme. It is a proven model and it works. But for anyone other than the occasional room renter or would-be tour guide it is simply not reasonable to wait for cashflow that is delayed by up to 90 days and costs upwards of 20%.

It is partly for this reason that only 8% of total revenues generated by in-destination tour and activity operators are generated through resellers.

Reality for small businesses

That’s the well funded tech startup landscape though, so what about the actual small operators? What kind of issues are they facing around payments?

The biggest problem that many of them see is not having access to the internet, SEO, or even having a booking engine. For many, the fundamental problem is that there is no way to accept credit card payments.

Ecommerce is built on the premise that customers pay something at the time of purchase and receive confirmation in real-time. Even if the payment is only a deposit or even a pre-authorization, the fact that the customer is paying with a credit card means that the business is assured that they will be paid for the booking they have received.

This is especially true for in-destination operators whose average ticket prices are less than $100. Without real-time credit card payments and the guarantee of a confirmed booking, the need to book in advance is all but eliminated.

This lack of access to credit card payment systems for small businesses has driven many to use aggregation services or resellers who can accept credit cards. But even the resellers and aggregation services have a limit on the number and type of tours that they are willing and able to sell.

The resellers have their own brand to protect after all. Supporting every tour and cutting checks for a myriad of suppliers each month is an administrative burden that most would want to avoid. Which leaves the vast majority of operators who want to take advantage of advanced bookings online with no way of doing so.

Recently there has been an increase in the number of alternative payment providers. Companies like Square, Brain Tree, and Stripe are trying to make credit card processing easier for small businesses in the US.

Unfortunately this still leaves those markets that really need a solution out of luck. In order for the in-destination global tour and activity segment to truly embrace the web, solutions to the payment problem must be resolved.

What can be done?

Given the fragmented nature of the tour and activity segment and the relatively small size of the businesses that participate, how can the problem be solved?

There are several ways to tackle the problem and unfortunately none of them are short term. The first is to educate operators on payment best practices and to get them payment ready.

This is best accomplished by regional or local tourism boards or chambers of commerce who have direct access to operators. An example of this is the Australian Tourism Data Warehouse (ATDW) and its tourism e-kit.

Simultaneously, the tourism boards can work with payment providers to streamline the process of providing merchant services to small businesses.

I realize that payment issues are larger than technology and involve the banking infrastructure and government regulation, but In order for the banks and merchant providers to support small business, they must see the business opportunity and economic benefits.

I think that merchant providers somethings take a myopic look at the payment landscape and think that if the locals don’t use credit cards then there is no reason to support it. But inbound tourists and travellers will be using credit cards and if you want to attract more of them, then the systems have to be there to take payments from them.

The larger business opportunity in the tour and activity segment is in understanding the economies of scale with the segment.

As PhoCusWright showed in its 2011 study When They Get There & Why They Go, the US in-destination tour and activity market alone is worth $27 billion and is 80% comprised of businesses that generate less than $1 million per year in revenue. Extrapolate that out to other regions and the global opportunity becomes compelling.

Travel-focused effort

I think the most interesting opportunity in solving the payment problem is for an established or startup company to try and tackle it in earnest.

I am not talking about creating another Stripe, Braintree, or some other service that is only available to U.S. businesses, and I’m certainly not talking about creating more aggregators or resellers.

I’m talking about a serious effort to try and address credit card payments for small tourism businesses in emerging markets in an affordable manner. To date, it looks like Paypal, as loved and reviled as the brand may be, is doing the best job of trying to support regionally diverse merchants.

Surely though, the market is large enough to make it worthwhile for other competitors.

Until the underlying problems around payment are resolved for the vast majority of operators, the in-destination tour and activity market will never truly reach its full economic potential and the majority of local tourism businesses will remain off the radar cash only operations.

NB: Cowboy hat, credit card mousetrap and card on water images via Shutterstock.

But is any of it going to make a long term impact or is it just lot of technological navel gazing?

From the list of tour and activity sites that Alex Bainbridge has been amassing, one can see that this sector is quickly becoming a popular target for developers hungry to deliver something different to travellers.

There have even been a few high profile investments from movie stars and comedians in these would be “Airbnb‘s of the tour and activity” vertical.

But, while the attention is excellent and the sector certainly deserves to have a light shone upon it, are these innovations actually dealing with the fundamental problems that face most small business operators or are they just adding more noise to the marketplace.

Before one can fully appreciate the solution, one must understand the problems, many of which take years of interaction and relationship building to fully comprehend.

Although the PhoCusWright report quite clearly identified the overall makeup of the sector, many of the start-ups seemed to have failed to take notice.

So, I’m going to share with you some of what I know about the tour and activity segment.

Economic reality

The first and most important finding in the report is that over a third of businesses generate less than $250,000/year in revenue (that’s gross revenues by the way).

That’s less than the salary of most senior executives. These are businesses that are extremely cost conscious and lifestyle oriented. They do what they do because they love it, not because they have to.

These operators generally don’t have a business background and, as a result tend to build their business processes around what works for them at the time rather than through industry best practices.

Because these businesses are small, they tend to be fiercely independent and are looking to succeed on their own terms. They are not looking to put all their eggs in one basket and they certainly are not interested in developing someone elses’ brand with their efforts.

The important thing to note here though, is that in all cases, these are businesses and not part-time tour guides looking to spend time on a weekend walking around their city with a bunch of people they’ve never met.

Regardless of whether or not they have a business background, these operators are running legitimate businesses and have gone through the process of getting certified, licensed, and insured.

Hi-tech or low-tech

The second important finding to consider is that although 70% of operators have websites, less than 14% have electronic reservation systems. What does this tell you?

Well, firstly it tells you that most operators (86% of them in fact) don’t have a means of managing their seat inventory, other than a spreadsheet or pen and paper.

If they can’t manage their inventory, they won’t be able to provide block allocation or perform other basic yield management tasks. In fact, most of these small operators don’t even have any understanding of the concept of yield management.

They work on a free sale basis or a call or email for confirmation basis, which makes it very hard to sell their tours (as a reseller) without delay for the consumer.

Distribution and problem solving arguments

The third finding, and the one I think most of the startups need to consider carefully is that operators favour direct bookings over distribution.

Why?

Primarily because the work required and the revenues generated by distribution are far outweighed by the effort required to distribute.

According to the report, about 14% of revenues are generated from distribution. That 14% is coming from heavy hitters like Viator and Expedia who have strong recognized brands and marketing dollars to match.

The other 86% of revenues are coming from direct to supplier channels such as phone/email, online, and in person bookings.

That’s not to say that distribution is not a good thing to develop,my assessment though is that the majority of suppliers are simply not ready to participate yet.

After the PhoCusWright report came out in 2011 I expected entrepreneurs and innovators to jump on the tour and activity bandwagon and come up with some great solutions that would help move the segment forward.

What I have seen instead is a lot of rehashing of existing models with new-fangled Web 2.0 names and some social integration, but not a lot of substance.

The tour and activity segment is in serious need of innovation, but that doesn’t mean trying to solve problems that don’t exist. There are enough real problems that need to be addressed without inventing new ones.

What are those problems, by the way? My advice to all you would be “game-changers” out there is buy the PhoCusWright report and read it (carefully) and talk to real business owners.

You’ll find out what the real problems are soon enough. Once you do, your challenge will be to solve those problems before anyone else can or better than the incumbents.

