Over the past few months I’ve been compiling ideas for a white paper on yield management for adventure travel.  A great pricing discussion at a recent ATTA event inspired me to put some of my thoughts in a blog post.

First, I should clarify what I mean by yield management.  Yield management (also referred to as revenue management or price optimization) is the act of manipulating prices in order to maximize revenue.  We can thank revenue management for the ubiquitous “last minute travel deal.”  Robert Crandall, former Chairman and CEO of American Airlines, has called yield management “the single most important technical development in transportation management since we entered deregulation.”

Even the high end operators are offering great deals.

Also, in the spirit of full disclosure I should clarify that my company Travari.com is in the business of marketing discounted adventure travel packages so it is clearly in my best interest if more companies start offering promotional packages.

The State of Adventure Travel?  On sale.

“What is the state of adventure travel in 2009?  It’s tempting to answer, ‘It’s all on sale.’” – Everett Potter

Last year I contacted a number of respected adventure travel companies to hear their thoughts on the idea of a ‘deals’ oriented site for the adventure travel industry.  One interesting response came from the CEO of a high-end tour operator and member of The Adventure Collection who said, “you’ll NEVER see a luxury adventure business like those in The Adventure Collection offering a discount – that just doesn’t fit with our brand.”

A lot has changed since that phone call.  Within the last two months I’ve seen at least half the Adventure Collection companies offering deals (and some are offering VERY deep discounts!) These are some of the smartest and most sophisticated operators in the business and they’ve decided that the benefits of yield management outweigh the costs.

Don’t just take my word for it.  Check out great blog posts from Everett Potter and Norie Quintos listing some unprecedented deals being offered by the adventure travel indsutry.

Yield management is about INCREASING revenues

Yield management is not just a recessionary tactic that will fade away when the economy recovers.  The current economic climate has provided tour operators with an incentive to develop more sophisticated pricing strategies which are resulting in increased revenue.

Even when the economy recovers why would an operator discontinue a strategy that has been shown to increase profits?  I’m sure we’ll see fewer discounts after the economy recovers but I’m betting (literally!) that discounting will stick around for good.

Pricing analogs.

Some have argued that because DeBeers Diamonds refuse to offer discounts tourism businesses should follow suit and stick to their pricing guns.  While I see the point of the analogy I think there are far better pricing analogs than DeBeers diamonds.  Here are some other industries that might be a better analog to tourism.

• The boutique and luxury hotel markets are a great comparison for adventure travel as they face similar brand management issues.  These markets are both offering great deals and I don’t think the deals are simply a response to a recession.  The fact that it is  possible to get a great deal on a night at the Four Seasons doesn’t necessarily cause me to think any less of them as a luxury brand.
• The Wine Industry is a fascinating example of “price as a signal of value.”  If a bottle of wine is priced at $4 I’ll assume it’s lousy wine but if it’s priced at $40 I’ll assume it’s great wine.  Truth is, I might not be able to tell the difference in a blind taste test.  If you were buying a bottle of wine you knew nothing about would you rather purchase the $10 bottle that is 20% off or the $8 bottle?  Price sends a signal to the consumer about what they should expect – just be sure your offering is a great value vis a vis your price.
• In some ways adventure travel is a consumer facing service business.  Adventure travel is often compared to health care but I don’t think that is a great example due information asymmetrys and the existence of insurance.  There are a number of other service businesses that are better example because they deal with a price-sensitive consumer.  It isn’t at all surprising to see discounts on accounting services, auto-maintenance, computer repair and catering.

Best practices in yield management.

All of the debate about yield management centers on the concept of brand erosion.  Companies say things like “offering discounts doesn’t fit with our brand” or “we don’t compete on price.”  These are valid points and I want to share a couple of ideas to help you maintain your brand and margins but still reap the increased revenue made possible by yield management.

• Don’t discount haphazardly. If a client wants a guaranteed spot on a popular trip during high season make sure they’re paying the full price.  Discounts are meant for seats that might be difficult for you to fill at full price.  This means avoiding the all too easy “10% off all trips on all dates” promotion.
• Don’t offer so many discounts that customers can game your system. If a customer is certain they can get a deal by gaming your system your full-price seats will be cannibalized by discounted seats.  Once again, save the discounts for specific spots.
• Help the customer understand your motivation to discount. Savvy travelers understand your motivation to offer discounts for early bookings, late bookings or off-season trips.  If you offer some insight into why you’re offering the discount the consumer won’t think of you as a ‘discount brand.’
• Avoid discounts specifically for returning customers or new customers. Repeat customers are a key part of your customer base – they shouldn’t need a discount to sway their decision.  Conversely, offering discounts to new customers could annoy repeat customers.

Good places to discount.

Here are some obvious places to offer discounts without cannibalizing your prime customers or hurting your brand:

• Shoulder season discounts. Most tourism businesses experience seasonal slowdowns.  Special promotions can be an easy way to fill trips during slower months
• Discount for early bookings or late bookings. If you can fill every seat on a trip with some creative last minute discounting you’ve likely provided a big boost to your bottom line.  Some companies also use early booking discounts to build momentum for a trip that is still several months away.
• Offer discounts for groups that are likely to be price sensitive. Consider offering special pricing for students or families.  These are groups that might not be able to afford your trip without a discount.
• Occasionally offer unexpected great deals. If you very occasionally offer trips at 30-50% off you’ll get significant buzz online and you’ll get customers constantly returning to your site to watch for the great deals.  Sometimes a big discount event can build a lot of momentum for other trips.

