Tripit: The Traveler's Agent

Introduction

TripIt, a free online travel service that aggregates booking into one easy to view itinerary, has recently secured $5.1m in financing which the company has earmarked for “business development”.  The leadership team needs to determine how to best allocate these limited resources in order to generate a stream of sustainable cash flows to operate their business thus resulting in growth for their investors. Furthermore, while the co-founders believe their business model is unique and has the potential to be profitable they are under considerable pressure from their investors to prove that TripIt can grow revenues quickly and achieve sustained profitability.  Based on the size of the market and profitability potential, I would invest in TripIt.  The success of TripIt depends on their ability to grow their user base, and in order to do so they must develop partnerships with popular Online Travel Agencies (OTAs) as well as leverage the power of social media and word of mouth (WOM) advertising.

Background

Before the advent of the internet the travel industry was ruled by travel agents with a keen understanding of all aspects of travel.  Now more than 96% (Gretzel, 2007) of people shopping for travel services use the internet in lieu of these agents, which brings unlimited opportunity for eBusiness growth in this sector.  Examples of such businesses are OTAs such as Expedia, Travelocity, and Hotwire.com.  

TripIt is a free online travel service that aggregates the bookings from various OTAs and merges them into one itinerary using the Intinerator program.  This program allows users to forward confirmation emails to TripIt, which in turn provides the users with a consolidated itinerary with additional features such as the weather and directions.  In addition they have added a social media aspect that allows users to connect with friends and family and share their experiences with one another.

As of May 2008, TripIt has 107,826 total trips booked with monthly unique visitors around 90,000 (Exhibit 5.13).  Their trip yield (trips compared to unique visitors) has held steady around the 20% mark since February 2008.  Their growth has mainly been driven by word of mouth advertising. The company focuses on the Advertisement Support revenue model, which allows them to generate revenue from having a large user base as well as extra revenue from users “clicking-through” the advertisements.  The only known competitor to TripIt is Rearden Commerce, although with low barriers to entry into this market they could experience fierce competition in the near term.

Financial Analysis

TripIt’s 2008 Pro Forma financial forecast (Exhibit 5.14) shows estimated revenue per order of roughly $1.09, and total expenses of $741k.  Due to the nature of the business their operating expenses are mainly fixed so this analysis will assume fourth quarter expenses will stay flat, disregarding inflation.  With $741k of quarterly expenses, revenue per order of $1.09, and a trip yield rate of 20% they will need roughly 1.133m unique visitors yielding 226k itinerary orders per month to cover their expenses.  The matrix in appendix 1 outlines the importance of not only attracting more visitors to their location, but also the importance of converting the unique visitors into active users.

Alternative Solutions

The $5.1m of capital will need to be allocated to both business development and operating expenses for the year 2008.  According to the Pro Forma financial forecast (Exhibit 5.14) they will need roughly $2.366m of cash for operations, leaving just $2.877m for business development. Whichever way this capital is allocated, it is key that it increases the number of unique visitors, the trip yield, or both.

One solution that may increase the trip yield is using the capital to increase the features of the software, allowing the user more interactive data.  They could do this by combining overtime pay with outside contractors to quickly build additional services into the software.  While this may increase the trip yield of early adopters, I am afraid that it would decrease the ease of use of the software resulting in confusion and a potential decrease in the trip yield.  Furthermore, I do not believe that investing in additional features will drive a substantial increase in new visitors to their website.  Currently the firm needs fast user growth, and in order to achieve this growth they need a product that is easy to use and quick to adopt. Although additional features are a necessity for sustainable use, they may be better as a premium service that one can add on if they so please for a small fee.

Since TripIt needs a rapid increase in new users they can consider using the financing proceeds on a strong marketing campaign to increase the awareness of TripIt.  This can radically increase the number of unique visitors for their firm in the short run.  The issue with this method is that although they may see increased visitors, they may also run the risk of even lower trip yield than their current run rate.   Currently their advertising is mainly word of mouth, with active user telling friends and family about the product.  It is safe to assume that WOM advertising produces a higher trip yield since the people spreading word of this service are able to give first hand experiences, and they will also be telling people that would benefit from this service.  A general advertisement campaign may bring more visitors due to curiosity, although a portion of these visitors are not in the target market for TripIt and this service may not appeal to them.  They should stick with their current model of focusing on WOM advertising, as this is relatively inexpensive and tailored toward consumers needing their product.

In the study they talked about leveraging OTA websites as a method for increasing traffic.  This can be a very effective method to increase the amount of unique visitors and potentially the trip yield.  This can be done by creating a button, such as an “Add to my TripIt” to be added to the checkout screen on these websites.  What they will need to determine is how they would like to do this.  One method is creating a robust set of tools for any OTA to use, which will allow TripIt to harness the power of every online travel website.  While this may sound effective, there is considerable risk in this venture.  Since this one tool will need to cater to all websites there will be considerable R&D.  Furthermore, they will need to support this tool for every website that agrees to use it, which can lead to increased support staff thus increased operational expenses. Not only will this use up much of their capital, but a robust tool may take longer than a few months to develop which will pose a significant risk to their cash flow.