Maybe then, I’ll see something that really makes me cr*p my pants.

NB: Skydiving, pennies and problem solving images via Shutterstock.

Who and what are you (including personnel and backgrounds)?

Touristlink provides a totally new way for travellers to find and book services online, especially those they have a hard time finding elsewhere on the web.

Members can use our simple form to request whatever they want whether it is a “Taxi Pickup from an Airport” or a “Guided trip to Mt. Kilimanjaro”.

Once a request is made it goes out to our network of travel agents and guides who can then make offers from which the member is free to choose one if he likes. This functionality is seamlessly built into a content rich social platform where travellers can interact with each other and with local businesses.

Touristlink is developed by GoTripIndia, a web development firm founded by David Urmann in 2005 which now employs over 70 IT professionals.

Prior to launching Touristlink we launched several other successful travel sites including: Travelaffiliatepro, an affiliate program for travel website owners, and Hotelkhoj, an online hotel booking portal developed exclusively for the Indian market which lists over 2,000 hotels.

• David Urmann is the Founder and CEO. His global perspective and scientific background have helped him launch successful business ventures in both the travel and outsourcing industries. He is an avid traveler having visited over 40 countries and is the author of a travel guide book on his home state of Utah.
• Jayesh Badge is the Cofounder and COO. He has 9+ years of experience in advertising agencies & IT. He oversees the Indian operations of the company.
• Deepak Gupta is the lead programmer at Touristlink engaged in the development of client side, server side scripts. He specializes in the LAMP & Open Source Software.
• Ganesh Chavan is the manager of customer support & public relations, Ganesh has 6+ years of experience with leading names in industry like IBM and GE for Banking solutions.

Our entire team can be seen here.

What financial support did you have to launch the business?

We are bootstrapping the launch from our existing revenues. We are looking forward to a point where it makes sense for us to bring on additional funding.

What problem are you trying to solve?

Our conversations with travellers and feedback from customers showed us a clear need for a service that would connect travellers to local service providers.

Many of our existing customers have mentioned how hard it is to find local service providers online for things like trip packages, tour guides and arranging ground transport.

This feedback from customers was reinforced for me by lots of personal experiences. For instance, last year I planned a weeklong tour in Rajasthan with my wife and mother but didn’t really want to book an overpriced tour with a travel agency which I didn’t have any experience with and who wanted me to wire half the money before I arrived.

As it happened we ended up finding a great guide but it was just by chance. Another example occurred on a trip I took to China where I remember looking for a translator / city guide and I ended up finding someone on Craigslist but I wasn’t sure who I was really dealing with and it would have made me feel better if I could have seen reviews from other customers to help me know I was making the right choice.

Touristlink solves this travelling dilemma by letting local providers sign up and then offer their services in response to requests by our members.

Describe the business, core products and services?

Touristlink looks to target the travel activities market by providing a service that lets travellers request the exact services they need and then receive multiple offers from travel providers.

Most transactions in this $80 billion marketplace are still occurring offline and 90% of providers state that they face product display and cost issues with existing distribution channels which are significant barriers to increasing sales.

Touristlink intends to solve these problems and become the primary website for these transactions by providing a marketplace which is seamlessly built into a content rich social platform where travellers can interact with each other and with local businesses.

One thing keeping us excited is our mobile application which we will be launching in the New Year.

The mobile app is very simply the request that allows travellers to request services no matter where they are. We are essentially giving our members a very simple application which will put them directly in contact with our entire network of travel providers.

We think that making this service accessible to be people on the go and actually travelling will be an important key to our success.

Who are your key customers and users at launch?

We are focusing on marketing locally and we currently have marketing teams in several popular tourist locations in India who are directly introducing our service to both local travellers and foreigners.

The initial response is encouraging and we hope that as we improve conversions we will be able to scale this operation to more locations.

Did you have customers validate your idea before investors?

Touristlink is a direct result of conversations and feedback from our customers which showed us the need for this type of service.

We have been in the online travel business for four years and are responsible for the successful of development of several websites.

What is the business AND revenue model, strategy for profitability?

Once a traveller selects an offer from a travel provider he pays 10% of the total price which we keep as our commission and the rest is paid on delivery.

SWOT analysis – strengths, weaknesses, opportunities and threats?

Touristlink aims to target a giant market in which no dominant competitor exists and most of the transactions are still occurring offline. The opportunity lies in bringing these transactions online.

They occur offline as many of the providers in the segment are small businesses doing less than a million a year in revenue and even if they have websites they often lack the ability to manage transactions or availability.

That such a large market exists with no dominant leader signifies to us the need for a fundamentally different solution.

All of our competitors are trying to force a traditional online booking system on to small businesses with highly variable products – a booking engine in which products are defined by a set of standard variables and availability is managed independently for each.

Having dealt first hand with over 2,000 hotel owners in India, we do not think this is the right approach and instead believe the request-offer model that we are offering will be much more suited to this market where the products are highly variable and where getting providers to correctly upload products and then continuously update availability is difficult at best.

Even if we are not asking providers to take on the complicated task of uploading products we must still face the fact that many of the providers have limited experience marketing services on the web.

This means many of them need to be individually worked with and essentially trained on how to use our system. This implies a relatively high workload per provider but being located in Nagpur one of the least expensive cities in India might give us an edge over competitors trying to do the same on a large scale elsewhere.

If one quickly browses through Touristlink it is clear that it is much more than a transactional platform it is for the visitor primarily a social network and destination guide. Every Touristlink member is different and this is reflected in his online profile.

We believe that the travel providers who will be most successful on the site will be able to take advantage of this and customize offers based on the members profiles.

A key part of the Touristlink strategy is making the site a place where travellers can build relationships with providers and ask questions and get advice even if the end result is not a sale.

Who advised you your idea isn’t going to be successful and why didn’t you listen to them?

Sometimes it feels like everyone is a critic and I think the best thing you can do with the criticism is not to take it personally but to try to learn from it.

We have built enough websites to know that it is a constant testing and refinement process as you interact with visitors.

The key thing to success is just to move forward everyday and try to make the product better. We were invited to attend Seedcamp, an early stage mentoring and investment program, this past November in Barcelona and we received some great advice.

I thought we had a pretty defined business concept going into this program but in-depth discussions with our mentors definitely pointed us in some new directions and certainly made us focus on what our key concepts are.

What is your success metric 12 months from now?

If we are engaging our users and getting them to come back and use our service then we will be successful.

NB: TLabs Showcase is part of the wider TLabs project from Tnooz.

So, inevitably, I was certainly happy to see a large number of presenters at this year’s Travel Innovation Summit at the PhoCusWright conference talk about having their APIs available to third parties.

In my experience though, most of these APIs will see very little in terms of large scale integration.

You don’t have to look much further than the Programmable Web directory to find that there are, already in the market, close to a hundred APIs tagged as travel.

There are also about 490 mashups (sites that integrate one or more APIs) that are considered travel-related.

I would argue that many of the innovations presented at the Innovation Summit, especially the social trip planning ones fall under the heading of mashups, combining travel apis from Expedia, Hotwire, or Orbitz along with the Facebook OpenGraph, Google Maps, or other non-travel related APIs.

Some innovations, like FlexTrip, are meta-aggregators of APIs, combining many different feeds primarily from tour and excursions providers like Viator, Urban Adventures, TourCMS, Rezgo, and others, normalizing the content in a local database and then displaying the content in a unified homogenous manner.

