PhoCusWright – Looking for the next big thing

PhoCusWright’s global boss Philip Wolf has been watching developments since the early days of the industry’s gradual shift to online distribution. Dennis Schaal meets him in Connecticut for an exclusive interview How do you get to Travel 2.0? You try to understand some of the lessons of Travel 1.0, of course. To do that you…

PhoCusWright’s global boss Philip Wolf has been watching developments since the early days of the industry’s gradual shift to online distribution. Dennis Schaal meets him in Connecticut for an exclusive interview

How do you get to Travel 2.0? You try to understand some of the lessons of Travel 1.0, of course.

To do that you get into your car on a weekday summer morning, flick on the headlights as you wind along Route 37 North in bucolic Connecticut, and speed past horse farms, garden centres and stone-walled properties until you hit the tiny town of Sherman, population 3,287.

Here, wedged between Hair Extraordinaire and the Little Munchkin Day Care Centre in a modest, two-storey building is the global headquarters of PhoCusWright, the travel research and consulting firm that assorted techies and chief executives from New Delhi and Dallas to Dover consider one of the brain centres of the travel technology revolution.

Enter Philip Wolf, who founded the firm in 1994 and serves as president and chief executive officer. Dressed in khaki trousers and a blue button-down shirt, the grey-haired Wolf enters the kitchen, grabs a cup of fresh coffee and settles in across the breakfast table. He describes how he built the “strategic intelligence” firm while witnessing and nudging along some of the pivotal developments in the evolution of online travel.

But, wait. In Wolf’s presence it’s prudent not to refer to travel retailing on the web as ‘online travel’.

 “Online is a medium,” says Wolf, quickly setting the record straight. “If there was an online travel industry, then there would have to be a fax travel industry, a telephone travel industry and a live travel industry.”

PhoCusWright, with offices in Sherman as well as New York City and Duesseldorf and about 25 full-time employees, has focused on the Internet because it was driving the changes in travel distribution, not because the web was a Promised Land, Wolf says.

Known for its cutting-edge conferences, PhoCusWright’s other business lines are syndicated research and strategic consulting.

Founder Wolf owns a chunk of the company, employees hold a piece, and so do “angel investors”, he says. And, about 20% of PhoCusWright’s business comes from Europe.

But, aren’t there mammoth differences in the issues that concern travel sellers globally? “There are two answers,” Wolf says, smiling. “The first is yes. And the second is that they’re nowhere near as big as people would believe.”

“I’ve been in conference rooms from Quito, Ecuador, to Reykjavik and New Delhi, and every major European city,” Wolf says. “When the door closes and you get on to the nitty gritty of strategy, clients and growth. It’s very similar.”

It was an amazingly prophetic “fluke”, as Wolf puts it, that he found his life’s work in the travel industry and ended up in Sherman, where he lives a short distance from the office.

After earning an MBA from Vanderbilt University, and working in retailing and for his father’s architectural firm, Wolf says he conducted a random job search in 1989 and landed a position running the travel agency at a venture-backed, travel technology firm, Travelmation, in Stamford, also in Connecticut.

By 1992, Travelmation had discarded the travel agency part of the business, and Rosenbluth International acquired the technology division. A year earlier, with Wolf as president and CEO, Travelmation had rolled out a travel booking engine application, one of the first, to companies such as Macy’s, Nestlé and American National Can. 

In the kitchen, Wolf excuses himself, ducks into an office, and retrieves a 1993 blueprint outlining a scheme for  “booking travel interactively”. It portrays a faring algorithm tied to computer reservation systems. And it portrays consumer devices (PCs, telephones, TVs, personal productivity devices and home interactive appliances) connected to the engine through telephone, cable and satellite networks.

The PhoCusWright founder, who describes himself as “just 50”, leafs through the document like one might peruse a long-misplaced high school yearbook. “This was an online travel agency, but we didn’t call it that back then,” Wolf says. “You needed inventory, pricing and fulfillment. I already understood that CRS-GDS-based hosting wasn’t going to be the only game in town. This was pre-Internet.”

When you talk to Wolf about his personal and corporate journey, entrenchment and closed minds are ever-present themes. Although in 1992 CEO Hal Rosenbluth believed in new technology, Wolf didn’t get very far when he urged him to start an online travel business. “He had the call-centre to start up the low-cost operation in South Dakota. He could have out-Travelocity’d Travelocity. But the leadership situation was too crazy,” Wolf says of Rosenbluth, which American Express acquired more than a decade later. “It was too early to wrap their heads around it.”

