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Chapter 11. Views from the Edge—Conversa... > Executive Interview #1: Travel Relat...

Executive Interview #1: Travel Related Services

FAR&WIDE Travel Corporation

http://www.farandwide.com

Executive Vice President: Mr. Barry Kaplan

Vice President, E-Commerce Marketing: Ms. Annette Hogan

Summary

FAR&WIDE Travel Corporation is a company privately held by Travel Industry Partners Corp. Founded in 1998 and headquartered in Miami, FL, the new company is led by veteran travel industry and business executives Phil Bakes, chairman and CEO, and Andrew McKey, executive vice president. FAR&WIDE plans to be a leading provider of midrange and upscale leisure travel products, offering a full array of travel experiences including customized and independent foreign travel, as well as escorted, cultural, educational, adventure, ski, and fitness vacations. The firm plans to grow both internally and through additional acquisitions.

Its lead investor and majority owner is Wellspring Capital Management LLC, a New York–based $275 million private equity partnership. Travel Industry Partners Corp. also has established a substantial credit line with a group of banks led by BankBoston, one of the country's largest banks. More than $115 million in capital is earmarked for the acquisition and growth program.


Plant:Perhaps you could give me a little of the background, evolution, and philosophy of the company and how e-commerce plays a part in the endeavor.
Kaplan:In 1997 two co-founders, Phil Bakes and Andrew McKey, surveyed the landscape of the travel industry at large, seeking an opportunity to take advantage of the sea of change that had started in a number of sectors including hotel and airlines as well as commercial travel agencies. They focused upon leisure travel since the demographics suggested "opportunity," and there had not yet been any consolidation or integration as had been seen in other sectors. By mid-1998 it was clear that the value-added tour operators' sector was the most fertile ground open, offering the greatest opportunity to create value for shareholders by integrating a very fragmented marketplace. Would-be sellers, by and large, built profitable entities that were often founded by entrepreneurs who are expatriates who brought to the U.S. their expertise and skills on product and destination knowledge. They all had created a nice business focused primarily upon sales and product development and less on marketing and technology and the kind of operations that would allow those businesses to scale to a large level. Demographics suggest that this is a significant growth sector. Particularly among aging baby boomers who wanted experiential or value-added travel. A number of tour operators who were running profitable businesses had developed them based upon their destination and product knowledge, focusing upon sales relationships with local vendors and product development, but had either neglected or underinvested in technology and systems as well as direct marketing databases and, of course, the operational infrastructure necessary to scale the business to grow. So we have a collection of entrepreneurs, most of whom were not born in the United States, all of whom are very sales- and product-development driven, some of whom do have some sophistication in other areas, but are looking to Far&Wide to develop the platform consisting of sophisticated marketing, technology, and systems within an operational infrastructure to scale the best practices that have been developed among the various business units that are now part of Far&Wide. Most were eager to turn in their entrepreneurial hats and become business unit leaders within a new and evolving organization. That being said, all of them—and I left one of your questions until last—all of them recognize that a major threat to their viability as a small participant in a fragmented industry that has seen quite a bit of consolidation was e-commerce. E-commerce is looked at as a threat to their business but also an opportunity that they wanted to but didn't have the resources to leverage. So, not only did Far&Wide present an excellent strategy for purposes of monetizing some of the wealth accumulation, not only did Far&Wide present a career opportunity for them to continue to build wealth but it also created an opportunity for them to avoid what they regarded as the unknown threat and the unrealizable opportunity to take advantage of e-commerce. Part of Far&Wide's business plan is to address all of those needs: systems and technology, marketing, operational infrastructure, and organizational effectiveness and of course e-commerce. And we recognize that while we may not need to be a pioneer, we certainly need to be an early leader in the development of our e-commerce strategy and the implementation of a significant presence in e-commerce.
Plant:I'd be interested from your position and perspective of what you see as some of the challenges that lie ahead perhaps to the successful use of e-commerce as a complementary channel or as a global proposition in the longer term. Perhaps you could comment on regulatory issues and how you perceive their influence on e-commerce going forward. Perhaps you could also comment on your B2B strategy and the wholesaler channel you are developing.