Additional Resources

Great article from Business Week about discounting.
A previous post from the adventure business blog.
A compelling and well written counterpoint to my thoughts - Why Discounting Won’t Work to Survive this Recession.

This is a followup to my last post about PPC and the importance of tracking advertising.

As old media outlets continue to go belly up it is worth asking ourselves: “Have we have been overpaying for advertising all along?”  Think about it – the NY Times is a great newspaper with an absurd amount of traffic but they can’t develop a profitable monetization strategy.  Ten years ago The Times was profitable with an ad-based business model, so what has changed in the last decade?  Clearly marketers have found better ways to track the success of ad campaigns and thus rewrote the conventional wisdom about how much to spend on impression-based advertising.

That leads me to another point that I’ve been thinking a lot about lately – how many more years are we going to be suffering through the same generic branding advertisements I see everywhere?  (I’m looking at you Travelocity, P&G, Orbitz and Corn Refiners Association.)  Generic platitudes about Tide are not going to convince my generation to spend an extra $0.01 on your detergent.  Time to rethink that strategy.

Here is one of Travelocity’s recent commercials.  While it’s an okay commercial I have to ask – wouldn’t it have been smarter for Travelocity to spend the money (I’m sure this was multi-million dollar ad campaign) creating a fantastic customer experience that would likely be talked about online?  Or at least invested in a trackable PPC campaign that delivered consumers to relevant travel products?

A recent tweet from @travelmuse really sparked this whole rant.  “Customer service is the new marketing.”  In the year 2009 your customers are talking about their experience with your product and your business.  Wouldn’t you be better off spending money providing an incredible product and great service than spending millions on a super-bowl ad?

Edit: appropriate on a number of levels check out this great article from yesterday’s NYT.  Courtesy of my good friend @KathyDragon.  My favorite part:

“a direct marketing mailing cost $15,000 and brought in 200 new customers; a billboard ad cost $7,500 and won 300 new customers; and tweeting the promotion on Twitter attracted 1,800 new customers.”

There are three main internet advertising models in use on the internet:

• Pay per click (PPC) where the advertiser pays whenever a prospect clicks an ad.
• Pay per action or affiliate model where the advertiser pays when a prospect purchases something after clicking a link or advertisement.
• Cost per impression (CPM) is a holdover from old media when advertisers pay based on the number of eyeballs viewing a certain ad

From my viewpoint as a startup in the adventure travel industry I’m very biased toward PPC (both as an advertiser and a seller of ad space!)

Here are some of the reasons I prefer PPC when investing in advertising:

• Trackability: As an ad buyer I want to spend my limited budget on advertisements that I can track.  With PPC I know exactly how much I’m paying for each lead and it is easy for me to track my conversions.  Why would I invest in CPM ads when I have no idea how many of those eyeballs become customers?
• Insightful metrics: PPC really lends itself to insightful business metrics.  The crudely stated goal of most travel websites should be “get the average revenue per site visitor to be higher than the average cost to acquire a site visitor.”  PPC makes this calculation easy.  When a company gets this formula right they’ve found the money machine.
• Low overhead, easy implementation: The travel industry is full of successful affiliate programs but affiliate programs are pretty challenging to administer.  The technical challenges are not trivial and for smaller advertisers the costs of implementing an affiliate program are typically higher than the marginal revenue generated by the program.

Why I prefer PPC as a seller of ad space:

• I want people advertising with me to feel like they are making money on their advertisements.  Marketing should be a revenue generator not an expense! If the PPC rates I’m charging aren’t a cash machine for advertisers I want to understand why and adjust my model accordingly.
• In the travel industry (particularly in the adventure travel segment) prospects will look at a trip dozens of times before actually booking (and oftentimes that booking still takes place over the phone!)  I may have sent that prospect on their first visit – how will I get paid with an affiliate program?
• I can’t optimize your website for conversions.  I can however send you qualified traffic.  As a seller of ad space I don’t want to be penalized because you need to do some work on your user interface.  (As a conscientious business partner I’m happy to offer advertisers advice about user interface or conversions but I don’t want my ad revenue to be held down because of things beyond my control.)

There is a second part to this post where I rant about the futility of expensive old-school branding and why we may have been overpaying for old media advertisements all along.  Stay tuned!

I’ve got a launch coming up in the next few weeks and consequently I’ve been paying particular attention to all the PR stunts and elaborate launches that have been taking place in the travel industry.  A few that I found particularly interesting:

• Leading Hotels of the World offered a promotion where 80 hotels would be priced at $19.28 for 80 minutes.  Unfortunately they ran into technical difficulties.  Thrice.  This promotion garnered LHW plenty of (mostly negative) publicity but it might have provided a traffic bump.  They may regret ever trying the promotion.
• LastMinuteTravel.com is currently offering a promotion where, for 15 minutes every day, hotels will only be $1.  Because the exact 15 minutes is a secret they probably won’t have the same scaling issues as LHW.  The discount pricing is accompanied by some YouTube videos that are actually relatively well done (although they look expensive to produce!)  This looks like a high investment promotion but I’m guessing it’ll pay off in terms of a tremendous traffic spike.
• LowCostTravel celebrated their relaunch by releasing video of their CEO driving around London in a bed.  Seriously (video below.)  The video can’t have been cheap to produce and has so far garnered nearly 600 views.  I bet the marketing department doesn’t want to calculate the cost-per-viewer metrics for that video.
• Not sure if this should be filed under PR stunt or stupid mistake but Activities Abroad recently sent out an e-mail promising “Chav-free Holidays”.  (For those of us not from the UK “Chav” is a derogatory term for white working class folks.)  Clearly this is pretty offensive but maybe all press is good press?  The jury is still out as to whether this will be a positive or negative for Activities Abroad. (*See clarification at end of post.)
  

