Rearden's Travelport Partnership: History, Context and the Future of Travel Procurement (Part 1)

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, although 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.

Last week, Rearden Commerce unveiled a new partnership with Travelport, an announcement that in our view represents a critical stamp of approval on the vendor's disruptive business model within the travel market. Because Travelport has competitive solutions to Rearden that it most certainly stands to achieve greater revenue -- if not higher margin -- on it's clear they decided to pursue a partnership out of the market need to remain competitive from a solution perspective for business clients that require more than a simple booking tool.

Before getting into our analysis of what preceded this partnership agreement, as part of a brief history of the business travel market, let's first cover the announcement. Business Travel Online notes in their above-linked coverage that Rearden signed a "strategic marketing partnership with distribution and technology firm Travelport ... the agreement ... which was reached after talks began one year ago, does not include an equity stake [as with Rearden's previous relationship with American Express]." The deal provides Rearden with significant distribution opportunities based on the thousands of travel management companies (TMC) using TravelPort -- not to mention TravelPort's direct enterprise client sales efforts.

What's our quick analysis? It's clear there's no exclusivity to the deal, and even though Rearden will have access to Travelport's vast TMCs and in-house corporate travel managers, they still have to compete for business against various other TravePort offerings. To us, it appears that Rearden is becoming one of the many platforms that Travelport customers can choose from, including Travelport's own Traversa. It will be interesting to watch how given the travel industry's notoriously thin margins, how revenue will be shared and what the ultimate bottom-line impact for both organizations will be.

Stepping back for a minute, the big question surrounding this deal for industry insiders -- not to mention potential procurement organizations looking at travel management tools -- is why would Travelport potentially cannibalize its own business? After all, even though it's not a perfect comparison, in the eProcurement world, this would be the equivalent of Ariba also putting Coupa on its price sheet. The answer starts with tracing the history of online travel agencies (OTA). Originally, full-service OTAs started by offering three main products: air, hotel and car. They all largely attempted to differentiate themselves by offering original content and savings via direct connect technology and bypassing global distribution systems (GDS) and merchant programs, which often required significant investment in support staff and field resources.

The next phase of development for OTAs was the dynamic packaging of different bundles (i.e., moving from booking just hotel nights to combinations of air and car, air and hotel, etc.). As the industry evolved, OTAs started to further distinguish themselves by offering additional travel products, nearly all in the consumer market. These included cruises, bed & breakfasts, insurance, concert tickets and other ancillary products and services. The last wave of innovation in the consumer space occurred when OTAs began to encounter modified business models such as Priceline (auction -- name your price) and Hotwire (opaque -- you don't know what you get until it's purchased). At this phase of market maturity, many OTAs realized that B2C sales, in which providers had to constantly pour marketing dollars in to increase their top lines, had its limits given the price sensitivity of most consumers.

Out of this shift in focus came a new solution focus: B2B OTAs. Some of the earlier players in this market include: OFB (Orbitz for Business), Expedia Corporate Travel and Travelocity for Business. Stay tuned as we analyze the evolution of B2B OTAs and the needs of B2B travel that Rearden is addressing in a unique way -- and a way that led Travelport to ultimately acknowledge the need to put a competitor on its price sheet.

Jason Busch (and Richard Lee)

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