In the case of FlexTrip, it is even providing an API to its own aggregated content which, when you think about it, is one big pipe that is fed by many smaller pipes.

One of the big complaints with travel APIs, however, is that they are complex and cumbersome to use.

Many of the larger, more powerful APIs require commercial agreements and most, if not all, have documentation and support that is hidden behind corporate portals.

In essence, the big gatekeepers of data make it tough to use their data.

One example of how simplifying an API can increase adoption is to look no further that Google Maps. Out of all the mashups listed on the ProgrammableWeb directory, the most prevalent API used is the Google Maps API with 2,309 mashups.

The next most popular API is Twitter with about 653 mashups.

So, why is the Google Maps API so popular? Because the API is incredibly simple to use, easy to access, fast, well documented, and supported by a large community of users.

In a more vertically specific example, we saw, at the THack Boston earlier this year, Amadeus (which has listed its APIs on Programmable Web) release a mini-API for hotel search that was very simple, light weight, fast, and easy to access.

For that event, it was the most used API, not because it was the most powerful or provided the most data, but because it was easy to implement.

At the end of the day, there are more great ideas and clever developers to implement them than there are APIs to support them.

Many of the most successful travel innovations have been built on APIs.  You need not look further than Kayak or the more recent Hipmunk to see that tapping into data and adding a layer that makes it easier for consumers to manipulate that data can be a successful model.

But these success stories are few and far between when you consider the number of potential success stories that are out there.

To all those innovators out there, including the existing legacy travel technology providers, I say the following:

Take a close look at the data that your company has locked away and think to yourself whether or not there may be some value in making some of that data available through an API.

You may even find that others are willing to pay for access to that data if it is compelling enough.  In addition to making your data accessible, look to organizations like OpenTravel to provide messaging structure and support.

Who knows, some clever developer out there may do something amazing with your data that you had never considered before.

Those discoveries and sparks of genius can only happen if you’re willing to support it by opening up and simplifying access to your content.

NB: Image via Rumpleteaser on Flickr.

Given how much the web has changed though, isn’t it about time businesses started taking back their customer reviews?

The question is not that easy to answer because there are a number of factors that affect the efficacy of reviews and their influence on consumers.

Do you remember those comment cards that were placed in your hotel room or on your restaurant table that asked you in earnest: “How was your experience?”.

How often did you fill those comment cards out and, if you did fill one out, did you ever expect to get a response from anyone.

Probably not, because you expected that this was a one-way communication process. You left your comment and it was up to the establishment to take action or not.

Regardless of whether your comment was good or bad, no one ever saw the comment except for the establishment.  In essence, you had to trust that the company was going to do something (anything!) with your feedback instead of filing it in the old circular filing cabinet.

Trust is a powerful thing and demands a level of accountability and transparency that just didn’t exist with paper comment cards.

There was no visibility into the process of reviewing the comment cards and certainly no indication that a suggestion would be taken seriously.  Now, however, with review sites, customers can voice their concerns for everyone to see.

Now it’s up to the company to watch and listen for comments in order to stay on top of their reputation.  Instead of filling out a comment card, happy and disgruntled guests are going to sites like TripAdvisor and leaving their comments.

But, is what they are writing different then what they would write on a comment card?

No system is infallible and both corporate and consumer trust of sites like Yelp and TripAdvisor is being questioned.  Recent moves by the advertising regulator in the UK and the countless complaints from hotels are an indication that, although TripAdvisor is clearly a benefit to consumers, many businesses don’t like the idea of having to compete with their own brand.

Just how impartial are customer reviews anyway?  When you have a site as large and powerful as TripAdvisor (in terms of search engine optimization) there are going to be those that try to game the system.

You don’t have to search very hard to find all kinds of complaints about fake reviews, libellous comments, and a lack of support for businesses.

I think that most of the reviews on sites like TripAdvisor and Yelp are genuine. However, if the individual companies had better mechanisms for handling, processing, and posting their own reviews, then their customers would be less likely to turn to sites like Yelp or TripAdvisor.

Recent experience tells me, however, that hotels (for one) are still ill-prepared to handle customer feedback. After a recent trip I received a customer feedback survey that was over twenty questions long.

I have no idea how long it would have take to complete the questionnaire because answering ten questions was already seven questions too many.

Think about it though, if you stayed at a hotel and they asked you to write an honest review about your stay that would be posted without alteration on a publicly viewable review section of their site, would you do it?

Many reservation systems now capture an email address, so it shouldn’t be hard to send a follow-up email to the customer asking for feedback. I know I would take the time to complete a review if I trusted that the company was going to take my review seriously.

If the claims are true and over 70% of the reviews out there are positive, it seems to me that those reviews should be provided directly to the companies being reviewed rather than through review sites.

But do consumers trust reviews from travelers that are posted on a supplier website? Again, the question is whether or not the traveler can trust the source and the process for gathering the review.

Experience would indicate that verifying reviews or associating the authenticity of the review is key to trusting the validity of the comments left by the reviewer.

For example, if a customer was to sign-in with Facebook or identify the review with a specific itinerary number or reservation number, then the company and the viewing public would know that the review was written by a genuine guest.

Organizations like the Adventure Travel Trade Association (ATTA) are already investigating the possibility of creating a standard review structure that would allow companies to act as gateways to a larger distributed review store.

Hotels, unlike adventure operators, handle hundreds of customers a day so the available guest user base for reviews is quite high.  With systems like TripAdvisor and Yelp, the benefit is in the sheer number of reviews and looking at the average.

If there are fake or inaccurate reviews in the system, they have very little impact overall.  For a small operator who only handles a few hundred customers a year however, every review is important and will have an effect on the overall rating.

Assuming that operators stick with a standard structure, review content could be distributed along with standard tour content in order to help with conversion. By using a standard review structure, it is conceivable that reviews created on a related (or unrelated) website about an operator could be shared with the operator for use on their website in the same format.

Before all the SEO naysayers start going on about duplicate content, just think about it rather more objectively.

TripAdvisor does not care who books what, or links to what, on their site.  On any given attraction or hotel page you’ll find advertising for operators who are direct competitors to the one for whom you are reading reviews.

Why would an operator who has spent time building their brand send a customer off to TripAdvisor to read reviews only to end up losing them to a competitors link?  TripAdvisor needs the review content in order to maintain rank and drive eyeballs and clicks to paid advertising, so for them the duplicate content issue is very real.

A small operator uses reviews to help convert a visitor into a paid customer not necessarily to drive them to the site in the first place.  The full content of the review can be used on the site without the need to link off to a third party.

I mentioned earlier that verified reviews are critical for credibility.  I think that organizations such as ATTA and perhaps even tourism associations, have a possible role to play in setting a code of ethics around the use of reviews and for driving some adoption of a review standard.

Adding some industry validation and perhaps even oversight to the review gathering process could go a long way to ensuring the reliability of reviews.

Would standardizing the review structure and giving suppliers the ability to gather and distribute their own reviews have a long term negative impact on sites like Yelp and TripAdvisor?  I don’t think so.

I think, if anything, it would present these companies with an opportunity to aggregate data from a myriad additional sources without the need to duplicate effort.  Imagine, if you will, TripAdvisor reviews displayed along side ATTA verified reviews gathered by the supplier.

I certainly think operators would welcome the opportunity to harness their own reviews in a more open way, but will the large brands go for it?  Ask me again in a year.

