Amazon’s multifaceted – and likely inevitable – path into travel

It’s becoming clear that it’s no longer a question of “if” but rather of “when” and "how” Amazon will try to disrupt the travel industry.... again.

The topic of the ecommerce giant making another serious attempt at muscling in on the sector has escalated in buzz since Morgan Stanley’s Brian Nowak released an analysis March 8 titled “Alexa, Let's Book a Vacation."

Amazon has stepped into travel in the past – and then stepped back out – but Nowak says the online retailing giant should not be ignored.

He notes that Amazon’s “focus on selection/service, pricing and frictionless payment that drive conversion and stronger user economics also translate directly to travel.”

Nowak also cites Amazon’s expertise in machine learning and personalization, and its Prime membership program – estimated to have about 90 million members in the United States - as further evidence of its potential in travel.

The Morgan Stanley analysis suggests Amazon could make $600 million in profits per year if it built an online business half the size of Expedia’s business. A bigger play or more efficient advertising spending could boost that figure to more than $1.5 billion annually.

Amazon's last foray into travel came in 2015, when its off-shoot Amazon Local launched Destinations - a platform where consumers could book getaways and hotel deals.

The project lasted until the October of the same year, when it was unceremoniously pulled offline amid fairly low-key statements about having "learned a lot" but eventually deciding to axe the service.

Prime timing

Fast-forward three years, and times have changed.

In the latest PhocusWire PundIT Show podcast, editor in chief Kevin May discussed Amazon’s potential to disrupt travel with Valyn Perini, vice president of strategic relationships at Nor1; Stephen Joyce, CEO of Rezgo; and Robert Cole, founder of RockCheetah.

“Amazon is all about controlling the supply chain,” Joyce says.

“They have a history of being very, very good at optimizing the supply chain and controlling it and squeezing out every penny from every step that they can and thereby reducing the cost to the consumer for what would normally be a lot of intermediary steps.”

The potential to create a distribution system linked to Prime membership – what Cole calls “the best loyalty scheme in existence on the planet” - could also be very appealing to hoteliers looking to cut costs.

“If you are an independent hotelier and you go, gee, can I go market directly to Amazon Prime members and give them a deal and I don’t need a brand any more. And I might not need an OTA anymore. I might still work with them but … it’s not as important. That’s a pretty powerful value proposition,” he says.

Cloud computing and voice

Amazon could also capitalize on the power of Amazon Web Services, its subsidiary that offers cloud computing, storage, networking, analytics and more. AWS accounted for 10% of the company’s total revenue in 2017 with a figure of $17.46 billion.

By bringing travel brands into the system, Amazon could boost that revenue figure while also gaining a foothold in a new vertical.

“The GDSs use a lot of legacy technology out there, and it’s robust and scaled, but it’s really expensive,” Perini says.

“So if I was Amazon … I would actually … keep adding that stuff to the Web Services and connecting by the API and then all of sudden one day we wake up and they’ve got it all.”

Voice is another capability that Amazon can use to capture a significant share of the travel market, which Nowak estimates to be worth $480 billion in the US alone. 

The company’s Alexa-powered devices dominate the smart-speaker market – third-party estimates put it at 76% of the total user base.

For now consumers must specifically activate each brand’s “skill” in order to access their offerings via Alexa. But what if that changed to something more akin to the way search is handled on Amazon – with consumers simply voicing their search request and the system delivering the “best” results?

“It has the potential to become more of a bidded marketplace,” says Brent Harrison, vice president of global product at Expedia.

“I want flights to Las Vegas – whose result will show? That’s a very interesting question. How do we - bringing it home to Expedia - make sure we are the source of the best options for the consumers?”

The next vertical

Amazon launched as an online bookstore in 1994. Since then it has been slowly and methodically adding – and often owning – new categories including electronics, apparel, home goods, jewelry, shoes, toys and groceries.

It seems likely that a next step will be travel, a move that could provide huge profits for Amazon and welcome savings for suppliers and potentially consumers.

“If you are a hotel owner, you are probably paying in most cases a brand – which again I think the average is like 12% in the US. Then you wind up with a situation where you may be paying a professional management company … 3% of gross revenues. You are paying American Express or Visa or those guys 2 to 4% of everything. And then if it goes through an OTA, it’s going up to another 15%. All of a sudden you are at over a third of your gross revenue going somewhere,” Cole says.

“That’s a lot of intermediary take out of the industry. And that’s not sustainable for these owners.”