What is long term competitive advantage and can it exist on the web?

First some definitions…. a competitive advantage is defined as:

The benefit for consumers and/or customers which competitors may find difficult or uneconomic to replicate.

A long term competitive advantage is one that can be gained, and retained, over the long term. Sometimes this is called a sustainable competitive advantage (SCA) - but I will leave this one to the theorists and economists to define fuller. Wikipedia has some more background on this

Necessarily, competitive advantage is something that is only really discussed within large travel companies. Smaller companies don’t need to look to acquire competitive advantage in order to be successful (but if they can gain one, this will be a bonus - and they will probably be acquired by a larger company very quickly, should they wish to be) 

I am not a historian - nor a theorist - but in the UK at least, much travel product used to be distributed via the highstreet retail channel. This retail channel acted as a massive barrier to entry for new travel companies - hence this was a competitive advantage. This is why large travel groups were formed that encompassed multiple travel companies - as the smaller travel companies that were part of the large groups could access this retail network more efficiently from within a large group than from outside. This maximised the benefits from having a successful retail network.

As a manager in one of these companies, as long as you could handle the scale issues, you could have a comfortable career. You didn’t have to innovate - you could just be an efficient manager (which I appreciate is a skill in itself).

So along comes the web
Somewhere around the mid nineties the web got going. I created my first website in 1994 - before HTML tables were even devised… ummm - that ages me. The existing retail channels become less of a competitive advantage as new entrants didn’t have to find ways of replicating the retail network - but could completely disregard it should they wish to by selling directly to customers. Many did.

Over time the web has removed much of the larger companies competitive advantage. In the world where you can create a website for a few thousand pounds (or US dollars) - and market to direct customers via advertising that anyone can buy (for example Pay Per Click) the rules need to be rewritten. (Previously there was a barrier to entry for advertising too - for example through high prices paid for TV adverts, bill boards, full page newspaper adverts etc).

Indeed, it may be true to say that it is a disadvantage being too large nowadays because you can’t “change direction” quickly enough and you may be too risk averse.

A new dawn of competitive advantage
A few years back we all realised that having a well run website won’t actually give you a competitive advantage. Yes you could change the channels that your customers were using (away from retail and towards the web) - which gained efficiency etc - but none of this really creates a sustainable long term competitive advantage…. anyone can come along and replicate a product centric website, start up an advertising campaign - and build a nice profitable business.

However, its changing now folks. There are now a few companies out there that are beginning to build up websites where competitive advantage is being gained to such an extent that it may be difficult to catch up or replicate in the future. This is the new wave of travel websites.

As a recap, lets just cover what I mean by competitive advantage that won’t be replicated. Think books - who now will launch a massive book selling operation - no - Amazon are there. Yes there is room for the niche operators - but big scale - no. Think business social networks - who is going to launch one of those for business people - no Linkedin.com is there….. yes there is room for niche operators - but Linkedin have taken the leading position and may now be difficult to catch up (not impossible, just difficult) - as who as an individual wants to be on multiple business social networks? (yes they are open to attack from existing social networks but you get the picture)

Where are the new competitive advantages going to come from?
There are probably more than this list….

• Product contracts -  This has been a standard mechanism for retaining competitive advantage. If your competitors don’t have the product to sell, and you do…. well that is an advantage. The interesting question about product contracts is whether hoteliers / airlines will need to have contracts done in the same way as now, over the longer term. If they are confident they can sell without using an intermediary - will they do that? Product and commercial isn’t really my area so I won’t get into it.
• Brand - can you build an advantage by having a better known brand than someone else? I suppose the answer is yes - which is why so much money is spent on branding. Brand can be built (or lost) through having a good / bad website…. so its not just about “money” spent on brand building. Again, not exactly my area this.
• Web page count - I touched on the other day about how some large travel websites have several hundred thousand web pages. Each page will give search engine optimisation benefit to the homepage (or other landing pages that require strong positioning). You can’t just go and put up more web pages “overnight” as the search engines will penalise you for it (so people say)…. hence having a large page count website is a competitive advantage. This though is only a short term one - as it can be replicated by other companies over the long term through the gradual introduction of lots more web pages.
• Top destination website - if you can build a website that is amazing for a particular destination - and isn’t overtly commercial (by which I mean the balance of information to monetised product is in favour of information) then every time a journalist writes an article or a guide book is published about that destination they may add a few “web links” and say - go to BLAH.com for more information. I have used this strategy before and it is quite effective. You have to watch out for tourist board websites though who often can come along and spoil your party - because they can make a destination website that can catch you up over the longer term. Also newspapers and guide book publishers are trying to get into this information game….
• Affiliates - no one seems to be talking about affiliate marketing anymore. This just isn’t sexy. But - if you can create a network of affiliate websites all promoting and selling your product - you may build a position that can’t be replicated by a competitor…. hence building a strong long term competitive advantage. I haven’t seen anyone do this amazingly yet though (in travel). Probably because all individuals who actually want to launch new innovative websites are launching social networks or review websites. Also agents can get upset if a travel company spends more effort on affiliate marketing than on the travel agent channel…
• Social / community features - it could be a forum or some form of user community features etc. If you can drive people to your website for a reason unrelated to buying product (for example for product or destination research) - then as long as you can get people coming back to your site - a competitor, even if they replicate the features, may struggle to catch up. You have to be quite clever here because you need to devise the features in such a way that a user, once signed up, won’t want to move to another website….. This can be achieved all sorts of ways - an example is to give a user a “points score” (and benefits associated with that points score) - so they won’t want to start at zero at another website. Or if all their friends are on your website they won’t move to another. You need to achieve “lock in” without the user feeling they are locked in.
• Speed of innovation - Do you have an innovation team? No, probably not. But if you do, and it is better than other competitor teams, then you could stay one step ahead and get a competitive advantage. This reminds me slightly of that joke where two hunters are stuck in a forest and are being chased by a big bear. One hunter says to the other - “We are never going to outrun the bear” - the other hunter replies “I don’t have to - I just have to outrun you”.
• Staff - how to you ensure your staff gain or retain web knowledge? Do you send them to conferences? Do you support innovation and experiment within your company? Do you pay good industry salaries? If so, you may retain your staff over the longer term - and then your staff may actually deliver the goods keeping you one step ahead of your competitors. Again its a “bear in the forest” theory.

(Incidentally, I am publishing this list as a form of Intellectual Property protection - because I can demonstrate to clients that I know this before I go into meetings with them….rather than being gained as a result of client meetings…. one of the benefits of blogging!)

Next steps
This will be very interesting to watch over the next few years. IT teams in large travel companies are now at the forefront of generating competitive advantage. However many IT teams are still focussing on the basics - such as building up dynamic packaging systems or improving online booking facilities.

At the same time new entrants are busy building up websites that, if acquired by the larger travel companies, would give competitive advantage (or a short term jump at least). Time to get the chequebooks out.

The future of travel distribution conference - London
This week I am off to the Future of Travel Distribution conference in London, run by the TTI…. lets see if anyone talks about long term competitive advantage….the speakers probably ought to be because those who gain it - will be those who control travel distribution in the future.

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