So, now that I’ve made my opinions known regarding daily deals, I felt it was important for me to provide some tools to help small tourism businesses structure their deals in order to maximize their impact.

In a recent rebuttal to Rocky Agrawal’s guest series on Techcrunch, the owner of a BBQ restaurant wrote about his very positive experience with Groupon.

At the end of the day, bashing daily deals is fun but doesn’t really help small businesses protect themselves against making a mess of their finances.

In order to do this, tour and activity operators have to keep in mind that the business of running a scheduled fixed availability tour or attraction is quite different from the business of running a spa or restaurant.

As I outlined in my article Does the Groupon model lead tourism businesses racing for the bottom, tourism based businesses do not attract repeat customers, so they do not benefit from the argument that the daily deal is going to bring back loyal customers.

Activities generally don’t offer value-adds so the customer isn’t going to purchase more than the value of the coupon and, probably most importantly, tours and activities have limited inventory and are generally scheduled, which means they have to booked in advance.

Before considering a daily deal, make sure to read the agreement carefully.  There is an interesting analysis of the Groupon terms and conditions available here.  The advantage that tour and activity companies have over restaurants and spas is that they have the ability to manage inventory more efficiently.

Daily deals are a great opportunity to test out yield and channel management features if the reservation system supports it.

During your negotiation with the daily deal sales person, you should keep in mind that your goal should be to maximize your return on investment while reducing the impact to your administration.

Once you’ve had a chance to review the agreement and have checked your reservation system to make sure it supports channel & yield management, you will want to consider the following:

1. Limit inventory for deal seekers

If your reservation system has the ability to allocate specific inventory to the deal, then you should do this well in advance of the deal running, and make sure that “Limited Availability” is built into your deal terms.

For example, if you offer 15 seats you may want to allocate a maximum of 5 seats to be available for daily deal customers.

This serves to limit your exposure to 33% of your inventory on any given tour and still allows enough inventory for regular paying customers.

2. Limit redemption of your deal to slow days

Most tour and activity operators have busy days and slow days.  The problem is that, like most of your customers, your deal seeker customers are probably going to want to book the tour on popular days.

Consider limiting the deal seekers to slow days or, if you want to allow deal seekers to purchase during your busy times, refer to the previous suggestion of limiting the number of seats available to deal seekers.

This is basic yield management and is a practice often done by hotels and other accommodation providers to fill rooms during slow periods.  If you add this limitation, it ensures that your busy days will be filled with your highest paying customers, therefore maximizing your revenues.

3. Force deal seekers to online bookings

Make it clear that deal seekers need to use your online booking system to redeem their vouchers or book your tours.  This allows you to control how the deal is redeemed and what restrictions will be applied.

For example, if the deal seekers do a search for availability and you specify that they must book a specific tour, then you can limit the number of seats they can book and the pricing that is displayed to the customer.

Limiting the deal seeker to online bookings also has the added effect of reducing your administration and reducing your costs for managing the booking.  Since your revenue for deal seekers is going to be much less, it is important to find ways to reduce the human costs for managing these tours.

Even though you may pay a little more for your technology to handle the booking, the cost will always be less than the cost of a human to process the same booking.

4. Create a unique offering for deal seekers

Instead of discounting your regular tours or activities, try creating something totally different for your deal based customers.  This has the effect of allowing you to determine the costs and revenues for a specific product rather cannibalizing your core products.

It also allows you to limit the bookings and availability for the specific product which guarantees that your existing products will not suffer from deal seeker overload.

The unique offering should be different enough from your regular offering to avoid confusion and to reinforce the value of the deal.  When creating a deal offering like this, consider partnering with other local services to enhance the deal without increasing your costs.

For example, consider including a discounted meal at a local restaurant, free admission to a partner attraction, or a coupon for a local retailer.  In this way, you can actually extend the benefits of the deal to your partners who may run a similar deal that includes your business in the future.

5. Cash equivalent versus discounted service

This is by far, my number one recommendation.  Let’s take the example of a sightseeing operator who offers a daily tour for 15 people.  The tour is valued at $150.

If you offer your tour at a discount of 50% off and stick with the average 43% commission to the daily deal provider, then your revenue on the tour will be $42.75.

Given that the customer purchasing this voucher is not going to be a repeat customer and is not going to purchase anything beyond the value of the coupon, your revenue on this sale will be $42.75.  If you change the voucher to be a fixed value voucher with a cash equivalent, for example $20 towards any tour for $10, then your revenue changes dramatically.

Using the same example, your tour is $150 – $20 = $130.  Subtract the additional $4.30, which is the daily deal cut and your take on the tour is actually $125.70.

This is quite a big difference compared to $42.75.  Offering the cash equivalent deal has an added benefit of not devaluing your core offering.  The tour is still $150.

Companies like the Gap, Old Navy, and others have offered these cash equivalent deals so there is precedence.

If the sales person you talk to says that this is not possible, then remind them of these high profile examples.  They work well because they don’t limit what the customer can purchase which means that the up-sell potential is higher but they are not as good for the deal provider because the deals are smaller.

Structuring your deal this way also means not having to change your existing pricing or product offerings.

6. Be confident with your numbers

Don’t let the sales person pressure you into doing a deal that doesn’t work for you.  For many businesses who have not been careful with their deals, only the deal provider and the customer benefit.

If you use the aforementioned suggestions for structuring your deal and stick to your requirements, then you will increase your chances of ensuring that your deal is 1) good for your business 2) great value for your customers 3) successful for the deal provider.

The overwhelming response to any daily deal cautionary post has been that businesses need to do their due diligence and plan their deals properly.  Just take a look at the comments on my previous Groupon post for example.

I would argue that the hordes of daily deal sales people are not doing small business any favours by being so aggressive with their sales tactics and, therefore, it makes sense to empower small businesses to protect themselves.

Conclusion

If you are a tourism based small business or you work with small tour and activity operators, please encourage them to prepare themselves.

There is no doubt that Groupon, Living Social, and the rest of the daily deal horde will be knocking on the doors of more and more small tourism businesses.

If we help them prepare, hopefully we can reduce the number of daily deal victims we so often read about online.

“This unsub is young but well organized.  He has all the trappings of success but is in fact hemorrhaging money trying desperately to maintain an air of normalcy and control.

“He is profit-motivated, using charm to convince his victims to give away their goods at a fraction of their true value and when he is done collecting his cut, he leaves them to pick up the pieces.

“He lacks empathy and targets victims that are highly trusting, some might say naive. They go along with the unsub’s plan because they feel they have too, not knowing that they are walking into a trap.”

I know it sounds like an episode of Criminal Minds, but in fact it’s a profile of a different kind of killer – a killer app.

What’s the difference between this killer app and a serial killer?  Well, in this case the unsub is a media darling about to IPO and the victims are small businesses left to dig themselves out of a proverbial shallow grave.

Think I’m off the mark in describing this company as a psychopath?  Two of the most common traits of psychopathy are a lack of empathy and narcissistic tendencies.

In fact, author Joel Bakan in his book The Corporation: The Pathological Pursuit of Power describes it as follows:

“The operational principles of the corporation give it a highly anti-social ‘personality’: it is self-interested, inherently amoral, callous and deceitful; it breaches social and legal standards to get its way; it does not suffer from guilt, yet it can mimic the human qualities of empathy, caring and altruism.”

