Finding the Expedia Solution

Expedia and Hotels.com, two of the great innovators and success stories in the online travel agency business, have recently been spun off by their parent, Barry Diller's IAC, into a new company called Expedia. The spin-off is intended to boost IAC's sagging stock price. Apparently, Diller believes there is more upside potential in IAC's remaining properties, which include Ticketmaster and the Ask Jeeves search engine, than in its online travel properties.

On August 8, the New York Times wrote a piece that nicely summarized the many challenges facing the newly independent Expedia. In essence, Expedia profited handsomely during the economic downturn by buying blocks of hotel rooms on the cheap from the major hotel chains then reselling them at a markup. Hotels got badly needed money, but they ended up paying a high price in business disruption, not the least of which was enabling a third party to sell their hotel rooms less expensively than they could.

But now with an improving economy, the hotels are fighting back, aggressively pushing travelers to their own, much improved Web sites, which now always offer the best available room prices. Some chains have gone even further, and are now squeezing Expedia on standard booking commissions. Further, Expedia's many competitors have begun copying much of the Expedia business model. End result: much more competition and a less compelling product are both kicking in at the same time. Expedia is hardly out of the game, but it's going to be a tough battle going forward. And how does Expedia plan to distinguish itself and hold onto market share in this hotly competitive market? A new focus on content to help travelers make more informed travel purchases, an effort that will likely be fueled by another company that IAC included in the Expedia spin-off, TripAdvisor (a 2004 InfoCommerce Model of Excellence winner).

A second article in the New York Times on August 16 described the rapid growth and success of the managed corporate travel business. Managed corporate travel essentially involves a corporation pushing all its travel bookings through a single online travel agency in exchange for efficiencies and savings. One of the biggest players in this field, the article noted, is Expedia Corporate Travel.

Is there a contradiction here? Not at all. What it underscored are the essential differences between consumer and business markets, and the power of infocommerce.

Because consumer markets for almost anything tend to be huge, they attract lots of players. These players compete aggressively for market share, because consumer markets tend to depend on volume to make real money. To attract fickle consumers, the general pattern is for the competitors to start an arms race to offer the most content, the most features and the most functionality. It's an endless, expensive spiral, and many companies cripple themselves in the process of trying to cripple the competition. Worst of all, it's harder than ever to build loyalty among consumers, and more expensive than ever to try to remain front-of-mind with them.

In contrast, business information markets tend to be smaller but afford greater stability. Further, businesses still tend to consider other factors in the buying decision beyond price, such as dependability and functionality. Expedia Corporate Travel is doing so well in the corporate travel market because it's doing a lot more than booking cheap fares. In addition, it provides management tools, enforces corporate travel policies, provides sophisticated reporting and saves client companies money as well. By taking information (hotel and airline rates and schedules) and making it actionable (by taking reservations), Expedia adds value by improving productivity while controlling costs. By acting as a central corporate travel agency and providing management control and reporting, it embeds itself into corporate workflow so deeply it is almost impossible to dislodge.

Not all data providers can or want to take their customers all the way to a purchase, but what we should be striving towards is adding functionality to data so that it helps customers improve their efficiency and productivity. And that is the essence of infocommerce - to become part of internal customer workflow, where you can deliver the highest value while creating long-term customer dependency and significant switching costs. As the tale of the two Expedias illustrates, the future of data publishing is less linked to finding lots of new customers than pushing more deeply into the businesses of our existing ones.

HEAR FROM THE MOST IMPORTANT NAMES IN DATA PUBLISHING BUSINESS ...
TODAY'S AND TOMORROW'S InfoCommerce 2005 is proud to announce that Dale T. Denham, Senior Vice President, Advertising Specialty Institute, has been confirmed as a speaker.

Truth and Consequences

A few weeks ago, CNET published an article about Google. To create some interest, the article kicked off with some information obtained via Google about Eric Schmidt, Google's CEO. The specific information published about Schmidt was by today's standards pretty banal: town of residence, money made selling Google stock, political contributions and a tidbit or two about his outside interests. None of it was all that revealing.

Google's reaction to the story has to merit an award for tone-deaf public relations: it banned everyone at Google from talking to anyone at CNET for one year. Yes, CNET is being punished for using Google to write an article about Google. Irony and hypocrisy abound. But beyond the quick yucks, there is a much bigger issue: to varying degrees, we've all been throwing data together so quickly and on such a grand scale that we haven't really stopped to consider the consequences of our work. Putting all the information in the world under one index is indeed an activity rife with implications, and even less ambitious attempts to gather and disseminate data have issues associated with them. And these issues actually grow as you become more successful at what you do.

