Days of Reckoning

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he days of reckoning had to come. The stock market couldn't climb forever, the well of venture capital had to dry up, the glut of Internet businesses had to be reduced. So here we are, facing reality, counting our paper losses, hoping for a market comeback and wondering how many more Web start-ups will fail.

I once used the "gold rush" analogy to describe the first phase of Internet fever. I suggested that of all the wagons heading West in search of gold, a few would get rich, some would make it all the way West but fail to strike gold and some would break down en route and never get close enough to have a chance.

Now, as we grapple with the transition from the first phase of the mania, we see the wreckage of the Web businesses that never got close.

Many were businesses run by people who didn't have an industry background but had access to money and saw a chance to make a killing in the market. A few did make a killing, selling their speculative stock and cashing out options before the market took a dive.

Their business models were all over the map, from selling airline tickets at rock-bottom prices to offering travel via auctions, providing databases and videos or attempting to match up consumers and suppliers. Their "burn rate," the money needed to run their businesses, was staggering. Their technology investment was a heavy burden, they hired too many people and their revenue was a trickle.

Perhaps the most important lesson we can take from the wreckage strewn across the Web landscape is that establishing a brand and driving revenue are no guarantees of business success.

The history of the travel business, both Internet and brick-and-mortar, is marked by companies that became well-known, drove their top line, gained market share and crashed.

One observer quoted recently in Travel Weekly made the point that the growing casualty list is causing surviving companies to shift their focus to profitability rather than volume and market share.

The travel industry always has had a superficial appeal to investors because of the potential for high volume. Even astute business people have been lured away from a more prudent emphasis on controlling costs and watching margins.

More than ever, businesses on the Web and in the physical world must rededicate themselves to basics. They must remember that volume only is valuable if it is accompanied by careful cost management and attention to profitability.

If travel businesses, Web or brick, continue to be seduced by the siren song of brand identity and volume, the days of reckoning will continue for a long time to come.

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