Now, I’m not known to rant and generally speaking I try to focus on the positive but sometimes “something” comes along that makes my skin crawl and the hair on the back of my neck stand up.

In 1999-2001 it was businesses going public with no business model,s spending obscene amounts of money on Super Bowl commercials and taking average investors for a very expensive ride. These days, that “something” is the daily deals craze.

I can’t seem to get through a single day without being bombarded with talk of Groupon this or LivingSocial that.

With Groupon’s S1 filing and imminent IPO, some much needed light has been pointed at the daily deals business model and, now, finally, people are starting to look under the covers and ask questions.

In January 2011, I wrote an article titled Does the Groupon model lead tourism businesses racing to the bottom? in which I discussed the importance of analyzing daily deal promotions.

It proved to be one of my most popular posts and generated a lot of discussion around the daily deal model as it applies to travel.

Given all the discussion happening on sites like TechCrunch and Mashable about daily deal horror stories, I think it is safe to say (six months later) that “I informed you thusly”.

I’m not going to go back and rehash any of the things I talk about in my previous article.  If you like, just read it later.

In fact, I’m going to go a step further and say that if you run a daily deal for a small tourism business, I think you are potentially making a bad business decision.

I’ll go even further and say, if you’re a large travel business and you’re planning on partnering with such a company to make a quick buck in the daily deals space, then shame on you.  Would you knowingly go to bed with a psychopath?

I fully appreciate the fact that Groupon has made a boat load of money for its founders and investors and that it has provided a bunch of deal-seekers with some great savings on stuff they either would have already purchased or would not normally have purchased.

It has also helped fuel a daily deals industry that is growing at a ridiculous pace.  You only need to blink and “POOF!” a new deal site is launched.

All of these sites, however, are fishing for the same fish, the small business, and increasingly small tour and activity business are on the sonar.

With this daily deals love fest, everyone seems to focus on two things, the daily deal company (in this case Groupon and its IPO) and the consumer (and about how much they are saving by using daily deals).

What most people seem to forget is the small business in the middle that is fueling this “hot” segment.

The problem is that deal site “inventory” is delivered by small businesses that are most at risk of failing if they make a bad business decision.

In this excellent series on TechCrunch, Rocky Agrawal explains why daily deals are bad for business. Rocky explains (as I have before) that small businesses tend not be marketing experts or business analysts and, as a result, they are susceptible to hype and pressure sales tactics.

As a result of the daily deal craze, small businesses eager to hop on the daily deal bus are instead getting hit head on with the reality of delivering on an unsustainable discount and are littering the sides of the “super-highway” like so much other roadkill.

Some of you are probably asking “So what? Some Joe Shmoe doesn’t do his homework, runs a bad deal, and goes out of business. Big deal.”  Well, it is a big deal. It’s a very big deal for Joe – and that’s my main point.

This trend isn’t just about money and how much Groupon’s stock is going to rise.

A bunch of already rich people are going to make a stink load of money when Groupon hits the public markets – that’s a given.

But it’s not about them, it’s about all the Joes and Janes out there trying to make a success on their own terms. It’s about understanding and appreciating the role that small businesses play in our local economies and about how important they are to the health and vitality of communities.

It’s also about how small businesses can make or break the tourism experience for a visitor.  It’s about treating small business as a renewable resource rather than one to be exploited.

Fundamentally, this trend is about empathy and the lack thereof for the people most affected by daily deal failures. Believe me when I tell you that no small business is going to get rich running daily deals. Most are lucky to break-even.

Small tourism businesses have a hard enough time making ends meet.  It’s easy to say they don’t matter and that “Oh well, so sad, another one bit the dust”, but at the end of the day, it does matter and it matters a lot.

So, that said, instead of eroding the value and offerings that these small business people struggle to deliver, why don’t we find ways to empower them to deliver superior products and services to a market that is actually interested in the experience and not the deal?

Let’s wave a joyous goodbye to the deep discounted daily deal trend and usher in a new future, one that treats small business with respect, nurtures them to succeed, and focuses on mutual benefit.  Let’s focus on delivering value to travelers rather than pandering to the notion that cheaper is better.

That future sure looks a lot better to me than standing around a shallow grave site surrounded by police tape thinking about how I’m going to explain to a family that their small business just fell victim to a serial killer app.

When my company first developed Rezgo we decided that we wanted open connectivity to be part of its DNA. We didn’t want the API to be an afterthought or something we’d eventually get to when we had time.

We wanted to “eat our own dog food” and build an API that we would use every day, so we would know that it worked and we could share it with other developers.

But building an API, especially one from scratch is time consuming and laborious, so we decided to look around and see if anyone else had an XML API that we could duplicate or at least use as a starting point for our own.

You see, that’s how most software companies work, they look for code that already exists and they re-purpose it so they don’t have to re-invent the wheel. No one wants to re-invent the wheel.

One of the first places we looked was the OpenTravel schemas.  Why? Because they are the holders of all travel messaging are they not?

Well, for us, they were not.  Having found no existing tour and activity schemas that we could use, we eventually developed an entire set of eighteen XML messages from scratch.

But that’s not the end of the story.

You see, when the opportunity arose, we chose to donate the schema for those eighteen XML messages to OpenTravel in order to jump start the development of standard messages for the tour and activity space.

“But that’s your intellectual property, why on Earth would you open source it like that?” I hear you ask.  Simply put, our intellectual property does not reside in the messages that we develop, it resides in the sophistication of the system that produces and consumes those messages.

This, it seems to me is the reason why the importance of messaging standards is shifting. You needn’t look further than Google, Twitter, or Facebook to realize that making your application available through an API (most likely XML) can have a significant impact on its adoption.

In the early days of travel distribution messaging, the focus was of moving messages away from edifact and into a more flexible container, like XML.

What we saw, however, was a duplication of message structure only wrapped in XML tags versus in edifact format.  Over the years, we’ve seen messages balloon to hundreds of elements each one dealing with a unique business need championed by one or two trading partners.

Even though the core OpenTravel messages are used by hundreds of trading partners millions of times a day, they are highly complex and not particularly easy to implement, and they were certainly not designed for the web, mobile, or the world of mashups that we live in today.

But with new opportunities comes change and a desire to evolve.  At the recent OpenTravel Advisory Forum in Las Vegas, I saw fierce competitors leave their brands and business rivalries at the door and sit down together at working group meetings to talk about ways to make the standards better, not just for them, but for the industry as a whole.

During the Tnooz THack Vegas event, I saw small companies, in some cases individual developers, create applications that combined APIs from 2,3, and even 4 different data sources in a mobile web application that was built in a week with no budget.

I saw light bulbs go off, eyes widen, and hands come together in applause for what could be and for what is the connected web; a web where APIs rule, where XML is key, and where simplicity rather than complexity is the order of the day.

Later, a developer from one of the GDSs stood up and asked: “Why are we talking about APIs at a standards conference?”.

Simple, I thought, because the practical application of the messaging standards that we strive to build and foster everyday are the APIs that use them.

The APIs, though many of them were not built on the messaging standards, should have been, if the standards supported lighter weight implementations.

Welcome to OpenTravel 2.0

No, it’s not a take on Web 2.0 and has nothing to do with social media or the rise of user generated content. OpenTravel 2.0 is an evolution of the way the messaging standards we are developing are changing to better suit the interconnectedness of the web and the needs of lightweight applications.

