Spend Matters would like to welcome Richard Lee, the co-author of this post. Richard is a partner in Spend Matters Group, an M&A advisory firm serving the software, services, outsourcing and travel sectors. He is the former North America corporate development lead for Orbitz and has extensive strategy and finance experience in the travel industry. Jason and Richard have worked together for years, and this is their first time jointly covering the travel and T&E market. Look for greater research collaboration between the two on Spend Matters in the future.
In the first two posts in this series (Part 1 and Part 2 ), we provided background on the recently announced Rearden/Travelport deal. We also offered up a bit of history on the evolution and transformation of online travel agencies (OTA), including their migration from serving just the business to consumer world into serving the B2B community as well. In this final post, we'll provide a 30,000 foot fly-over of the business travel market based on the Rearden/Travelport deal (though look for regular and continued expanded coverage of this area on Spend Matters going forward) and we'll offer up some additional analysis of Rearden's prospects with Travelport. We'll also cover our perspective on current unmet needs in business travel from a procurement standpoint. With that, let's begin.
Our quick analysis of the Rearden/Travelport deal suggests material upside for Rearden, in the opportunity to potentially win over thousands of TMCs (travel management companies) and in-house corporate travel departments that currently use their platform and tools. Still, we'll caveat this statement with the risks involved in any type of transformational sale (e.g., Rearden to a large enterprise), especially when it comes through a staid, old-school provider like Travelport. For example, consider that Rearden currently does not offer an agent desktop or native GDS (global distribution system) screen, which some TMCs prefer. Still, we'd argue from a procurement standpoint that the Rearden system, with its "beyond travel" orientation, mobile integration and ease of use, can compensate for the increased booking savings possibilities via native GDS integration and proprietary content / feeds through the high levels of organizational booking compliance it drives.
Another potential challenge to the deal is a lack of exclusivity with Travelport. Unlike Rearden's previous deal with American Express -- which has resulted in thousands of users and corporate clients -- Travelport sells numerous (and we mean numerous) products that directly compete, some with material differentiation to the Rearden platform, as previously discussed. Moreover, business development deals within the travel market are never as clean as VAR, reseller or SI deals in the enterprise software space given the notoriously thin margin challenges in the business (not to mention the back-door revenue-share agreements between different players in the travel value-chain that make it difficult for a typical procurement person to build transparency into where all their company's travel budget is allocated). But then again, Rearden and Travelport are largely owned by the same private equity parent, One Equity Partners -- Chase's private equity arm. If we put on our corporate development hats here, the revenue share in this scenario may merely amount to moving money from the left pocket to the right pocket.
Regardless, we think that expanding Rearden's market exposure is a great thing for companies looking to drive travel savings and compliance. But for us, the broader challenge of building transparency into travel spend represents one of the best opportunities for travel cost reduction going forward. We believe that what Rearden is doing is great, but its approach alone is not enough to drive the savings that companies could be achieving from travel spend. The Spend Matters secret sauce for travel procurement involves five key ingredients, only two of which Rearden -- or anyone else, for that matter -- is doing today. These are:
- Tightly integrated T&E capability with booking and travel management
- Strong usability and "visual guilt" that guides the traveler to specific decisions that are best for the business (while also making his life simple and directly integrating with his desktop and mobile devices). Also, integration of other "personal services" such as conferencing, restaurant booking, etc.
- Directl interfaces and connects as part of an "override" capability that enables corporate travel managers to identify deals / inventory that would otherwise be missed; also "last mile" flexibility that allows users to "punch-out" to other sites/partners when the savings is warranted
- Integrated spend visibility and analytics solutions focused on travel-spend (e.g., city pairs) that examines line-item booking, receipt and payment information, leading corporate travel managers to implement cost reduction strategies based on their own data sets
- Tax / compliance / VAT and analysis capabilities tied directly into a broader application for audit recovery (both private sector and government) purposes
In our view, Rearden -- and Travelport, by partnering with Rearden --- has done a good job solving part of the travel cost reduction picture. Let's hope they can build from where they are today and continue to drive cost out of the travel equation for procurement departments.
Spend Matters will continue to cover Rearden in future posts as well as other providers in the travel and T&E sectors. Next week, we'll analyze Rearden's personal assistant framework that extends beyond corporate travel and related ancillary services.