Kaplan:Yes, in terms of our constituent audiences: certainly business-to-business we'll address travel agents and we will address directly the consumer. We will address our employees, certainly at least in an Internet fashion. We will certainly address our suppliers to use it for connectivity purposes in a more efficient manner than other links, so it becomes an extranet in that regard. We will also use it for preferred customers and suppliers so it becomes an opportunity for us to build loyalty programs with consumers and to arrange for some preferential treatment with suppliers for travel and nontravel. So in that regard we're using the Internet both as a tool and an engine. We also recognize that it can be a driver, it can also be a facilitator with respect to making sales. We also recognize the vast opportunity for it to create an experience at Far&Wide. In some cases it will be an exclusive experience that folks have with us before they are travelling. In other cases it will be a supplemental one, but in all respects, we want to focus both on the transaction and the relationship experience that the Internet creates with the customer (or supplier for that matter) and it becomes a source of information about the company, its products and services and in all respects it will be a promotional device to support the relationship and also cross-sell other brands and other nontravel products that might accessorize the travel experience. And finally we recognize that it's an appendage to everything that we say and do, whether it be in the form of communication or in the form of the way that we deliver the travel experience. So content is important but so is forum so it is consistent with our target branding strategy from the way we write to the way we speak to the way we deliver the experience. Our main approach to the Internet is "it's new, but in some respects it's not new" —we've been communicating forever. We can look at it as a new model or we can also look at it as an extension and we're doing both.
Plant:Perhaps we could talk about some of the challenges going forward from an e-commerce perspective.
Hogan:I will be very frank, I think that the biggest issue today is cost of entry; any kind of e-commerce strategy today involves big technology and marketing dollars. Actually Gartner has a statistic out there which indicates that if you spend between five hundred thousand and a million dollars that puts you on par with average organizations. If you want to get above the general pack you have to spend up to three-plus million dollars, and if you really wish to differentiate yourself, your spending will look more like five million dollars and above, but bottom-line meaningful initial Web presence is expensive these days.
Plant:Yes, that is definitely the case.
Hogan:So, cost of entry being one of the biggest challenges, you need to see where you seek your funding, as well as how well can you use your money. These efforts need to be aligned with how to position that spending from a Board of Directors point of view, so that your web initiative is not just a "leap of faith." Metrics need to be put in place—some "stakes in the ground"—to measure the success of when the Website goes live and actually lives. So what that tells me is that we need pre-Web build research. As you know, I'm a big proponent of research. We started our research early in the business process, finalizing our Statement of Work (SOW), which is a document that outlines what we are doing in the year 2000 and in the year 2001. We are really studying what to do in marketing, technology, content, and initiatives we feel will help differentiate ourselves, like Amazon.com's claim to the "one click" purchase.
Plant:Yes. How can you "prioritize" your processes, or what are the processes that you need to protect legally?
Hogan:You first need to put a Website out there that has been supported by research that tells you what your audiences want from your brand, as well as how people will shop for and purchase your products. You then perform and analyze iterative research once the site has launched. Once you think you have a "special recipe" you keep improving.
Plant:I'm very interested in your views on technology rollout and how it impacts the CIO, especially the issue of how the alignment between the technology vision and the corporate vision occurs. It is clearly one of the most difficult things to continually achieve. Maybe in your case, where you are starting from a good strong position, if you're coming from a traditional organization or somebody with a lot of inertia you may have significant challenges ahead.
Hogan:I think that for me this has been one of the most appealing things about joining an organization like Far&Wide from the ground floor because when you have a long-standing existing structure it is often more difficult to create the nimbleness it takes to move quickly. More than ever and especially moving forward in time corporate visions are and will be enabled because of technology. That is why you see a lot of companies (with all the pros and cons) creating their dot com entity, whether it is Wal-Mart or whoever, as a separate unit. Spinning off a brand to form a dot com is good because you gain a lot of speed to market. But there is a lot of danger in doing things that way, because just from a process and integration point of view you're creating a business unit that may not reflect the parent company. Nonetheless, I support that it is a better alternative for an e-commerce group of an organization to help re-engineer an existing structure to incorporate the right infrastructure to support e-commerce. An organization that does do that will be significantly ahead of their competition because commerce is commerce, and the "e" in e-commerce will eventually go away because commerce is commerce. I'm fortunate at Far&Wide to work with a management team that sees and supports that.
Plant:Yes, it is just as interesting to create a dot com inside an existing organization as it is to bring a new dot com to market.
Hogan:Yes, but there are new challenges. The stock prices of some of the successful dot coms have been dropping. Investors are more sophisticated and they are saying "all right, we know these are new models, we know that we measure success in different ways, it's not the classical return of investment, but what is it?…and I don't know if I'm going to keep investing this much money without understanding what the return is." I'm oversimplifying, but today and I believe more so moving forward, investors are challenging Internet-based ROIs; therefore the economic realities are looming over the dot com efforts.
Plant:I think that argument is very interesting; it is a major problem for Wall Street to create valuations on companies and to identify the return on investments.