I find the above examples pretty entertaining but I question the return on investment for these projects.  The problem I see with each of the above cases is that the promotion doesn’t match the firm’s value proposition.  After I book a hotel room for $1 how likely am I to go back to LastMinuteTravel.com for future full price bookings?  Clearly some consumers will become loyal customers but that number is going to be a very small percentage of the total promotion participants.

Call me old fashioned but I feel like any promotion or viral marketing campaign should be communicating a firm’s value proposition.  I’m also a big believer in building a great product/service, finding loyal customers who love the offering and helping those loyal customers tell their friends about the product.  (I guess that theory is why I’ll never be a creative director at a giant consumer products company!)

This is an issue I’ll continue to wrestle with over the coming weeks.  Obviously great companies use big launches and PR stunts because they create a massive traffic spike and often pay off.  On the other hand, as a bootstrapped company, I can see real benefit to slow organic growth of the user base and continued investment in product quality.

Here are a couple of the YouTube Vids referenced from above.  (Maybe you should do the LowCostTravel marketing department a favor and watch their vid twice to get views up to 600!)

CEO on a bed:

One of LMTClub’s $1 hotel videos:

*Update: as Alistair McLean mentions in the comments section – they never mentioned working class in the promotion.  Because I’m not familiar with UK slang I was basing my definition on the Wikipedia entry.  Also, interesting to note Alistair’s comment about the added traffic as a result of the controversy.

Apropos to my last post I just read an interesting NY Times article “Low-Cost Options on High-End Tours”.  The article has some interesting examples of luxury travel operations offering lower-cost options.

Another interesting tidbit from the article:

“Whenever there’s a blip in the economy, we do well,” said Darrell Wade, chief executive of Intrepid Travel. In October, when most high-end tour operators were reporting declines in bookings, his company was up about 10 percent, he said.

Intrepid offers a compelling price point so it makes sense that their numbers are up during a recession.

Conventional wisdom has always asserted that high-end and low-end products tend to fare well in a recession while middle-tier products are more susceptible to economic conditions.  The reasoning behind this is that the wealthiest consumers aren’t price sensitive in a downturn while all other consumers get increasingly price conscious.

The thing that fascinates me about this recession is how much of the conventional wisdom is getting thrown out the window.  There are a number of clear signs that the luxury markets will be anything but resilient this time around.  The biggest reason is that many of the world’s wealthiest individuals have lost 30%-50% of their net worth in the past 18 months.  Losses like that can curb the spending of even the most dedicated luxury consumer.

I’ve been thinking a lot lately about how this shift is going to affect the luxury adventure travel companies that focus on the luxury niche.  Like all recessions we’re going to see some companies go out of business but those who make it through the next 18 months will come out stronger (and have less competition!)  Here are some things the luxury operators need to keep in mind if they want to be around 18 months from now.

• Your greatest asset is your customer list. Call some of your repeat customers and ask them what it’ll take to get them on a trip this year.  Use that as a jumping off point when revamping itineraries.
• Stay true to your brand. Yes you’ll need to offer some lower price points but remember your customers are accustomed to a luxury experience.  Even if you are changing the price points do what you can to still offer the luxury experience associated with your brand.
• Develop new trips at a lower price point. The obvious way to do this is to offer slightly shorter trips but there are other ways to alter itineraries to be profitable at a lower price point.
• Yield management and price discrimination allow you to reach consumers in multiple price points without lowering overall revenue.  See my revenue management post for ideas.
• Don’t cut capacity too much. Luxury operators are in a more challenging position than most tour operators because of a greater reliance on trained staff and larger capital invesments (e.g. helicopters and lodges).  Small capacity changes are in order but make sure your revenue is sufficient to keep your assets and key employees.

**Image courtesy of Train Chartering, Private Hire Trains & Rail Cars’

Sorry about the posting hiatus but I promise I have some good excuses:

• Travari is getting closer and closer to being ready to launch (although we’re nearly a month behind schedule!)  Keeping my eye on all the moving parts has kept me a little distracted from the blog but I’ve learned some real lessons in project management.
• Great holiday ski trip to Utah and Idaho.  I spent a few days touring the backcountry and visiting family.  I was able to get some work done from the mobile office but participating in adventure travel seemed a lot more exciting than blogging about adventure travel.  Here are couple of pictures of me not blogging:

Bluebird powder day. Not a track in sight.

N. Utah scenery

With my excuses out of the way here is some actual content.

I’ve been inspired by a couple of really interesting posts offering predictions for what will happen in the travel industry in 2009.  I know I’m about 8 days late but here are my predictions for the adventure travel industry.