Many of us now have data products based in whole or in part on data mining, assembling data gathered on an automated basis from all over the Web. Getting data assembled properly is no small feat, and there can be consequences if it is not correct. This isn't just an issue for consumer information, as the U.S. Supreme Court made clear in its famous Greenmoss decision. Nor is it just an issue for financial information. It's only a matter of time before some company is passed over for a contract, or some individual is passed over for a job based on an incorrectly aggregated data profile, and then watch the legal fireworks. Blazing new ground can be risky.

Similarly, we all need to remain focused and clear on why we collect and report certain information. We've all seen the spate of recent headlines about identity theft. The real question for many of these data providers, one not publicly addressed, is "what were you doing with all that information in the first place?" Which of your customers had legitimate uses for it and why? To hear some of these data providers talk, you'd come away convinced that private investigators were the largest and most lucrative market out there. Hardly. Talk to these data providers privately, and they will quickly admit that the main reason they aggregated all this personal information was because they could, and because when it comes to information, more is always perceived to be better. In many cases, those data aggregators most loudly proclaiming that "more is better" are the ones that know the least about their customers and how their data is being used.

I've been very bullish about rating systems and user recommendations as a way to add value to databases, and still am. Yet I will acknowledge there is a dark underbelly here as well. We spend a lot of time worrying about attempts to game these systems to achieve undeservedly high scores. But there are also cases of consumers using rating and referral services to punish businesses they take a dislike to, sometimes for the pettiest reasons. Some businesses are saying that negative comments hurt them financially, and that the data publishers behind these systems are disinclined to get involved in the messy business of arbitrating disputes, so they are left with no avenue of appeal.

Our vision of infocommerce is that data, properly formed and properly delivered, becomes more valuable to customers, who rely on it more. That's a great business model, but with increased reliance ON our data, there comes increased responsibility FOR our data, and what we are seeing now is just a sampling of some of the heightened level of scrutiny to come. We must be ready with a thoughtful policy that protects interests that extend far beyond our own businesses.

IQS Takes on Big Competitors with a New Approach

Start-up styles itself a “search engine aggregator” Mike Meiresonne has been selling advertising into industrial directories since 1975: first at MacRAE’S Blue Book, then at U.S. Industrial Directory, and finally moving to Thomas Register in 1981 where he rose to become a senior sales contractor and was awarded one of the company’s top ten sales franchises. Having reached this coveted position, with $6 million in sales revenue and 22 junior sales reps working for him, it is indeed remarkable – some might say crazy – that Meiresonne walked away from all this in early 2002. With one of his sales managers, Janet Pratt, he went to work full time at Industrial Quick Search (IQS), a company he had started on a part-time basis in 2000, and for a while had sold as a complement to Thomas Register advertising programs. Meiresonne’s epiphany: that search engines were going to run right over traditional buying guide publishers who weren’t adapting themselves quickly enough to the rising importance of search engines.

Meiresonne describes IQS not as an online buying guide or a search engine, but rather as a “search engine aggregator.” IQS consists of 178 small vertical sites, covering such products as pumps, tubing and filters. He then does everything he can to get optimal search engine exposure for these sites by both optimizing the content of the sites for indexing purposes and by buying keywords. While the idea of vertical product sites is not particularly new, most vertical product sites have ambitions to develop a direct flow of traffic, in addition to search engine referrals. In the case of IQS, “we get close to 100% of our users from search engines,” according to Meiresonne. IQS currently has filed two patent applications covering some of its business model.

IQS does more than simply aggregate traffic, however. It prides itself on its streamlined pages (virtually all static HTML pages to maximize indexing in search engines). It also eschews any kind of registration, seeing it as an impediment to quick answers for users. Indeed, there is no searching at all on an IQS vertical site (except for an optional geographic search): users are immediately presented with listings.

Every participating company has a text block next to it, describing the company’s products in detail. Each one is reviewed (and in many cases written) by IQS staff to insure accuracy. In addition, placing a mouse over a company name immediately displays the company’s advertisement (or a snapshot of its home page) right on the same page. This focus on the user experience is in direct response to what IQS sees as often slow, contorted and un-intuitive searching at many online buying guides. According to Meiresonne, “the bottom line for us is that users come first.”