The goal behind OpenTravel 2.0 is to make it easier for trading partners to use OpenTravel standard libraries to create messages, that are based on the standards, but specific to their requirements.  It’s innovative, timely, and relevant.

In the last two years, I’ve seen a shift happening in OpenTravel.  The big messages like air, car, and hotel are still there and they still get a lot attention, but we’re now seeing more and more demand from developers, just like me, who don’t want to re-invent the wheel.

These developers aren’t building mainframe programs, Windows Desktops, or apps for IBM AS/400.  Most of them are developing web applications like hotel reservation systems, dynamic packaging applications, golf tee time booking platforms, and even insurance quotation systems.

The key, however, is that these are applications that live in an interconnected world, they co-exist with other systems, they feed and are fed by other applications and data sources.  In other words, they all require messaging.

I’m excited by what I’ve seen.  Don’t get me wrong, there will always be competing interests and priorities, but having an organization like OpenTravel helps bring everyone to table and makes sure that the egos are checked at the door.

If there is one thing I have learned as the chair of OpenTravel, it’s that a standard is only a standard if it gets used and OpenTravel based messages are used millions of times a day across the globe.

As with the in-destination tour and activity segment in general, there is a lot of potential to capitalize on the mobile and local channels for in-destination tours and activities.

Unfortunately, it’s still too early to consider mobile as an effective actionable channel, and here is why.

Location based services are neither influential nor actionable

Despite what services like FourSquare, Gowalla, and Facebook would hope, for travellers, these mobile apps are neither influential nor actionable.

For the most part, they just plain stink when it comes to compelling people to do a locally offered tour or activity.

That’s not to say they are not relevant for locals, but for travellers, becoming the mayor of a coffee shop or checking into a favorite cafe just isn’t realistic.

For tour or activity providers, whose primary clientele are inbound tourists, incentives for repeat visits make even less sense.

The other issue with location based services is that tours that travel through a city or around an area don’t have “a” location, they in fact have many locations.

Local deals don’t influence travellers

If you’ve read my articles in the past, you probably already know that I don’t drink the local deals kool-aid. I don’t have anything against the business model, in fact, the local deals model works very well for about half of the businesses who use them and extremely well for the local deals companies.

That said, as actionable as local deals are, they don’t have any influence on inbound travellers and don’t build repeat customers for local businesses who offer tours and activities.

They are a great way to get locals to try something new, but ultimately a local probably isn’t going to use a tourism service again and they more than likely won’t pay full price for it.

Maps on mobiles are important but operators aren’t ready

Only a small percentage of local tours and activities are geo-tagged.  Since most (86%) of small tourism businesses don’t store their product data in a reservation system, it is safe to assume that most don’t have geo-location data available for their products either.

The number one requirement for location based mobile search and booking of tour and activity products is that the product must be searchable using a location aware device.

If a traveler is standing somewhere and pulls up a mobile application that will find tours and activities around them, the assumption is that the tours and activities around them have been geo-tagged.

Since that is not the case with nine out of ten operators, the chances of actually finding anything “around you” is pretty slim indeed.

Bookings are actionable, listings are listings

As it stands, the best bet to find a local tour or activity operator is to use the local yellow pages app for an iPhone or Android device.

But, if you plan on doing that, then you might as well browse those endless brochures in the hotel lobby as well.  The bottom line is that, even if you can find a tour or activity using a mobile device, you probably won’t be able to book it.

Why? Because building a decent mobile app is expensive for a small business and it’s a one off install anyway.

Think about it, how likely are you to download and install an application for a sightseeing company and you’re only going to use once?

So, you’re left with apps made by the OTAs or an aggregator, in which case the product is probably being offered through a third party reseller who doesn’t have direct access to live availability and cannot book without at least a one or two day cut-off or even a confirmation from the supplier.

Searching, browsing, and finding a local tour or activity that is compelling will inevitably lead to the traveler wanting to consummate the relationship with a booking and right now, that means a “click to call”.

Is it any wonder that 36% of travelers still use brochures to search for local tours and activities?

So when will the tours and activities segment get their mobile MOJO?

I hate to sound like a broken record here but mobile and social MOJO will elude the tour and activity segment until the small businesses that make up the majority of the segment start adopting reservation systems, get websites, and start taking ecommerce seriously.

But, we as an industry, can’t expect small business to take these things seriously if we don’t show that there is a pent up demand for what they offer.

With the recent surge in tour and activity metasearch sites like Goby, Flextrip and PocketVillage, we may be at the beginning of something different, a growing trend focused on the promotion of unique products offered by small businesses.

For now, however, the only thing mobile about this MOJO is the brochure you pick up and stuff in your pocket.

In fact, the current state of activities distribution is one of the findings of the PhoCusWright report [When They Get There (and Why They Go)] about the tour and activities market that I found most surprising.

Because the tour and activities segment is dominated by small long tail businesses who, as the report indicates, have small budgets and little or no technological sophistication, the idea of direct connects (like those in the airline space) are simply out of the question.

With only 14% of these businesses having any kind of central reservation system, it makes it very hard to electronically aggregate product across the segment. Hence the reason why so many intermediaries and aggregators exist in this space.

But being an aggregator in the activities space is no easy task. It involves a tremendous amount of work to source, load, and maintain activity content on a product by product basis from small businesses all over the World. Companies like Viator, Isango, Kijubi, and GetYourGuide are all based on this model.

Once product is on the sites (identified in the PhoCusWright report as Online Activity Specialists I or OAS I), the aggregator now has to get it to market. This may include driving traffic using natural search, pay per click campaigns, affiliates, and other creative techniques.

When the tour or activity is booked, the aggregator issues the customer a voucher and, after some specific period of time, the operator of the tour or activity receives their net fee for the sale, usually around 70-75% of retail cost. For the most part, the tours or activities are sold on a free sale or request basis. Nothing is real-time.

So, for the bulk of the “source” products that exist in the activity distribution supply chain, we have content that is neither controlled by the supplier or available for booking in real-time (except as free sale). Already, you can see we have a problem. So now the fun begins.

Now that these aggregators have spent the time to catalog and organize all these activities, it’s time to build scale and deliver the content through partners. In many cases, these partners are OTAs or other third party sales organizations. In some cases, the partner is what is referred to in the PhoCusWright report as an Online Activities Specialist II or OAS II.

Are you still with me?

So these OAS II businesses are essentially meta aggregators or aggregators of aggregators. OAS II businesses, such as BeDynamics and iSeatz, pull in feeds from OAS I companies and combine them all together to make super feeds. For this, the OAS II will get some split of the commission from the OAS I, usually around 6-10%.

Now that the OAS II has aggregated all this tour and activity content, they develop some kind of unified interface that can then be integrated into another website, like an airline, cruise, travel agent, hotel, or destination website.

For this service, the OAS II splits their commission with the partner website, usually 50% of net commission, or between 3-5%.

Once on the site, the tour or activity is ready to be purchased by the traveller. Based on an average per person booking value of $100, we are looking at a $25 commission being split three ways, $15 for the OAS I, $7 for the OAS II, and maybe $3 for the partner website.

Since the OAS I is usually the one handling payment and customer service costs, their net is probably closer to $10. Each link in the chain needs to pay for marketing and technology costs out of this revenue.

Don’t get me wrong, there is a whole lot of sophistication happening behind the scenes here. Content writers busily bang away on keyboards writing “unique content” in order to avoid getting stung by Google duplicate content algorithms,  XML feeds are being pulled into programs and deduplicated, sorted, and added to some local cache database for the purposes of “fast search”.

