Blog homeTraveltek, a Glasgow (UK) based travel technology company, have, according to an article in the Travel Trade Gazette, reduced their growth forecasts for this calendar year, citing slower improvement in transactional revenues.
Well - this blog isn’t very hot for covering financial news - so I am not going to start now - but what I am interested in is how influenced Traveltek is by the booking value going through their software.
We are still significantly up on last year…… but we have rolled out a huge number of new clients, so pro-rata we have to worry about the volumes that those clients are doing” [Source: TTG: Kenny Picken, Managing Director]
One standard way for charging for reservation systems for travel companies is to break the fees down to the following:
- Software license (maybe based on number of “seats” or staff users - either total or concurrent)
- Annual support (a percentage of the software license fee)
- Project costs (a “per day” professional services fee)
- Transaction costs (a few GBP pounds or USD) per booking put in the system
The point I am making is that I believe that software providers should not be charging transaction based pricing UNLESS they are also providing the hardware and data centre systems.
From a travel companies perspective, if your supplier is charging transaction based pricing this can have the following impacts:
- You may be tempted to take bookings for low value products in a system away from your primary reservation system (because the transaction system fee becomes too large a proportion on small value sales)
- Some companies, especially tailor made tour operators, like to present a couple of alternative itineraries to a client. Each alternative quote could incur a transaction fee (depending upon whether the reservation system supplier charges on confirmed bookings or just bookings in the system)
Most importantly though, a reservation system supplier may not enhance the non-transactional side of their software as they have no commercial incentive to do so. For example, CRM or CMS functionality may not see as much development investment as the travel technology company can’t see a direct return on transactional value.
However, a travel technology company could use transaction based pricing if they are also providing the hosting and data centre as part of the overall technology package. This assumes that the “load” put on the system is directly correlated to the number of bookings going through the system. In this situation though the transaction fee should still be a fixed fee (rather than percentage) as the load placed on the system is similar between a low value transaction and a high sale price tailor made tour to 5* hotels.
Final thought….. just think of all the Hollywood blockbusters that have been written using Microsoft Word. I am not sure script writers receive, through the post, bills and invoices for percentage fees for using their software. Software is just that and should not be charged for use.
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Actually, we do host all our products, especially the transactional aspects and therefore we are very much concerned that traffic v actual revenue meets with expectations.
We also adopt all the other aforementioned invoicing models, where appropriate.
The TTG article was at their request merely highlighting the slow down in business across the board.(Traveltek’s order books are doing very well but actual transactions have disappointed us, which is not uncommon in mature res systems across the UK)
We are still up very substantially year on year but not where we expected.
Not really sure why this article was of any particular interest to you but there you go. More of the same. Always good for our SEO profile, so thanks for that!
Hi Kenny,
Thanks for your comment. Yes - I wasn’t writing about your own system specifically - just the TTG article prompted me to write about it - hence I mentioned Traveltek as an example.
I was thinking of writing that you mentioned that your sales team were “optimistic”. Never met an unoptimistic one (that get to keep their jobs!)
Glad I can help your SEO !
Best wishes. Alex
Another pricing model to be extremely cautious of is “Pay per search”.
For example: “You are allowed 500 searches for each booking you make. If your average searches per booking exceed this then we’ll charge you 0.0x pence per additional search”
In these days of meta-search / price comparison / consolidator sites the “search-to-book” ratio you agreed to three years ago can get used up very, very quickly leaving you with a stark decision to renegotiate your hosting contracts from a position of weakness or turn away potential business (and probably a first month usage bill to make your jaw drop!)
The advent of meta-meta-search could mean that a customer request will trigger a cascade of multiple search requests that are all after exactly the same data (with each consolidator adding their own mark-up / discount). The poor back-end systems are going to take even more of a hammering.
Before agreeing to distribute your stock through a consolidator or signing up to a search through a consolidator think very carefully about where these limits are and how far away you might be from them. (And Cache results wherever you can!)
Search-to-book ratios of many thousands to one are now not uncommon in the industry.
Here’s an article about Meta-meta - perhaps it won’t take off…..
http://www.travolution.co.uk/Articles/2008/08/12/1623/’Meta-meta’+site+hit+by+partner+concerns.html
hi Alex. quite right about the sales team. Life would be disappointing if they were not optimistic indeed. However, what I meant was that they are oin line to break the targets set at the beginning of the year and given all the scare of this “credit crunch” we have not yet exerienced any downturn in actual system sales and the optimism comes from our pipleine of potential sales which would appear to suggest that we will exceed those aggressive sales targets this year, which of course would be fantastic.
Traveltek has several revenue streams supporting our business (thankfully) and system sales is but one, albeit a very important one. Therefore, to see our system sales so bouyant, it does breed optimism within the business and of course keeps the products themselves evolving with investments in new features, especially in CRM, user generated content and all that good stuff.
and of course, another post for our SEO!