• Adventure travel will be hurt less than traditional travel. Intrepid Travel even reports increased bookings during recessions.  I think the main driver of this trend is that laid off professionals suddenly find themselves with spare time to pursue their dream trips.  Companies like Intrepid or G.A.P. offer interesting trips that aren’t overtly luxurious.  Adventure travel numbers will be down overall but not as much as the rest of the travel industry.
• Tough times will force tour operators to develop more efficient and sophisticated strategies. Many adventure travel businesses have lagged behind mainstream travel in terms of adopting new ideas.  This includes better yield management, better websites and more efficient marketing strategies.  Companies that fail to adapt won’t be around in 2010.
• Deals, deals, deals. I can’t open a news site without reading about all the great travel deals out there.  I’ve ranted at length about the need for better yield management in the adventure travel industry and I think we’ll be seeing a lot more companies jumping on the yield management boat this year.
• High-end operators will take a big hit, mid-tier operators will benefit. The very wealthy are still going to travel, but they might be less likely to spend $10,000 – $30,000 on a Lindblad trip.  These consumers will likely scale down a bit and look into a mid-tier trip (further boosting bookings for companies like Intrepid and GAP.)
• Service provides will need to sell on the basis of short term ROI boost. Companies like Adventure Central and TourCMS will need to make a compelling case that they offer real ROI if they want to continue to grow.  This will also be the greatest challenge for Travari – convincing customers that we will provide a real ROI in the short term.
• Advertising will move online. Advertising should pay for itself.  My personal advertising philosophy (in all economic environments!) is to NEVER spend money on ads that cannot be tracked.  That mantra will be even more important this year.  Nothing is easier to track than online advertising and smart operators will focus on advertising outlets that can deliver clear ROI.

Hopefully I’ll be on a more regular posting schedule now that I’m back in the office.  Feel free to let me know your adventure-specific predictions for 09.

I’ve been doing a lot of research lately about network effects. Specifically I’ve been reading through a bunch of ultra-dry Harvard Business Review articles and HBS case studies. Hopefully I can provide a brief overview of the more interesting aspects of network effects and save someone the effort of reading 12 case studies.

The classic example of network effects is the fax machine. The first fax machine was worthless because it couldn’t send a fax to anyone. The second fax machine was worth something because it could communicate with the first fax machine. Every new fax machine put into use increases the value of all other fax machines. This network effect takes place in many modern business models and presents both challenges and opportunities for startups.

Successful businesses in the information economy are more likely to benefit from economies of networks than from economies of scale. Economies of scale are supply driven (cost savings due to mass production e.g. Toyota) and economies of networks are demand driven (the larger the network the higher the demand e.g. Craigslist).

One particularly interesting component of networks is the positive feedback loop. More users on one side of the network attract more users to the other side of the network which in turn attracts more users to the first side. So many of the major players in the travel industry have benefited (nay, relied on!) network effects:

• Every company listing product on Priceline provides additional value for those consumers searching Priceline for travel deals. Every additional consumer searching for travel on Priceline increases the likelihood a company will list travel products on Priceline.
• Where would Travelocity, Orbitz, Expedia etc. be without network effects?
• Emerging companies in the adventure travel space (e.g. Adventure Central, TourCMS etc) are currently in the challenging part of creating a network. Every tour operator listing on Adventure Central adds value for the affiliates, and every affiliate adds value to the tour operators.
• Economies of networks typically scale further than economies of scale. Eventually Toyota won’t be reducing cost with every additional unit of production, but the value of the Adventure Central platform will continue to rise as long as more tour operators and affiliates are signing up.

The HBS articles I read were pretty weak on actual tactics for securing early users for a network-based business model (insert joke about academia.) Here are some ideas I have been thinking about:

• Incentivize early users: this is the obvious solution. Xboxes are sold below cost to get them to users. This gets the product out and creates demand for games (the place Microsoft makes the most money from the Xbox). Epinions even PAYS community members to write reviews.

• Provide a product/service that is useful without the network: Delicious was very successful with this and I think Travelmuse (who is creating a delicious-like bookmarking tool for travel) is onto a great strategy here. Their bookmarking tool is useful without the network, and the social networking aspects become useful after many users have implemented the application.

• Free stock?: This idea reeks of dotcom bubble, but Travelzoo actually gave users 6 shares of company stock if they signed up for the company distribution list. This idea sounds completely nuts, but it seems to have worked out as Travelzoo survived the bubble.

• Convince the right people to make the leap: I’m not going to get any say in what the next DVD format will be (not that I give a damn.) The future format will be determined by some large group of influential businesses who band together to throw support behind a specific format.

• Broker a deal with a large crowd: One of the world’s busiest ski forums (← don’t click that link unless you have two hours to waste) actually got its start when a large crowd decided to abandon their existing forum.

This morning I stumbled onto this article on the Portfolio website: When Newspapers Get Lazy.  The author goes on a rant about how newspapers have gotten lax in their fact-checking.  In the article he criticizes a WSJ article that (correctly!) refers to the Adventure Travel Industry as a $75-$100 Billion market.  Here is the ingenious back-of-the-envelope reasoning the author uses to discredit that market calculation:

Let’s put those numbers in perspective: according to its annual earnings report, Walt Disney’s global revenues from all its parks and resorts in fiscal 2008 totalled $11.5 billion. So I’m pretty sure that Doyle was talking in millions, not billions: 10,000 people each spending $10,000 will add up to $100 million. Which means that the WSJ is three orders of magnitude off.

