Despite Zuji’s head start as one of Asia’s first online travel agent, it has failed to survive in the highly competitive online travel agent (OTA) market. Razor thin margins on air tickets are a norm in this industry. Hotel rooms give better margins but there is stiff competition. So after Zuji’s fall, will more OTAs suffer the same fate?
Customer acquisition and retention
At the end of the day, an OTA is in the e-commerce industry. The valuation is more or less correlated to the customer base, the GMV and the quality of customer base judged on their repeat purchase rate. Expedia has been aggressively acquiring customers in the region and has not only made it difficult for Zuji to acquire customer, but is also likely to be responsible for Zuji’s loss of existing customers too.
Whether the intention is to sell the business or to earn money, customer acquisition and retention is very important. On the acquisition side, Expedia had large scale ad campaigns, integrated with 3rd party price crawlers like Google Flights. Agoda had their own affiliate program, that allowed partners such as bloggers to take a cut of redirected traffic. On the retention side, Agoda had rewards since day 1. Expedia quickly jumped on the bandwagon with ExpediaRewards and membership tiers. Zuji had none of these. But even if they had, it would not have saved them. They were not delivering enough value for their customers.
There are a few areas a OTA can deliver value. The first would be to serve as a one-stop shop, making it unnecessary to create accounts across multiple websites and re-enter personal details. Having comprehensive coverage of services, from tours to ground transportation to insurance to hotels is the way forward. Other than offering different services, there has to be a wide range of choices in each service vertical. The wider the selection you offer, the more likely customers will find something suitable for themselves.
Many airlines still have clunky websites without capabilities for submitting additional special requests. An OTA that offers a superior user experience for making and managing bookings will be able to attract and retain users. Ever tried calling an airline and had to deal with long hold times? What if, the OTA responded faster or better still, you could get what you need 100% online.
Zuji struggled in most of the above in the last 5 years. As other OTAs improved on choice of products, support and technology, Zuji remained largely stagnant.
Scale and market segmentation
Competitors like Expedia Group and Booking Holdings (previously Priceline Group) understood that the best way to get scale was to acquire. So Booking Holdings bought Agoda for Asian coverage. Expedia bought Orbitz to gain market share in America.
The two travel majors also realised that within the online travel market, there are different type of travellers with different needs. Business travellers cared more about support, transparency and accountability instead of prices. So they either created new brands or acquired brands that covered segments of the travel market that they did not have. Expedia got vacation rentals covered through its acquisition of HomeAway. Agoda was aware that AirBnB was a competitor and launched AgodaHomes as a counter measure.
Zuji also didn’t have the scale and hence it was unable to benefit from lower costs by sharing IT resources across multiple brands. If you take a look at Cheaptickets.com and orbitz.com, the sites have the exact same user interface. I’m sure Expedia also shares resources in other areas such as customer service. Zuji was likely to be not profitable on unit economics basis and the forward bookings were finally unable to cover the cashflow needs.
How will the OTA market go?
The previous fragmented OTA market has already seen some consolidation with the acquisitions done by Expedia Group and Booking Holdings. Other major players that are not affiliated to Expedia and Booking include, Ctrip from China, Makemytrip from India and Decolar from LATAM. Each cover a huge market and are quite entrenched in it. Ctrip is internationalising at the moment, expanding into new markets. China’s growing demand for travel should make Ctrip quite safe, as long as they continue to innovate. The other two might try to be acquisition targets or look for growth outside their home markets. As for all of the rest, they should either bite the dust due to unprofitability or get acquired if they fill a gap in the large OTAs.