Comment: Lowcost’s collapse raises questions about tech strategy

Amid all the conjecture circulating about the collapse of OTA and trade supplier Lowcost Travel Group, technology has been a recurring theme.

Amid all the conjecture circulating about the collapse of OTA and trade supplier Lowcost Travel Group, technology has been a recurring theme.

The most successful UK OTAs of recent times – On The Beach and Travel Republic – describe themselves as technology companies first, travel companies second.

After more than a decade of impressive growth, On The Beach successfully floated on the FTSE last year and Travel Republic was sold in 2012 to dnata, a division of the giant Emirates Group, netting its four directors a multimillion-pound payday.

It was this sort of success that Lowcost boss Paul Evans craved, often stating his aim to become a £1 billion business – that’s total transaction value (TTV), not revenue, but still a measure of size and scale that would likely put potential buyers on alert.

OK, so £1 billion TTV is well short of the $1 billion valuation it takes to make you a technology unicorn, but it is still pretty impressive and hard to achieve.

For this, Lowcost needed to move fast, to be quick to develop and adapt, and have the capacity to scale while keeping a tight rein on costs. That meant having not just the right technology but the right relationship with its tech developers.

In the end Lowcost reached around £500 million TTV by the time of its collapse on July 15, its growth having stalled due to a combination of trading reasons chronicled elsewhere.

Technology hopes

Roll back to 2008 to the reception area of the Aphrodite Hills resort in Cyprus and the Institute of Travel & Tourism Conference. There, talking to the travel trade press, Evans was in an even more ebullient mood than usual.

He told us Lowcost was about to move technology provider from Top Dog Travel Systems, a widely used dynamic packaging platform, to an until then little-known software developer called Intuitive and its iVector system.

What excited Evans so much at that time was the advantage he said Intuitive would bring of being a crucial few seconds quicker than his online rivals in what was then, and remains today, an incredibly competitive market.

Lowcost’s link-up with Intuitive became Evans’ ‘Remington’ moment – it was so good he would later go on to buy the Croydon-based firm, Lowcost becoming majority shareholder, and brag about having ‘free’ technology for the five-year period he owned it.

What Lowcost needed during that period was technology that could keep pace with a business model that was all about moving at lightning speed to supply the product that market data showed was in demand at that time and at the lowest possible price to the consumer.

The nature of the Lowcost business model meant the high cost of buying future revenue, or bookings, mostly in the Google AdWords auction and latterly via TV advertising, meant the money had to keep flowing. Any blockage in the money flow would expose the skinny profit margins and lack of cash reserves in the business.

Change of strategy

In December 2012 it was announced that Lowcost had struck a deal to sell its stake in Intuitive in a private equity-backed management buyout and earlier this year Intuitive revealed Lowcost had licensed the iVector software from Intuitive, the travel firm having invested in its own technology development team based in Krakow, Poland.

The implication of this move, other than that Lowcost needed the money, was that the strategy had changed in favour of having an in-house technology team, like On The Beach and Travel Republic, and for that matter global OTA giants Booking.com and Expedia.

However, well-placed sources say this attempt to change the model from being a travel firm with leading technology to a technology firm in travel came at substantial cost, not least because Lowcost was said to be investing in developing groundbreaking caching and machine-learning technologies.

There are plenty of examples of technology projects in travel with third-party suppliers ending in disaster: remember Thomas Cook’s Project Globe with BlueSky Technologies that led to an eye-watering £428 million write-off and the collapse of the tech firm?

So the desire to be in control of your own destiny is understandable, but when you opt to build your own technology there’s always a danger that you reinvent the wheel before you get round to doing anything genuinely innovative.

Evans himself was not a technologist. He was a product guy with a background in traditional tour operating, someone who knew how to negotiate with suppliers and who was driven by a desire to build a company of real value.

Would Lowcost have been better off remaining the biggest and therefore most-valued customer of Intuitive’s, or indeed any trusted tech partner?

All travel firms face the tech dilemma of in-house flexibility versus outsourcing efficiency, but for the bullish chief executive inspired by the legend of the unicorn there’s maybe only ever one answer.