Business travel is
big business.
The Global Business
Travel Association estimates the industry represents spending of $1.4 trillion
worldwide and predicts that number will rise to $1.7 trillion by 2022.
In its U.S.
Corporate Travel Report 2018-2022, Phocuswright says managed travel represents
a third of the total travel market in the United States and will reach $138
billion by 2022, with 86% of that spending taking place online.
“Corporate
travel in the U.S. is solidly and steadily increasing, helped by rising
business confidence and despite recurring geopolitical challenges like
tightened immigration policies. The online segment continues to grow rapidly
and dominate corporate bookings,” the report states.
And that online
segment is broad and diverse – ranging from self-service booking tools to
platforms from travel management companies and suppliers and incorporating newer
technologies such as machine learning, chatbots and virtual assistants.
Digital disruption
has been slower to develop in business travel than in leisure, but in the last
few years the pace has quickened, driven in part by startups that have quickly
gained traction.
For the first part
of our monthlong series on business travel, we talk to investors in three of
the most notable business travel startups – Lola.com, TravelPerk and TripActions
- to understand why they are so bullish on this sector.
Fast and furious
The year 2015 was a significant year for innovation in business travel.
All three startups – Lola, TravelPerk and TripActions – were founded that year
(although Lola began with a leisure travel focus and pivoted in 2017). And all
three have been very busy since.
Lola has raised nearly $82 million in funding, most recently
a Series C round
in March led by existing investors General Catalyst and Accel, with
participation from previous investors CRV, Tenaya Capital and GV. In November
2018 the company inked a partnership
with American Express Global Business Travel.
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TravelPerk added $60 million to
its Series C round in July, bringing its total capital to nearly $134
million, with participation from existing investors Kinnevik, Partners of DST
Global, Target Global, Felix Capital, Sunstone and LocalGlobe. Also in July the
company announced a new
guaranteed refund program for cancellations.
And TripActions is now valued at a massive $4 billion, with
its most recent
funding round of $250 million in June led by Andreessen Horowitz with
participation from Zeev Ventures, Lightspeed Venture Partners and Group 11.
Total funding tops $480 million and yesterday
the company announced the launch of TripActions Consulting, going after a
piece of the market that’s been dominated by the legacy travel management companies.
Obvious opportunity
So what is fueling this rapid growth and investor confidence?
Investors we talk to agree it’s a convergence of factors, starting with
the fact that the market is massive and has been underserved.
TravelPerk investor Antoine Nussenbaum, partner at Felix
Capital, says as his firm started exploring a move into travel nearly three
years ago, they were surprised to find the online disruption in the sector, particularly
for small and medium-sized businesses, was lacking compared to consumer travel.
And that indicated a great opportunity.
“It’s still a market where a lot of offline travel agents are
making a lot of money and still capturing a lot of market share when you
aggregate that,” Nussenbaum says.
“So from a market perspective and a macro perspective, it was
quite unique to see such a massive market which hasn’t been captured yet by
emerging new players that are digital first and very tech savvy and knowledgeable
around travel.”
That’s similar to General Catalyst founder and managing
director Joel Cutler’s view. Cutler has been investing in Lola.com since day
one, in part based on his longstanding relationship with and respect for
founder Paul English, who he had partnered with in 2004 for the launch of Kayak.
Cutler says he saw a need for software – and he calls
English a “product genius” – to give small- and medium-sized businesses
consumer quality tools to manage travel efficiently.
“The mid-market space is huge, and it's global and it's not
extremely well served by large players,” Cutler says.
“There are a lot of very, very good regional TMCs that do an
excellent job, but they're not global and they just don't have software chops. This
is not just about selling airline tickets or hotel rooms. That's part of the
equation for sure, and that's a traditional TMC, but this is the beginning to
the middle to the end - what you can buy, how you can buy it, how you get paid
for buying it, is it in compliance, how does it get reported, how do you do it
in an efficient way, how you provide service. This is a software solution.”
Oren Zeev, who has invested about $70 million in
TripActions through his firm Zeev Ventures, says while the legacy travel management
companies - names such as GBT, CWT and BCD – have been providing technology-driven
solutions at the enterprise level, they haven’t been doing it well.
“In general, companies selling to enterprise did not think
of the experience of the end user. They assumed employees would use whatever the
company tells them to use, so you don’t have to make an effort to make it user-friendly,”
he says.
“They always saw the customer as the CFO, so they cater to CFO,
but the experience of the traveler was never their focus.”
Traveler-centric
solutions
In fact, say these investors, it is the traveler-centered
approach of these startups that is actually helping them serve the needs of
CFOs and travel managers because employees are more likely to use a booking
system that they like.
“You can have all the control and visibility features in the
world, but if 50% of the time people go around and go rogue than all this 50%
is outside your control and visibility,” Zeev says.
“So just by virtue of having something that employees want
to use instead of something being forced on them, you get better control and
visibility.”
All three of these startups have developed products that
combine user-friendly mobile solutions with round-the-clock human assistance.
Cutler says another critical element of that great user
experience is great content – part of the impetus for Lola’s partnership with GBT.
“At the end of the day having really good deals and pricing
and service makes a really big difference,” he says.
“So Lola is working to be sure it is an excellent TMC at the
same time as building great software.”
This need to provide great supply and great service in a
digitally-enabled solution, says Nussenbaum, is very difficult and creates a
natural barrier to entry for this type of product.
“For the CFO you have you need to build a software
accounting management tool in order to be more efficient on travel spend. The office
manager needs a product that makes their life easier and helps them save time.
And lastly it needs to be a consumer grade solution to handle very smoothly cancellations,
being informed about anything,” he says.
“It’s extremely hard.”
Road to success
From the outside looking in, however, these three startups
have made it look, if not easy, then at least doable.
Thinking back four years to his seed round of funding in
TripActions, Zeev calls it a “very contrarian investment.”
“You are going to a space that seems like it’s done. It’s
not a new space. It’s dominated by strong incumbent players. How will you
compete with companies that are a thousand times larger, and they have all the
advantages that a big incumbent has,” he says.
“But it wasn't solved because the solutions were
not good. And sometimes it's hard to realize to what extent the solutions are
not good until you actually have a solution that is right.”
Looking ahead, all three investors use the words like “massive” and “gigantic”
to describe the opportunity that lies ahead.
“Lola will grow at an extraordinary rate, but because of the
service component I think it should be controlled so service excellence is there
all the time,” Cutler says.
“And I’m quite a big fan of the other two companies – TravelPerk
and TripActions. This is a gigantic global space and these people are taking a very
modern and innovative approach to it. So there will be a few very big companies
built here. This may be a few take most, but it is not winner takes all.”