There are images, videos, and location data being added to the mix at every level. There are vertical search engines, mobile applications, mobile websites, widgets, gadgets, interactive maps, social buying, email offers, and all kinds of other cool and inventive things being created on top of this OAS I and OAS II layer.

In the end however, there is one important and critically fundamental player missing from this distribution chain… the supplier.

Once the product content is loaded, in most cases, the supplier is out of the picture until the customer actually experiences the tour or activity they purchased.  In many cases, the customer doesn’t even know who is delivering the tour until after they’ve booked it.

For many long tail businesses, distribution just doesn’t make sense. Not because their products are too complicated or “unique” to be delivered electronically, but despite all the sophistication, technology, and innovation focused on the mid-tier of activity distribution, intermediaries only accounted for about 5% of the online travel activities market in 2009.

Don’t despair though, that percentage is predicted to increase to 8% by 2012.

Let’s face it, the cat is out of the bag now folks. It’s only a matter of time before some smart Harvard grad spends a week in a basement with a supply of chips and red bull and figures out a way to completely transform this dysfunctional segment by developing a new wizbang interface that will make it easier for travellers to book activities.

Except, like the so many other layers of make-up on this proverbial pig, it will be just another shade of lipstick.

The deeper problem, and the one that needs to be addressed sooner rather than later, is that there is a fundamental disconnect between the activities supply chain and the source of supply.

As I have mentioned in my two previous articles about the size of the activities market and how destinations need to focus on activities, this segment needs supplier engagement in the worst way.

For the distribution chain to continue to thrive and to scale, it needs content. As more and more intermediaries enter the playing field, they are going to demand a piece of a pie that relies on human intervention to curate and manage.

The answer is for technology partners at all points of the distribution chain to start finding ways to make the supplier accountable for their content and availability. This means pulling product content and availability directly from supplier reservation systems and distributing them through the chain and pushing bookings back through the chain directly into the reservation systems.

There is nothing to say that points in the distribution chain can’t add value or augment content in order to maintain a competitive advantage over others in the chain, that’s their prerogative, but at the end of the day, the supplier is managing inventory and bookings from multiple channels in a single source.

What we want to avoid is the operator receiving bookings via fax and email, which are both the predominate method for receiving confirmations from intermediaries today.

Don’t expect suppliers to push this mandate, however. These small businesses don’t know and frankly don’t care about XML messaging schemas, APIs, or standards.

They care about running their businesses and providing their guests with the best possible experience they can. That means that the people who have to push this mandate are the people at businesses that service this small business market.

Everyone from the reservation provider to the OAS I, OAS II, hotel, airline, cruise, and destination company that wants to tap into this market needs to buy into the concept that the buck stops with the supplier.

This is not about cannibalizing an existing market or undermining anyone’s existing market share, if this works EVERYONE stands to benefit from the influx of content.  More direct access to content means more diversity, choice, and more opportunity to segment products by niche.

Maybe then, those new shades of lipstick won’t just be for decorating the pig.

NB: Author is CEO of Rezgo, a sponsor of the PhoCusWright Report.

NB2: Photo credit - Theilr

Like many publicly funded organizations, Destination Marketing Organizations (DMOs) are often tasked with impossible objectives, saddled with lengthy and cumbersome vendor tendering processes, and a mandate to serve everyone equally all the time.

The biggest underlying issue, in my opinion, is the reliance on tax revenue generated from hotel stays and the subsequent focus of DMOs on putting “heads in beds”.

I can hear the proverbial gasps now.

Don’t get me wrong, I know how important this tax revenue is to most DMOs and although a steady source of revenue is a good thing from a funding perspective, it inevitably results in DMOs focusing too much on their (generally speaking) sole source of revenues.

I’ve been involved with enough local tourism initiatives to know that, in many cases, the advisory boards and boards of directors of DMOs are made up of hotel representatives that eagerly focus the long term strategy towards their own marketing goals.

Why shouldn’t they? After all, they are the ones who have to collect the tax, right?

The small businesses, predominately tour and activity operators are often left feeling ignored and subordinate to the tax revenue generating hotels.

What most DMOs fail to see is that unduly focusing on hotel marketing is squandering the immense opportunity to influence travellers earlier in the buying life cycle.

Think about it, when are travellers choosing at which hotel they are going to stay?

Do they do it before they have decided where to go? I couldn’t find any statistics to show when in the buying life cycle travellers book their hotel stay, but I think it is safe to say that it is after they have already decided where they want to go.

In other words, there is no direct correlation between hotel marketing and the choice of destination. Since destinations are trying to influence travellers to come to them rather than a competing destination, marketing one’s hotels seems to have little impact on influencing the decision making process.

In the recent report on in-destination tours and activities, PhoCusWright found that certain tours and activities had a profound affect on the decision making process. Snow sports such as skiing, sporting events such as championship games (or the Olympics), and artistic performances such as band tours, are major drivers.

In these cases, the traveller is choosing a destination based on what they intend to do at the destination first. How the traveller gets to the destination and where they stay are ancillary to the activity.

Realistically though, these locales make up a small number of destinations.

So, what can destinations do to make their tours and activities drivers rather than add-ons to a trip? The first, and most important step is to expose as much of the long tail product as possible.

As I mentioned in my earlier article (Why the activity segment is an iceberg of Titanic dimensions) the majority of tour and activity product lives below the surface and off the radar of most travellers until they are in destination.

The study showed that print is still an important channel for in-destination activities. In fact, 36% of active travellers used brochures and 39% used printed guide books as their shopping method for activities.

The most important shopping method, however, remains the web, with 80% of active travellers opting to search for activities on-line. For those activity providers savvy enough to have a website, this is good news but clearly, there is a large number of businesses that currently have no influence on the decision making process.

The first and most important step a DMO can take is to engage with their small business members. Some DMOs are starting to make concerted efforts to educate their stakeholders and to bring more of the long tail tour and activity product to the surface (ie. the web).

The Australia Tourism Data Warehouse (ATDW), is one excellent example of an initiative to bring all members of the tourism industry to a higher level. The ATDW Tourism E-Kit is a multi-part workbook that is freely available to all tourism businesses and provides a step by step guide to getting a tourism business on-line.

The E-Kit was commissioned by the ATDW and developed by Fabienne Wintle and her team at UntangleMyWeb.com, a tourism consulting company in Queensland.

I mention this specifically to point out that there are, in almost every destination, those in the community that have the expertise to help put these tools together. The E-Kit stands out as one of the best examples of educating and engaging small business and should be emulated by all DMOs.

The long term benefit to the tourism industry is the increase in content (text, photos, and videos) generated by these operators and their customers that can then be used for the purposes of marketing destinations at all levels; nationally, regionally, and locally.

ATDW has also developed a program called Tourism Exchange Australia (TXA) which is a distribution platform. Software vendors can connect to the TXA for the purposes of exposing their customers (activity operators) to larger distribution opportunities in the Australian market.

A structure like TXA in other countries could serve as an aggregation tool for increasing distribution of long tail products. Unlike the TXA model, however, which uses a proprietary data structure and a private partner, I believe a public and open model would have wider adoption.

Of course, I am biased given my preference for Open Travel XML messaging.

Nevertheless, as more and more tour and activity products begin to surface, the more revenue opportunities will inevitably become available to the DMO.

