Blog homeI love new product launches from small, passionate, web teams headed by entrepreneurs.
Previously I have worked for larger travel companies but even still, when I hear that Orbitz is looking to cut $40-45 million for their travel technology budget I do wonder what kind of planet they inhabit!
So in a world where $40 million USD is just a cost cutting exercise on a travel system it is great to see a startup, like Tourdust, with such a neat site. Score 1 to the bootstrapped startups.
Summary version – for tour operators
- Looking for authentic travel tour operators – who can offer independent and local travel experiences. Off the beaten track and full of character
- Free sign up
- Tourdust will handle bookings (requires PayPal account) (5 Euro fixed transaction fee per booking, introductory offer)
Summary version – for consumers
- Search and be inspired
- Contact your supplier via the TourDust site
The paydirt question…
Although the site is nice (go and make your own mind up) I believe they have priced based on actions that take place too deep into the booking process.
Instead of clicks or enquiries, the Tourdust remuneration is based around bookings. I know from my experience with TourCMS that bookings for niche tour operators tend to come after several “to and fros” between the consumer and the supplier. Much better to remunerate via enquiries – or even earlier in the process via clicks (PPC)
Looking at the maths – say that the average niche tour operator converts at 2% (1 in 50 new web visitors end up buying). This is pretty generous. At an average cost of 0.50 GBP per click – a niche tour operator would budget to spend about 25 GBP per booking).
If the conversion ratio was 1.5%, they would spend about 33 GBP per booking. At 1% conversion, niche tour operators could budget 50 GBP per booking.
These figures are far higher than the 5 Euro (about 4.50 GBP) fixed fee being charged by Tourdust. Regardless of whether the 5 Euro price is an introductory price or not, they are undercharging by a large factor, in my opinion.
Problem with that is they will sign up business customers who will become used to the lower rates. When they do eventually increase their prices, these initial customers may end up churning – and Tourdust will have to find a whole new set of customers who want to do business at the higher prices.
Then you get the web traffic question. Where will Tourdust get their traffic from? If they are buying traffic (from, say, Google) then they will be hitting the same % conversion rates as the niche tour operators – in the 1-2% range. Tourdust will be spending, say, 25 GBP per booking in order to earn 4.50 GBP per booking. Not sure that is going to add up.
This is one of the dilemmas promoting lower revenue tours on the same keywords as higher revenue ones. Competitors bid the prices up to what is profitable for them – selling the more expensive trips. This then excludes the companies with the lower value trips from using the same channels. Maybe Tourdust won’t be using Google then – but what will they use?
Competitors to Tourdust in the niche tour operator sector are taking 25% commission.
Conclusion
Tourdust is a lovely site but I am not yet convinced the model will work.
Dangerous game getting caught in the middle between suppliers and search engines. You have to get the maths 100% right otherwise you can quickly lose out. At least with the Pay Per Click model you can do arbitrage on your income and outgoings directly – without having to worry too much about ultimate conversion. Give Tourdust a couple of months and I expect they will be on the PPC model too.
The good thing about having entrepreneurs around is that they tend to figure it out in the end. It can be a painful process to watch – but ultimately most end up coming up with the right answer! I am sure that will be the case with Tourdust. Good luck to them.
Read more about the Tourdust principles on the Tourdust blog
Hi Alex,
You’ve hit the nail on the head as usual. The business model is the one thing I have continuously returned to and questioned (I’ve driven Anna mad!). The problem is, when you’ve done the financial model yourself you know how sensitive your assumptions are only too well….
I’m glad you picked up on the bootstrapping angle – I’m a huge fan of the 37 Signals approach – with 1 million users and a team of around 10 employees. It’s crazy how much money can be thrown around at marketing and web development but the world is changing. I think the transparency that social media brings is going to usher an area of personality-led businesses which speak with an authentic and impassioned voice – like real people really rather than a polished bigco (Accidental Branding by David Vinjamuri is a must read on this)
Anyway back to that business model. As we have discovered, developing a community site with a commercial business model is a very fine balancing act. We’ve long felt that users are unwilling to support a community site if they feel the site is too commercialised. We want travellers to be able to contribute their authentic finds to the site confident that the local travel business they are recommending will be welcomed into our community. If you can get the community and referral marketing working for you then Google Adsense becomes much less important (although SEO clearly is important). Lot’s of businesses relying on Adsense marketing are going to struggle this year.
Anyway our approach is to make the cost barriers to entry very low so that effectively any great experience we come across can get involved in the site. We don’t want to restrict ourselves to the same pool of tour operators and accommodations that are on everybody else’s site and who are commercialised enough to be willing to pay for leads, annual fees etc. We had quite a bit of feedback from operators when we were researching the business that they weren’t comfortable with pay per lead. Don’t forget we really are aiming for some very small businesses here, many of whom aren’t always overly confident with the web.
As it stands at the moment our business model is probably not that dissimilar to the freemium model. When we can prove our value to our operators then we will be able to sell feature slots on the site to them and upgraded membership to allow them to feature more experiences. I have no doubt that once we see how people interact with the site things may change, but our principles will absolutely remain the same. We never want to be in a position where an experience or accommodation we are excited about can’t be on the site because they can’t afford it. It’s up to us to prove our value to them and then try to sell extra services that are of value.
Oh and we’ve got some great ideas in the pipeline….
(anyway we are probably typical entrepreneurs, overly naïve and passionate at this early stage!)
Ben -
great looking site Ben! Congrats on the launch. By having a revenue model you’re at least one step ahead of many web companies! While I agree with Alex that raising prices on your advertising partners will be a tough sell I think they will stick with you as long as you can justify your price increases based on the number of leads you are providing. A savvy business-person won’t pass up an opportunity that generates more revenue than it costs. Also good to hear you’ve got some other revenue ideas in the pipeline. With your low overhead you can certainly be nicely profitable with a few revenue streams that would look inconsequential to Orbitz.
Alex – Good insight (as usual) and good comments on small conversion rates for per-booking clicks. My business model focuses on PPC but it is good for me to think through those numbers for PPA (especially because I’ve considered offering a PPA component at Travari.)