Did you just try to make a case that the worldwide market for adventure travel is approximately 9% of Walt Disney’s revenue?  Really?  And you write for a business magazine?

Maybe the faulty logic is particularly egregious to me because I spend so much of my time thinking about the adventure travel industry, but if the author had taken ten seconds to Google Adventure Travel Market Size he would have seen a page full of resources referencing a market size in the billions.

Suggestion – if you’re going to call out the WSJ on their fact checking and “lazy journalism” do ten seconds of research to back up your claim that their numbers are off by three orders of magnitude.

Intrepid Travel is now running a promotion where anyone who can prove they have recently lost their job gets a 15% discount on all trips.

I’m not sure a lot of people are going to go through the effort to get documentation of their layoff in order to save some money on a vacation – “Hey boss, since you just fired me in the midst of the worst job market my generation has ever seen, could you provide me with some documents so I can save some cash on my safari?”

While I doubt many newly laid off people are going to be jumping on this (I could be wrong!) it was a great PR move – this promotion was interesting enough to show up in about 20 different news outlets!

A couple of weeks ago I attended a PR panel that was composed of travel writers and moderated by someone who owns an Adventure Travel PR firm. The panel provided some interesting insight into working with traditional media travel writers, but more than anything I was struck with the thoughts “writers and editors who refuse to embrace new media don’t realize how quickly they’re going to be out of a job” and “any PR campaign that doesn’t join the online conversation is doomed.”

Here is an actual quote from a panelist who covers the ski industry: “Everyone keeps talking about bloggers being the future and it makes me want to scream. Bloggers aren’t journalists and they don’t know how to write! All the ski bloggers are just some ‘snowboard dude’ with no writing talent.” A little later this same writer exasperatedly proclaimed “It is getting harder and harder and HARDER to make a living as a freelance travel writer!”  Hmm.  I wonder why?

When the subject of Search Engine Optimization came up, the editor of a major news publication asked “What’s SEO?” A little later she was heard lamenting declining circulation at her paper.

Both of these old school media professionals are in for a rude awakening, and any PR campaign that follows their thinking is probably doomed.

Old school public relations is going to die along with the old-school media strategies.  If your PR firm isn’t connecting your business to online communities and blogs you need to fire them.  The beauty of new media is how easy it is to get involved in the conversation.  I have no PR budget, and I’ve managed to connect with dozens of travel bloggers simply by being engaged.  When the time comes for me to implement a PR campaign, these bloggers already know who I am and they won’t be surprised by my e-mails.

To further illustrate my point here are a few of my favorite new media adventure travel writers who might be ignored by old media:

EGCreekin: This guy might not even proofread his posts, but his infectious and unrelenting passion more than compensates for his lack of punctuation.  In some ways this blog epitomizes new media for me.

TetonAT: Ski blogs like this one have convinced me to cancel a couple of magazine subscriptions.

NerdsEyeView: Great travel writing and photography.

SolBeam:  More inspiring writing and photography from around the world.

In a past post I mentioned that someone will eventually develop a technology that cuts into Travelzoo’s brilliant business model.  My prediction may have already come true – Dealbase.com has developed the world’s largest collection of hotel discounts (currently 10,000+ deals and growing.)  The DealBase interface is pretty intuitive and it is really easy to browse their massive selection of hotel deals.

A few things I find interesting and innovative about DealBase:

• There is no “pay to play” in the DealBase model.  If a small hotel wants to list a deal they can do so without paying a fee.  This is a key differentiator for DealBase, as most deal sites only display paid listings.
• DealBase has a cool way of presenting individual deals that they call the “Deal Analyzer” (shown in the picture above.)  The Deal Analyzer breaks down each item included in a deal so the consumer can make an educated purchase decision.  For example, if a Vegas hotel offers me $100 in free casino chips, it doesn’t necessarily add $100 of value to my trip because I’m not interested in the casino.  The Deal Analyzer displays that in a really user-friendly way.
• Finally, a travel site that gets tags!  DealBase has a browse by tags feature that I really like.  I wish more travel sites would include a tag cloud.

One thing I would like to see DealBase add is a “Best of DealBase blog” that highlights the best new deals on the site.  I’m sure some of the 10,000+ active deals really stand out, and it would be fun to see a blog highlighting those.

I had a few additional questions about DealBase, and CEO/co-founder Sam Shank kindly took time out from being a PhocusWright celebrity (videos here and here) to answer some of my questions.  Here is the interview:

TT: How did you come up with the idea for Dealbase, and how long did you work on it before the launch?

SS: After leaving SideStep as part of the Kayak acquisition, I was looking for a new business to start and was drawn to the deals and discounts category, as there is tremendous customer demand for deals, but I felt a new, customer-focused approach was needed. We started working on DealBase.com full time in May, launched the preview version in early October, and officially launched on November 18th.

TT: I love that hotels can list deals for free, but you’ve got to make money somehow!  What revenue models are you pursuing (beyond contextual advertising?)

SS: In addition to advertising, we make money through CPA and CPC-oriented relationships with national hotel chains and online travel agencies. Next year we’ll add functionality to allow a hotel or travel supplier to promote their deals within DealBase for an incremental fee.

TT: Something I’ve been struggling with is the sheer expense of bidding for AdWords in the travel space.  Any hints about what your advertising strategy is going to be?

