Steve Barnhart, CEO President Orbitz: Economics of the Long Tail

As a technologist primarily interested in the effects of systems on the trailing end of the long tail, I found Mr. Barnhart’s presentation at PhoCusWright Orlando 2007, one of the more relevant. Although Orbitz is a huge player in the in the travel distribution game, it is relatively small compared to the other big two, Expedia and Travelocity. The following is a summary of Mr. Barnhart’s presentation and a some points that I feel are of particular interest to SME operators.

First of all, there are three big trends happening with travel product creation and distribution on the Internet:

1. There is an increased proliferation of stuff. People are creating more and more stuff on the Internet, both products and information. This is resulting in a democratization of information.
2. Access to these products and to information is increasing at a dramatic rate. The aggregation and integration of information in new ways is resulting in a democratization of distribution. Companies like Kayak.com for example are using these new ways of searching and presenting information in order to bring some order to a very diverse and fragmented marketplace.
3. There is a growing focus on niche markets. Although there is no doubt that niche markets have existed for a long time, they are emerging to the fore at an increasing rapid rate and in some cases they are eclipsing regular search.

But these trends do not necessarily work for the travel industry. The long tail of travel goes beyond access to inventory. The industry must help customers become comfortable with adventures and understand niches.

With the travel industry, it has never been a question of availability to inventory. The travel industry has always had access to long tail product (to a certain degree) but it is also about helping the customer move down the ladder of risk. Travel is a big investment and most of the time, it is not just about the $99.00 deal. A family trip for example is too complex because you have to involve many people (caused the vito factor). The family could take a volunteer tour, an eco-tour, or a small San Juan Island trip, none of which could be easily booked on-line. The problem is risk and the need to ensure that the travel experience will be consistent with their expectations.

So, using the example of the family vacation, how does the travel industry help this family move down the ladder of risk and book their vacation experience online? Well one way is to stop worrying so much about access to inventory and to focus on customer service. Technology is used to decrease the cost of distributing the inventory. So now spend the time and money to enhance the technology in order to improve customer experience. Let’s look at unifying the platforms and to improve access to the product inventory. Let’s look to common online shoppping features that are seriously lacking from the travel booking experience, for example favorites, sharing, maps, and reviews.

Finally, still using the family vacation example, let’s focus on selling experiences. Why? Because with travel, the experiences are infinite, but the destinations are finite. What is considered the long tail for one may be in the fat tail for the other. Travel has always had access to those destinations but has also had access to all the other locations. There isn’t as much elasticity in the demand for travel destinations. So let’s not focus on trying to convince the family to go to a some obscure location, but rather help them go to a destination that is part of THEIR long tail. What is long tail in one perspective is fat tail from another.

One challenge that Mr. Barnhart identified is that small accommodation and activity providers, who provide a significant number of long tail experiences, cannot distribute their products through a company like Orbitz at this time. Mr. Barnhart said, however, that there is a wealth of opportunity in this area if there was a system that allowed these operators to connect to distribution channels like Orbitz. Well Mr. Barnhart, there are web reservation and distribution systems designed for small tour operators, but like the products they help to distribute, they tend to be in the long tail of travel technology.

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