To Meiresonne, search engines provide “a user-controlled search environment,” one that lets them type in free-form queries and quickly get to relevant results. Key to Meiresonne’s strategy is that he believes that users want to be able to enter search phrases such as “55 gallon stainless steel drum” and quickly get to qualified vendors since statistics show that 45% of searches include three or more words. He contrasts this with the taxonomies of buying guides, many of which lack that level of granularity and are often designed more by advertiser than user concerns. He acknowledges that there is a place for parametric searching (where users can search on highly specific criteria), but he feels the need for such searching is specialized and limited.

“Most users want to search for supplier companies first,” he notes. And while keywords may be simple for users, they present complex challenges to advertisers. “We’ve seen Web sites that users have found using over 1,000 keyword variations…2-3 to 5-6 word search strings. This fact shows the diversity of users on the Internet and how it is the users who rule when searching. The sites that have the greatest reach based on content will be the ones that are most successful in bringing users to suppliers,” say Meiresonne. And while he agrees Google remains the undisputed leader in the search business, he’s also bullish on the search engine Teoma, which he thinks will become the next big player this year with its “great design and multiple functionalities”

Meiresonne acknowledges that his relationship with the major search engines is awkward, “kind of like being married,” as he puts it, though he insists they are not competitors. According to Meiresonne, his IQS sites offer three things that search engines do not: visual company previews (either a display ad or a home page image with no clicking required), detailed company descriptions, and searching by geographic region (though Google is devoting much energy to trying to add a geographic filtering capability). For advertisers, Meiresonne is selling quality prospects. He is quick to state his belief that “80% or more of all clicks are lookers and sellers, not buyers” on the Internet. By contrast, anyone IQS refers to an advertiser has not only done a highly specific keyword search on a search engine, but has previewed the company on IQS before clicking through to its site.

ICR asked Meiresonne for his insight into how advertisers are doing their media buying today. “In the last generation,” he notes, “qualified users were the ones who called in requesting catalogs. At least that provided some sense of ROI and better feeling on results. Now everyone can go online, search anything and get results right away. I compare this change to the difference between digital and analog thinking -- it is clearly revolutionary the changes the Internet has made.”

When asked about advertiser attitudes towards the Internet, Meiresonne said that while it was hard to generalize, one driving factor is that “people have difficulty with change, and some prefer having their heads in the sand. These people would rather not deal with the changes and understand the change, and instead, rely on the methods of the past.” He notes that even at this late date, a surprising number of manufacturers do business through an AOL account for email, lack Web sites, or have one or two page placeholder sites.

Meiresonne is dismissive of bid-for-position pricing as requiring too much time from advertisers, and notes that they tend to quickly become too expensive for the majority of advertisers. IQS charges a flat fee – $2,200-$4,800 per year – to be listed on the home page of an IQS site with guaranteed placement, with discounts if an advertiser wants to appear on multiple sites.

The IQS sales pitch is simple and compelling: IQS will bring the advertiser qualified site traffic for a flat annual fee, with IQS managing keyword optimization and paid key word programs on behalf of its advertisers, allowing them to avoid this complex, demanding task. Even better, IQS can demonstrate to prospects that it’s almost always cheaper to buy traffic through IQS than buy it directly from the search engines, since each site is “focused on a major product group with related keywords to bring users into one set of results,” according to Meiresonne. “Add to this our flexibility to add or change keywords based on our ongoing research, and the ability of users to easily compare up to 16 potential suppliers without having to go back and forth between Web sites and you see why we are so effective,” he said.

Is IQS an idea whose time has come? While he would not divulge revenues or number of advertisers, Meiresonne did state that, “we have tripled our business each year for the last two years and we are on track to do the same this year.”

Commentary: What is interesting about IQS is as much its market insight as its business model. IQS is not really doing things all that differently; but it is certainly thinking differently. While most buying guide publishers think of themselves in competition with the major search engines (whether or not they care to publicly admit this), IQS has positioned itself as an efficient and economical way for advertisers to tap into the big search engines. “We can get you qualified traffic more easily and cost effectively than you can do it yourself” is the simple sales pitch. ICR has long advocated that online buying guides position themselves as back ends to the major search engines, attracting traffic with topic-specific search capabilities the general search engines don’t provide. What’s interesting about IQS is that while it’s a back-end to the search engines in terms of receiving traffic, it is simultaneously a front-end to search engines in terms of its advertisers.