On the other hand, Wolf praises Sabre for launching Travelocity in 1996. He recalls moderating a conference panel with the four leading GDS companies of the era and asking them who made the bigger blunder: Sabre, for launching an online agency that would compete with Sabre’s travel agency customers, or the other three GDSs for not doing so?

“The other three just dug their heels in,” Wolf recalls. “They said Sabre was crazy and stupid and had shot itself in the foot! Why? Because it launched a business that would mean the core business was threatened.”

In that regard, Wolf says he’s always marked “his scorecard from the consumer perspective” and “from the buy side”, regardless of the repercussions. Regarding his well-worn scorecard, Wolf has seen so many start-up travel technology companies come and go that he stopped keeping lists of them years ago.

“A lot of stuff got hot but then fizzled out,” Wolf reflects. “I’ve learned to separate the company and the concept. There are viable concepts when you launch a business and there is good execution, but I can’t comment on every CEO’s ability to raise funds, hire talent, develop good objectives, manage resources and stay focused.”

All firms make mistakes, and Wolf says he’s made his share. For example, in its early days PhoCusWright erroneously forecast that corporate travel – not leisure – would lead in online adoption.

“I don’t get all of them right,” Wolf says, regarding his projections of the next big thing. “But I get a lot right and I am not afraid to be wrong. It’s important to be consistently, directionally correct and to have a good batting average.”

Mission imperative for Travel 2.0

Rupert Murdoch’s recently replaced Yahoo! as the most visited destination on the web. Not a particularly bellwether event for the travel industry, right?

Au contraire, says Wolf. “ is the whole 2.0,” he interjects, referring to Travel 2.0, a term that PhoCusWright coined a year ago to crystallise the converging trends in the travel industry’s version of Web 2.0.

“If you are an executive at a company, and you are shocked to hear that is the most trafficked website in the world, that’s okay,” Wolf says mockingly. “You don’t need to like it, love it or use it. But if you don’t understand why it is, you couldn’t possibly be as good an executive as you think you are.”, where kids and adults view profiles and videos, rank music, share blogs and invite friends to join their personal networks, encompasses some of the key themes that the travel industry needs to capitalise on, Wolf says.

For travel, those themes include social travel, user-generated content, podcasts, vertical search and mapping, Wolf says. “This is mission-critical, non-negotiable,” Wolf argues. “2.0 is no longer about finding the cheapest trip. It is about creating the perfect trip.”

Wolf believes “tagging” will be huge a year from now, and will become the next generation of bookmarking on the web. In this emerging application, users tag their interests as they conduct web searches, creating a tag cloud to drill down on their preferences. Once people post their tags, others can search them and buddy up, a more efficient and social way than merely keying search terms into Google, Yahoo! or MSN.

Critics and “entrenched” officials have “tagged” Wolf as having his head in the clouds before. But he doesn’t care.

Philip Wolf on…

“I was young, I was a little crazy.” On founding PhoCusWright in 1994.

“I could never understand why that company [Rosenbluth International] was so big. It never made any sense. I was an insider for two years and it didn’t make any sense. And, I was right because the whole industry was imploding.” On working for Rosenbluth International in the early 1990s after Rosenbluth acquired the technology division of Wolf’s Travelmation.

“I was totally frustrated working for Hal [Rosenbluth], it was a screwy organization, and I left and started PhoCusWright.”

”During my first week at Travelmation, I asked what’s a PNR (Passenger Name Record) , 10 minutes later I asked what’s a CRS (Computerized Reservations System) , a GDS (Global Distribution System). I looked around and the eyes are rolling and I don’t know whether it was out of pity or disgust.”

“So Julie [an airline/GDS sales rep] says we need the Travelmation sales records so we can calculate your overrides. She said we can give you an override but you have to give us the numbers. There was no information, no data tracking. We would get these bizarre override checks and send them to our chief financial officer, and I’d say, ‘Why did we get $2000 from Northwest Airlines.?’ All of these things were going on. None of them were rational.”

“If you questioned anything back then, you were an idiot, you were crazy, you were out of the club.” On the entrenched atmosphere Wolf confronted in the travel industry.

“Another bizarre thing is that very early on at PhoCusWright we predicted that corporate travel would be the lead in the online travel evolution. Leisure did, but it should have been corporate because fares were more straightforward. There were less rules, regulations. The corporate environment was more wired than the home environment and the number one explanation for why it was laggard was all the bullshit and the politics and the gate-keeping in the industry. There were so many stakeholders up and down the different areas of the corporate travel distribution chain, that if it happened, their life, business, career and view of the world would be fundamentally eradicated. So the leisure thing had to happen, which was much more complicated, less developed, less wired.”

“I predicted that thousands – it turned out to be tens of thousands – of industry veterans would be getting the seismic shock of their careers. And there would be a revolution from the consumer perspective, the traveler. And it would be nothing short of the complete reinvention and overhaul of the way travel was researched, arranged and purchased.”

“You have customers, you have destinations, experiences and suppliers, and everything in between is always up for grabs.” Wolf, on why conservatoire thinking and entrenched views stymies competition.

“The most violent argument I ever got into was, lovingly, with Gilbert Haroche [cofounder of Gogo Worldwide Vacations/Liberty Travel] in a strategy session. He was a client and he looked up at me after about 30 minutes. This room was packed. ‘You mean to tell me that Travelocity is a competitor of Liberty Travel?’ he asked me. And I looked at him and said ‘Yes.’ And I could see his jugular veins pulsating. Because if I were right, and I was just a messenger, he was sitting on one of the biggest strategic business challenges he ever had in his life.”

“For then and forever, I give Sabre a lot of credit.” On launching Travelocity.

“Worldspan, I would argue, lovingly, made a decision to be behind the scenes, a Switzerland. We are going to power all of these places, Worldspan said. It was not a good decision. [They should have launched an OTA] or they should have somehow launched a strategy that gave them an equity position in online travel.”

“The GDSs should have never let get in business.”

 “Sitting in the back in the audience was a guy named Rich Barton [who co-founded Expedia]. He worked for Microsoft Corp. That is when I first met him [Dec. 6-7, 1994 at a marketing conference that Wolf was involved with]. We bonded. Like a fly on the wall in the back. He was quiet, unengaged, except what was going on in his brain.” 

“Make no mistake about it, when that guy [Rich Barton] left Expedia, it was a huge loss.”

 “I always ask the current OTA leadership, if Kayak is just a stupid, crazy, evil waste of time and money, then what happened to all of your predecessors [who are involved with the metasearch company]?. Did they go crazy? Did they take a pill?”

“In most hot e-commerce categories there were two front-runners. In most cases, one was an Internet startup and the other front runner was a pre-Internet brand that was defending its turf. Best example was Barnes and Noble and Amazon. Only in travel was there no Barnes and Noble. Why? Entrenched thinking, financial structure, airlines dominating the technology platform, travel agents being disposed. The biggest problem was that travel agents were making all their money from the sell side of the value chain. They did not look customers in the face and get paid by customers. So, they had a hard time establishing value.”

Wolf notes that traditional bookstores have undergone tremendous changes in the last decade. “Now go back and walk into a brick and mortar travel agency in 1996, and walk into one in 2006.” “No change,” he whispers. “No change.”

“I think in travel, one local brand is the winning strategy. We didn’t write that book. Hertz, Coca Cola, IBM. IKEA, Starbucks. The fact that they [Starbucks] is in Indiana, Barcelona and Tokyo is kind of amazing. What is an issue is whether you go with one brand around the world. I have a ton of respect for Sabre. is a much, bigger better brand than Travelocity in Europe, so in the short term it makes a lot of sense. In the long term, if you are going to be an international player in travel distribution, one brand makes sense.”

“Back to Cendant, if I were Jeff Clarke [CEO of Travelport], what I would do? I would figure out how to make Orbitz a global brand.   Orbitz has been strictly a local product, built by U.S. airlines. ebookers has more challenges and questions. It is strategically interesting to them right now. Gullvers is a good company. They have the Octopus brand. I could see short-term the ebookers stuff getting put under the Octopus umbrella.” “Many of these entrenched people failed to realize that there were two GDSs. One capital G and one little g. Here comes saying hotels would like to sell more rooms but they just don’t have the reach, the clout. But there already was the clout that GDSs had in distribution. But they failed to understand the opportunity.”

“The biggest mistake that travel industry professionals made was the ones who refused to get their guidance from the buy side of travel distribution.”

 “Of course you have to be supplier friendly… But if you are excessively supplier friendly, then sometimes customers aren’t very jazzed by you.”

“There are a lot of new companies now. About 97% of them will either be acquired, merged, folded or tanked. But I’m much more interested in the 3% because they are representative of some bigger concepts. There is still Google, there is still AOL, there is still Yahoo, there is still ebay, there is still Amazon, there is still Expedia. And there will be more. There will be another company that is big and hot.”

“It was a happy day when I saw that magazine [the first issue of Travolution]. We [the U.S. travel industry] should have done something like that a couple of years ago.”