Hogan:That's correct: economic realities are setting in.
Plant:As a manager, someone who straddles the two sides between technology and strategy, what are some of the issues that you are finding most challenging? Is it the proliferation of technology? Is it HR element? Is it bringing things to fruition quickly enough to be effective? What do you think are the challenges that you face in that area?
Hogan:Well, I think all of the above. Web initiatives shoot across all the disciplines within a company: marketing, sales, customer service, operations, etc. Therefore, actually bringing something to implementation is quite an accomplishment. There are lots of solutions out there that you really have to evaluate on an in-depth basis. For example, you have a lot of companies out there from the technology side that are good at tapping into one repository of information such as a central reservations system. The challenge is to find technologists that have the expertise of going into multiple environments. We will need a Web solution that will interface to a reservations system to digitize assets, a data warehouse for customer information, and bring all that toward enabling a Website. So the requirements of technology and using it for knowledge as sites become more dynamic and can handle much more complex requests, like the next generations of personalization, and aspects of that nature are to satisfy the increasingly demanding needs of consumers. Today you need to find e-commerce technology shops that can handle that complexity. The role of marketing folks is to become knowledgeable in a whole new way of enabling initiatives, and technology is the enabler.
Plant:You think that the move in the immediate future will be to partner, go outside for the reasons that you just described.
Hogan:Yes, I believe that.
Plant:Because the technology is changing, because the talent pool is focusing and gravitating in on those, because they want to have options themselves, they want to get involved in a start-up, contribute and get returns on that and if they went to an individual company as a technologist they would not be compensated in that way.
Hogan:Exactly.
Plant:The market is driving skill set towards these "centers of excellence" if you want to call them that.
Hogan:Yes.
Plant:But I think that is also the case that the leading vendors themselves are turning down business because even they cannot fulfill their HR needs.
Hogan:Yes, and you most definitely have to search and perform due diligence to find some very precious companies out there that not only offer the right expertise, but also who are able to give you the right level of attention. Far&Wide has the breadth of experiential travel product and such an opportunity for the Web that the "rubber meets the road" in actually executing it. Thirteen companies responded to our Request for Proposal. After extensive due diligence our short list highlights companies that have experience in complex e-commerce technologies, as well as from a marketing perspective have information architecture expertise, which is the science of placing the right information, at the right time, to the right audience. Just apply the need for information architecture to your own life: you get voice mails, e-mails, billboard displays, television, newspapers, etc.—all throwing massive bits of information at you. At some point in time, the filter—your brain—will only accept a certain amount, or only certain pieces of that information will be used, or impress you. So the science of understanding how a specific audience will digest the information (about a specific product, for example) will lead them closer to a comfortable shopping experience and hopefully then a purchase. When you really "boil it down," it's using quantitative and qualitative research of your intended audiences as to how they will digest information to reach "your goal." My goal is sales conversion.
Plant:Because the old models may not correlate to the new media?
Hogan:No, Far&Wide is not about a commodity, "shopping cart" approach. We are about planning for an experience such as a beautiful African safari.
Plant:And you will have a global customer base I would imagine.
Hogan:We are primarily, right now, "outbound travel," meaning North Americans traveling outbound. But as we acquire companies more and more we are touching outside North America for potential customer sourcing. Again, information architecture plays a key role here. We're focused on North American traveling public. If and when we grow into sourcing outside North America those audiences will need to be researched.
Plant:Yes, you are charting some uncharted waters here in terms of marketing, and the marketing research approach and what people could have gotten away with in the first generation, first wave of e-commerce, IT development. You can't try doing that level of predevelopment research today and hope to get away with it. Especially now as you have said if you are spending millions of dollars upon a venture, you have to start up with a strong analytical framework.
Hogan:Absolutely, and it is really a living piece of work. It is really "how do you start structuring yourself?" You need good information architecture, it's the blueprint (like a good house), and then you execute beautiful creativity against that blueprint, and use good technology to enable and support it. Once you have your Website up and running you have the best focus group in the world, a living Website. Good metrics tools and analysis to assess the business intelligence you are garnering are key for deciding on iterative development, new features, and marketing initiatives. That business intelligence can help you cross sell and identify trends, etc. Analysis of that business intelligence gives you the rationale as to why you're doing it and helps you establish how to measure the success.
Plant:Thank you for sharing your insights.



  

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