SS: We’re focused on building the ultimate site to find great travel deals. We’re confident that if we do a great job, our product will be the biggest component of our marketing strategy.

TT: A lot of user-generated sites (e.g. Digg) report that 90% of users are lurkers, 9% contribute infrequently and 1% account for the bulk of contributions.  Do you anticipate Dealbase will have a similar usage model?  Any plans to incentivize that 1%?

SS: Alternative travel deals sites use a play-to-play advertorial model, so we feel that there is already significant financial incentive for many users to contribute deals.

While I was researching this blog post I got pretty distracted checking out all the hotel deals on DealBase – here are a few I wish I was taking advantage of right now!

66% off surf/hotel package in Mexico.

72% off Vail hotel

33% off Cozumel Dive Package

If you’re still looking for more info about DealBase you can see more coverage at T4 blog, The Boot, and BNet.

A lot of ski resorts have found themselves in precarious financial situations this season and I’ve spent a fair amount of time discussing that on this blog.  Something I’ve been thinking about lately is that it isn’t really the ski business that is hurting – it’s the luxury real estate developments on the balance sheet of many ski areas that are bringing them down.

Nothing exemplifies luxury ski area real estate like The Yellowstone Club.  Homes in the Yellowstone Club start at $3 million and club membership is an additional $250,000. The Club’s ski hill features 10 lifts and 64 trails, and with membership capped at 864 nobody ever waits in line.  Yellowstone Club is the pinnacle of luxury ski communities – and it’s now declaring bankruptcy.

The smallest residences at Yellowstone Club

I’ve been watching the Yellowstone Club story with interest thinking it had something to do with the ski industry.  The fact is, this bankruptcy has nothing to do with skiing and everything to do with luxury real estate.  The Yellowstone Club’s business model is based on real estate – a model they share with other cash strapped resorts like Intrawest Resorts, and Moonlight Basin.

I’m gonna go out on a limb here and say I predict mountain resort real estate prices are going to keep falling and we’ll probably see a few more of these giant ski areas mountain real estate developments run into cash crises.  I also think that those resorts who don’t rely on real estate for their business model (Alta, Mt. Baker, Wolf Creek etc.) will be just fine this season.  Consumers still want to ski regardless of the economy, but they might hesitate to ‘invest’ in a $10 million dollar ski house.

If you still think now is a good time to buy mountain resort real estate compare the mortgage payment on that home to what you’d be able to charge renting it out, then compare the mortgage payment to what it would cost for you to stay in a hotel for the days you planned on using that second home.  After you do those calculations I bet you’ll agree that the days of 18% annual appreciation on vacation real estate are OVER.

For hilarious coverage of the YC bankruptcy check out The Goat “Billionaire Industrialists Cook up Kooky Scheme to Save their Community Center” and The Business Sheet “Bankrupted Millionaire-Only Resort Can’t Afford Food.

I’m a big fan of Liftopia, so I was super excited to get a chance to interview one of the co-founders.  This is my first blog interview, so I’ll try not to mess it up!

Liftopia allows ski resorts to sell discounted lift tickets online, but their website explains the concept pretty well:

How does Liftopia get such great lift ticket deals? The truth is, resorts want you to ski or ride more often. Because you are willing to commit in advance to specific days, and know that you can’t cancel your booking once it is done with, Liftopia makes it safe for our resort partners to offer exclusive deals through our site. This way resorts can try to get more folks out on the slopes, without hurting their on-mountain prices. The term in the industry is “incremental purchases”, which essentially means that with better deals for specific days, you will want to ski or ride more often than you would otherwise.

Evan was nice enough to take my call and I really enjoyed talking to him.  Here is the interview:

TT: Evan – tell us a little about how you came up with the idea for Liftopia.

ER: My partner Ron and I both worked at Hotwire before we started Liftopia.  Ron and I were talking about heading up to Tahoe, but were hesitant because it hadn’t snowed in a while.  We inevitably asked ourselves “would it would be worth the drive if we could get tickets for $50, $40, $10?”.  We realized that ski resorts could easily benefit from the yield management and centralized distribution strategies that have helped hotels so much, especially given resorts’ cost structures (high fixed costs, low variable costs, high ancillary spend) and the many varying components of skier demand (weather, snow, gas prices, etc).  After doing some market research and speaking with some resorts, we started working on a business plan.

TT: How long did it take you to get off the ground?

ER: We definitely underestimated how difficult it would be to get this going.  Initially we thought “oh we just need to get Vail Resorts and Intrawest on board and everything else will fall into place.”  Obviously it wasn’t quite so simple, as there is a difference between resorts recognizing the concept and resorts signing up and selling tickets.  Our initial plan was to launch in Spring 2005 with 20+ resorts, but we were way off, and ended up launching in October 2006 with 7 resorts.  After doing our best to build up some trust in the industry, we were up to 35 resort partners last season and this year we’re at about 80 (so far, always trying to add more!).

TT: How hard was it to convince the ski industry to start conducting yield management?

ER: That was certainly our biggest challenge.  Other segments of the travel industry know that it is in their best interest to alter their prices to maximize revenue, but the ski industry wasn’t accustomed to it.  Most people understood the concept(as it isn’t rocket science), but it is difficult to accept such a new concept, especially coming from a couple of random guys who are new to business side of the industry.  While resorts do manage their yield, they tend to do so at a macro level (season to season), and we think that applying the concept at a micro level with the ability to react is a more efficient way of doing so.