Destinations, more than most other organizations, have access to the vast majority of local stakeholders. Companies like Groupon and Living Social would kill for access to most DMO’s Rolodexes.

Yet, these contacts and the potential they represent go largely untapped. Once operators make their products available, DMOs can use their budgets for the purposes of providing creative marketing opportunities that generate a return for their stakeholders and travellers alike. If the services are meaningful, relevant, timely, and measurable, businesses will pay for them.

In the end, DMOs need to recognize that marketing a destination is about influencing the traveller earlier in the travel buying life cycle.

This means giving travellers reasons to travel to their destination and that means working with experience companies. This also means that DMOs need to generate more of their revenues from the tour and activity segment.

Until there is equal representation from all segments of the tourism landscape both from a governance and revenue standpoint, destinations will miss the opportunity on an important local economic driver and they will continue to leave a sizable pile of money on the table.

NB: Author is CEO of Rezgo, sponsor of the PhoCusWright report and chair of the OpenTravel Alliance.

NB2: Photo Credit - Redwood Photography

Now that the genie is out of the bottle – through the release of the PhoCusWright report When They Get There (and Why They Go)- and a dollar value has been attached to the segment, how can anyone continue to ignore the in-destination activity space.

$26.8 Billion for the US market alone is a huge number, but still pales in comparison to the potential global activities market.

So, just how big is the activity space?

Well, the addressable portion of the activity space (ie. the bookings that can be tied to travelers and not local buyers) is estimated at $20 Billion, which is more than double the value of the car rental industry, and three times the size of the packaged vacation or cruise market. That makes the activity segment the third largest segment of the travel industry after hotel and air.

Wow, who would have guessed!

Before all you VCs start grabbing your check books, I have some sobering thoughts.  The issue with the $26.8 billion activity market (I love quoting that number) is that it’s a lot like fishing.

This segment, unlike almost every other segment, except for maybe the vacation rental market, is made up of tiny fish.

I’m not talking tuna here, I’m talking sardines. The report shows that 81% of the businesses surveyed generated less than $1 million in bookings per year, with 33% generating less than $250,000.

Based on my anecdotal research, this may actually be understated considering the businesses that were surveyed tended to be more technologically aware.

Don’t get me wrong, I’m not trying to diminish the importance of each and every one of these businesses. My point is that these are very small businesses, perhaps even better qualified as micro businesses, and yet, in aggregate, they wield as much economic impact as the car rental and cruise segments combined.

Much like the food chain of every major ocean – the smallest of creatures often make up the basis for an entire ecosystem.

Undoubtedly, now that this report is published there will be all sorts of new businesses and services that will emerge to help these small businesses move towards automation, increased revenues, and increased distribution through new and emerging channels.

I can imagine we’ll see more intermediaries jump into the murky waters hoping to bring order to the chaos by aggregating and distributing activities.

But is distribution what this segment needs?

Companies like Viator and CityDiscovery, both sponsors of the report, and others like Isango, Kijubi, and GetYourGuide currently use a merchant model working with these small companies to distribute and sell their tours and activities to travellers who book in advance.

Yet with the growing number of these dedicated activity retailers, we still only see 14% of bookings coming through these channels.

Most suppliers who were surveyed (90%) said that cost and display limitations were primary reasons for not distributing through sites I’ve mentioned.

The bulk of bookings (64%) are still made in person or over the phone.

Why? Because only 36% have websites that allow any kind of on-line booking! Even fewer, about 12% of suppliers have a reservation or CRM system.

The vast majority of businesses rely on tools like Microsoft Excel or paper ledgers to keep their businesses organized. Frankly you can’t even start a discussion about online distribution if the business doesn’t have a website, it’s just not feasible.

So where does that leave us?

Well, imagine the activity segment as an iceberg.  Right now, on-line travelers can see less than a third of that iceberg (if they even know where to look).

The remainder of that vast iceberg remains submerged and invisible to travelers on-line and certainly to the rest of the industry.

The challenge with this segment is not on-line distribution, process automation, or building better reservation systems. The biggest challenge is one of educating this fragmented set of businesses in the importance of having a web site so that more of the iceberg is exposed.

Not to diminish the innovation potential with this segment, but we need to keep in mind that we cannot expect this segment to run when two thirds of it isn’t even crawling yet.

We are still a long way away from realizing the on-line potential of the in-destination activity space but at least now we can see the iceberg and we have some notion of just how big it truly is.

NB: Author is CEO of Rezgo, a sponsor of the PhoCusWright report.

NB2: Photo – Alan Light.

Update: Corrected the stat regarding number of suppliers with websites that support booking.

The deals service, which has been running in the US since the last quarter of 2010, is attached to the place pages and allows businesses to offer a variety of promotions to Facebook members who check-in to venues using their Facebook mobile applications.

In the last 18 months, Facebook has continued to develop services around engaging businesses, a smart move, in my opinion.

How does a service like Facebook Deals affect social buying services like Groupon, LivingSocial, WagJag, and others?

For starters, Facebook has made it clear that it will not be charging for the deal platform, which is a fundamental difference from social buying services.

As I have pointed out in previous posts, trying to understand the true costs of running a Groupon is a hot button issue for many who have used a social buying service or are considering it.

The other key difference is the shear number of engaged members and the motivation of the members using their mobile devices.

Where services like Groupon and others are focused primarily on providing hugely discounted offers to deal seekers, the Deal platform allows businesses to tailor the deals to their audience, for example offering a free coffee, a discount, or a donation to a charity in exchange for checking into the location.

In a recent PhoCusWright special report (When They Get There & Why They Go), focusing on in-destination tours and activities, it was determined that location based services such as FourSquare and Gowalla are neither influential nor actionable for travelers because there is a lack of critical mass and an inability to target users based on preferences.

In essence, current location based services lack the smarts to be able to offer true value to travelers.

On the flip side, group buying sites like Groupon and LivingSocial are actionable but lack any influence because they tend to focus on locals and not travelers.

Bring in a service like Facebook Deals which combines location based service, deep profiling, and combine it with the ability to offer actionable deals and now you have something very interesting for both businesses and consumers.

It is this combination of elements that make me believe that Facebook Deals could score a big hit against the social buying sites.

The three elements of location awareness, access to preferences through member profiling, and the ability to offer actionable deals combined together make the Facebook Deals platform much more compelling for consumers than any one of the other competing platforms on their own.

For businesses, the ability to control the offers and the cost (or lack there of) will be important motivators to try the Deals platform.  As we see more success stories, I wouldn’t be surprised if we start to see more buzz and hype around the platform.

For now, the overall reaction for small businesses has been limited as most try to understand how to take advantage of the platform.

It is still early days for Facebook Deals, but with over 200 million Facebook users engaging with smartphones and the exponential growth in the number of businesses joining Facebook, it’s not hard to see that a service like Deals could have a significant impact on competing services.

The biggest driver for small business engagement could very well be the access to a large user base at a fraction of the cost of running a social buying deal.

For small tourism businesses, this means being able to deliver offers and build brand and service awareness beyond rack cards and hotel concierges, both of which are still important drivers for local tour and activity operators.

Regardless of the effectiveness of the Deals service in the future, small tourism businesses should be claiming their place pages and, at the very least, ensuring that their businesses are available on Facebook.

Like any other social media channel, Facebook and, more specifically, Deals should be treated as only one part of a larger marketing plan.

NB: Here is a clip from Facebook regarding the Deals service: