What Does It Cost to Build an Online Travel Agency? Part 1: Definition and Stepping Stones

Previously, we have explored what is takes to build an Upwork-like platform or a Pinterest-like application. Let’s have a shot at Booking.com now. In our new article series, we’ll talk about hospitality industry in general and show what it would take you to build an online travel agency from the ground up.

Travel planning and reservations online are becoming more and more popular around the world. Millennials, also known as Gen Y, and Deltas, known as Gen Z, could hardly imagine they need to visit brick-and-mortar travel agencies to get a hotel room or airport transfer at an appealing price. They are already more than used to doing this online. According to the results of 2017 survey, 88% of Americans prefer to book hotel rooms for vacation online rather than offline. Online travel agencies’ market share in the US alone would reach 41% in 2020. Experts expect this trend to continue globally. In 2017, global online travel sales totaled 693.91 billion U.S. dollars. This figure is projected to grow to 755.94 billion U.S. dollars in 2019.

Global “kings” in online travel industry - Expedia.com, Orbitz.com, Booking.com - have re-shaped user experience for travelling planned online, eventually simplifying it for average tourists. Checking travel info is already one of the top searches on Alexa, which hosts more than 170 travel and transportation skills. Soon, we should be able to simply speak out “Travel” to get accommodation and flight tickets booked.

The popularity of online travel agencies (OTA) grows. That said, commissions in some OTAs can reach as high as 30%. No wonder it occurs to many startuppers that creating a web-agency from scratch would be a money-maker.

OTA Definition and Classification

Online travel agency is a marketplace connecting a tourist and a travel service provider (hotel, airlines, transfer company, guide). Every service provider seeks for multiple sales channels (apart from official website), yet does not want to give control of their goods and pricing to a third-party; the tourist wants the best deal. OTA aggregates service providers’ deals for the tourist, making money in the middle of the transactions.

Geography-wise, OTAs are grouped into

OTAs_Classification_Georgaphy

By scope of services, OTA are classified into

OTAs_Classification_Service_Scope

OTAs also differ in terms of their target audience as they could offer

OTAs_Classification_Target_Audience

Most OTAs try to supply the tourists with complementary services, like reviews and travel guides or sights overview. This helps them create a larger on-site community for current and future users as, according to statistics, 95% of tourists read travel reviews prior to booking.

Where to Start with Your Own OTA

Here you go with a few thing to consider before building an OTA from the ground up.

On the one hand, an OTA can be started fairly inexpensively. There is no need to reinvent the wheel here as the software already used by multiple hotels and chains could be bought. What is more, a small OTA can be managed with limited staff and little upfront cost. On the other hand, travel industry is flourishing, so there is a cut-throat competition in it. For a startup, it is self-defeating to try compete with large industry players. Expedia.com and Orbitz.com are one-stop shopping platforms, with iron-clad customer loyalty and a very broad range of services, which is too monumental for a startup.

But here’s good news. Though the mentioned global OTAs offer services to satisfy an average client and have literally monopolized the market, there are travellers who seek for a unique and very sector-specific kind of services. This is where an opportunity for your startup lies.

OTA success largely depends on finding the right niche in a stormily competitive market. This niche should not yet be occupied by other agencies or be too specific for large industry players to satisfy the need in it.

To find this niche, put a great deal of effort into market research. As with a marketplace, your OTA should offer value. Answer these questions first: “why should tourists use your services, rather than just book a trip themselves?” and “what unique experience can you provide for your customers?”

Some Ideas for OTA Niches

Here are a few deserted travel niches to consider in 2018 and beyond:

Potential_Niches_for_OTAs

The niche would determine your OTA audience - whether you would serve the needs of a B2B (corporate tours for large companies’ employees) or B2C (honeymoons) segment. The target audience would also shape

  • your OTA brading, UI and UX. You are not likely to engage a millionaire into buying a luxury Seychelles tour if your website was originally designed with backpackers’ UX in mind.
  • your marketing efforts, the way you would promote the platform and engage users of both kinds (tourists and service providers).

One more thing: plan significant time and efforts for legal red tape: business license, franchize, travel insurance… The exact list and demands depend largely on a country (or even the state) where you plan to get registered.

In our further articles, we'll delve into some specifics of hospitality industry and estimate what this would cost you to build an OTA with a basic functionality. Stay tuned!

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