TT: I feel like I can’t look at a news source without reading about all the great deals available at the ski areas.  Is the economic climate helping you bring in great deals?

ER: Obviously a long term recession would be bad for everyone including Liftopia and the rest of the ski industry, so we’re certainly not excited about the current economy.  We’re in a really steep part of our growth curve as a startup, and there isn’t really any way to tell if any of that is attributable to economic conditions or if we’re just making a lot of progress as a company.  At the end of the day, however, we believe that our model helps resorts react during bad economic times while creating new opportunity when people are feeling more confident.  Even when things are going well, there is room for improvement. We view ourselves in the same boat as our resort partners.

TT: Do you find yourself coaching the ski resorts on their yield management strategies?

ER: Certainly.  In fact I strongly prefer “revenue management guidance” over being Mr. salesy guy. I really like the work of helping a resort understand their yield and customers’ reaction to inventory changes.  When I meet with a resort I’m not trying to sell them anything, I’m trying to help them maximize their revenue.  At least that is how I look at it.

TT: Anything else you’d like to tell the blog readers?

ER: I guess the one thing we always try to communicate is that we view our relationship with the resorts as a long term partnership.  We’re not trying to take some of their existing business and move it onto our plate, we want to help them generate incremental revenue and reach new customers.  We’re constantly striving to keep our resort partners happy and work hard to make sure they get a good value for the service we provide.  We designed our model to be win for the resorts and win for consumers, and try to make it as safe as possible for resorts to reach out to skiers and riders without diluting their business.  At first glance, customers may not like our purchase restrictions, but these are what allow us to get exclusive deals in the first place.

Thanks again to Evan for the interview.  In case you’re not convinced that Liftopia is delivering the deals check out the $4.99 lift tickets at Sipapu Ski Resort.

I’ve already talked at length about some of the challenges ski areas will face this year.  This time I’ll start with the good news.

Snowbird just got pounded with a 36″ storm and plans to open this coming Friday.   Snowbird is certainly one of my all-time favorite ski resorts and I wish I was gonna be there for opening day.  I don’t consider the white ribbon of man-made snow at Arapahoe Basin and Loveland to be actual skiing, so Snowbird opening with real snow is pretty exciting stuff.

I’ve decided my blog is lacking in imagery so here are a couple of pictures taken from one of my backcountry trips into the terrain adjacent to Snowbird.

Folks in the ski-industry (particularly the NSAA) continue trying to convince us that ski areas will still make plenty of money as long as the snow falls.  I personally am a little more pessimistic about skier numbers, but those resorts that aren’t too leveraged with real estate investments will probably do okay this season.

Since I can’t seem to have a post about the ski industry that doesn’t include some bad news – we can now add Revelstoke Mountain Resort to the list of over leveraged mega-resorts affected by the credit crunch.  Details are still a little sketchy, but news reports are saying that Revelstoke has laid off a number of employees and significant management and ownership changes are underway.

Best wishes for the Revelstoke crew.  I’m selfishly hoping that the resort stays in business – I’m really hoping to ski up there next season.

There is a pretty interesting article in Monday’s Travel Daily News that says 80% of travel companies plan to at least maintain their level of online marketing spending, with more than half planning to increase online marketing expenditures.  This increased expenditure comes at a time when most other aspects of budgets are being cut (including offline advertising.)

The article doesn’t really address companies reasons for increasing their online ad budgets, but I’m pretty certain it has something to do with trackability.  In my mind, online advertising is absolutely the best investment for a company with a limited budget.  Online advertising provides a clear means of tracking return on investment.  Companies looking to reduce their marketing budget are going to cut the non-trackable (offline) marketing first.

If you’re interested in learning more about marketing travel during a recession there is a great article and subsequent discussion on the Tracking Tourism Blog that is very apropos.

If I’m willing to be flexible with my dates I can find a great deal on a flight, a hotel or a rental car. This is because all of those companies are actively maximizing their revenue by lowering prices for last-minute travelers or for those willing to travel during off-peak periods. If I wanted to find a great deal on an adventure travel tour I’d have a hard time even if my travel plans were super-flexible.

I’ve asked dozens of adventure travel tour operators about why they are hesitant to offer last-minute discounts or off-season promotions. Here are the most common responses to my queries (and my thoughts about their objections):

• Don’t want to become a commodity (a la airlines): It’s true. The airlines have turned themselves into a commodity, but I believe that is because no airline offers a clear differentiator. Adventure travel companies have enough opportunities to differentiate that commoditization shouldn’t be a real concern. You don’t see commoditization being a problem for boutique hotels, and they offer promotional pricing.
• Don’t want customers to feel slighted: I’ve talked to a few people who are concerned that a client will be upset when he finds out that other people on the trip paid less. I really don’t think this is a concern in today’s economy. Nobody pays the same for a flight, nobody pays the same for a hotel, why should everybody pay the same for adventure travel? Clients will understand that someone booking months in advance or at the last minute is entitled to a discount.
• Don’t have the technology/resources: Alright, there aren’t any great resources out there to offer last-minute promotions, but you can start gathering names for an e-mail newsletter that lists special packages. Call some of your past clients and let them know. List the deals on your website and run an adwords campaign. The resources are inexpensive, you just need to put in a little effort.

And now, my list of reasons that EVERY adventure travel company should be working on revenue management strategies:

• More revenue: If you’re filling a seat that would have been empty without that promotion, you’re increasing your revenue. If the incremental cost of taking one additional passenger is less than the price that passenger paid you’ve just improved your bottom line.
• Access to customers in a different price point: There are certain things I personally can’t afford unless they’re on sale. You can almost guarantee there are a few people out there who are interested in one of your trips, but simply can’t afford it at the standard price. You were never going to get these folks as customers without the promotional pricing.
• Build buzz: Often, running a special promotion exposes you to new customers who have never heard of your operation.  If these customers enjoy the trip they’re likely to talk about your business and may book future trips at the regular rate.

Airlines and hotels are using complex data models to maximize their revenue through discounting. While the smaller adventure travel operators probably aren’t going to be building a complex computer model here are some tips to understand your pricing strategy:

· Understand your fixed vs. variable costs: This is key, as you NEVER want to sell a trip for less than your variable cost per client.

· Keep booking records: If you’re not doing this yet, I would start immediately. It’s really valuable to be able to know exactly when your slow periods are. What trips are always full? Also, keep track of how far in advance people are booking. You’ll need to understand that number to time last-minute discounts.

· Start a newsletter: You need a way to stay in touch with clients, and an e-newsletter is an inexpensive and effective way to let clients know about special deals and other things going on with your business.

I did some searching online and couldn’t find any great resources regarding revenue management for adventure travel companies. This article has a couple of relevant points though. I’ll try to find the time to do a follow-up post in a couple of weeks. If I start feeling really geeky I’ll maybe make a basic revenue-management model in Excel that might be of value.

Like many of you I’m constantly trying to get a better understanding of how this global recession will affect the travel industry (and adventure travel in particular.)  I was surprised to see that Travelzoo posted a loss in Q3 2008.  I just listened to their earnings call which was pretty interesting (er…at least interesting as far as earnings calls go!)  A few points from the call that I found particularly relevant:

• Much of their loss is due to operating losses in new markets (North America was still profitable.)
• Demand for promotional-ad space was up among hotels as they try to boost occupancy rates.
• Ad demand was down for airlines.  Apparently this is because some of Travelzoo’s main airline advertisers are experiencing financial difficulties (or going out of business.)
• Search traffic is down significantly (and is blamed for $1.5 million in lost revenues).
• Travelzoo is currently beta-testing a meta-search product.  Sounds like it’ll be something similar to the Travelmuse search.  (I’m personally pretty skeptical, as I think Travelzoo has a pretty poor technological track record.)
• They report that current travel deals are the best they have been in 4-5 years.

So in short – fewer people are actively searching for travel and more travel companies are trying to incentivize folks to travel. This is good news for advertising outlets, and very good news for folks who can affford to travel in the next few months.  It’ll be interesting to see if these pricing pressures will find their way to the adventure travel sector.

The travel providers and tour operators who will come out of this crisis alive are those who find a way to offer compelling pricing/offers that will attract travelers in this price-competitive market.  It’s a challenging time to be a travel provider but the strong will certainly survive.

I don’t have a significant amount of my net worth tied up in the market, but for some reason I feel compelled to check the DOW about 3 times per day.  Yesterday I noticed that Yahoo Finance had stopped displaying the chart of the key indices on their home page.  Maybe that was an attempt to lower our collective blood pressure?

This afternoon I checked in to see how where the DJIA closed, and in place of the key indices chart, there is this headline – “UPSIDE TO DOWN MARKETS: TRAVEL DEALS“.

I find it pretty hilarious that Yahoo Finance has replaced their overview chart with a suggestion that embattled investors go on vacation.

One thing I find particularly interesting about the Adventure travel industry is that so many seemingly outlandish things turn into viable  businesses.  I’m constantly impressed by the audacious trips adventure travel entrepreneurs come up with, and always intrigued when they find willing and excited customers to pay for the adventure.

A couple of interesting articles that exemplify the spirit of “invent a crazy trip that isn’t offered anywhere else and the customers will come”:

This CNNMoney article profiles an entrepreneur who takes customers 600 feet underwater in his homemade, uninsured submarine!  The trips take place in Honduras, because that is one of the few places he can operate without insurance.  In order to attract sharks, he takes DEAD HORSES to the bottom of the ocean.  He has developed an enthusiastic client base who is excited about paying $1,500 for a 5 hour dive.  When they raise questions about the safety of riding in his sub he responds “Your only insurance is that I’m going with you.”

Also, this article in the UK Globe and Mail highlights a few unique tours including skydiving in front of Everest (for $27,500), and a company who puts clients (some as young as 6!) in a sharkproof cage and lowers them into the ocean for face-to-face encounters with sharks.

These stories are intriguing, but there are also some important takeaways:

• Differentiated offering is key: Part of the reason these outlandish ideas are so successful is that they are different.  The tour operator only needs to find a couple dozen people to make a trip successful.  It’s probably easier to find a dozen people excited to skydive in front of Everest than compete with the hundreds of providers offering the same African Safari.
• From the G & M article referenced above - “Research by the Adventure Travel Trade Association suggests that mainstream resort-style holidays are losing some ground to other trips – and many in the industry see edgier travel as an important slice of the pie.” I tend to agree with this sentiment.  People are continually looking for more real and engaging experiences and are willing to pay for those experiences.