Travel Tech Essentialist #146: Evolution

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The boundaries between finance and travel are blurring. Finance companies are expanding into adjacent sectors like travel, equipped with their competitive advantage: their deep understanding and control of consumer transactions. Conversely, some of the leading travel companies operate much like traditional financial services companies.

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1. Waves

For every new technological revolution, there’s an obvious, no-brainer immediate value use that doesn’t fully showcase the technology’s potential. This is Wave 1. With the Internet revolution, the initial startups focused on simple ideas like putting restaurant menus or newspapers online. Later, disruptive models like food delivery platforms or social media companies transformed the market. In travel, the Wave 1 internet applications included online directories and static websites providing basic information on hotels, flight schedules, and prices. Disruptive uses such as OTAs and review platforms emerged later.

Similarly, with the smartphone revolution came initial basic tools like calculators and flashlights. The game-changers came later with apps that created new markets and behaviors, such as ride-sharing, mobile payments, and app stores, opening up a new ecosystem of developers and businesses. In travel, the mobile revolution eventually brought innovations such as mobile check-ins, digital boarding passes, real-time navigation, and local discovery and recommendations.

Today, we’re seeing many startups riding the Wave 1 of AI. Many of these have a short shelf life, lasting only until the next-generation model of GPT is released. Examples might include many GPT wrapper apps like customer service chatbots and AI-generated travel itineraries. What will be the killer disruptive AI apps for travel? Who knows, but companies closest to customer transactions, with deep insights into consumption preferences and habits, are well-positioned to emerge as winners. These companies might not be travel companies today but could be financial services companies expanding into travel. For instance, Ramp (see story #2) and Nubank (see story #3) could be strong contenders. Only time will tell.

2. Finance AI’s Competitive Advantage in Travel

Ramp is one of the fastest-growing startups in the world, focused on saving customers time and money. It manages total purchase volume (TPV) exceeding $35 billion annually. Last month, Ramp announced a $150 million Series D-2 round, co-led by Khosla Ventures and Founders Fund, at a $7.65 billion valuation.

Packy McCormick’s piece, Ramp and the AI Opportunity, highlights Ramp Travel, launched on June 4th. Packy is bullish on Ramp:

Ramp has the chance to own and finally bring intelligence to the most valuable real estate on the internet: the transaction. That’s more valuable than search. That’s a trillion dollar opportunity. — Packy McCormick

He explains how Ramp’s strategy of owning transactions opens new business models, transitioning from expense management and bill pay to travel.

Seeing an early version of the Ramp travel product back then opened my eyes to the size of the company’s opportunity. It wasn’t about a corporate card, or even just building better software for finance teams to use, but about improving every part of the business that involves a transaction […] It seems possible that Ramp could use its position in the transaction to recommend better-priced options to customers, erode some of the OTAs’ power and market share, and take some of their revenue […] With Travel, Ramp will be able to save customers time and money by automatically booking flights and hotels based on what they know about an employee’s calendar, trip details, preferences, and travel policies, and then organizing all of the expenses they generate on the trip. — Packy McCormick

According to Packy, Finance AI will have the clearest path to both creating and capturing value in other categories that don’t seem like finance, like travel.

Read +

3. Nubank’s Travel Moves

Nubank, Latin America’s largest fintech bank and a global leader in digital banking with over 100 million customers, has officially launched NuViagens, a travel platform powered by Hopper. The platform will be gradually rolled out to Nubank Ultravioleta users over the next few months. NuViagens offers a best-price guarantee for flights and hotels, price monitoring, and recommendations for the best purchase times for flights. Nubank Ultravioleta customers can make purchases in up to eight interest-free installments via NuPay, an exclusive payment method for Nubank users. Additionally, they can earn 1% cash back on purchases, and they will be able to activate a free 10GB eSIM when traveling abroad.

Read more about NuViagens and its travel benefits here (translated from Portuguese to English), or read the original version in Portuguese.

In April, Nubank partnered with Wise, a UK-based company specializing in international money transfers, to introduce a global account and international debit card for travelers, offering multiple benefits. Linas Beliūnas described this partnership as a “match made in heaven”.

4. Some of the Leading Travel Companies are Financial Companies

Just as Ramp and Nubank are expanding into travel, some of today’s largest travel companies are, in essence, financial companies. Hopper, for instance, started its transition from a travel company to a financial services company (as of 2022, more than 70% of its revenues were coming from fintech) during the Pandemic.

In Banks in Disguise, Marc Rubinstein writes about how companies like Carnival, Delta Air Lines, and Travel + Leisure (formerly Wyndham Destinations) operate as hidden financial entities. Carnival, founded in 1966, utilized customer deposits from cruise bookings to finance its operations, functioning much like a bank. Delta’s SkyMiles program generates significant revenue through mileage sales and partnerships, with $8.4 billion in deferred credits. Travel + Leisure offers loans to finance timeshare purchases, contributing $427 million to revenue in 2023.

5. The End of the Software Moat?

Chris Paik wrote a short but provocative post, The End of Software, highlighting parallels between the media and software industries. Before the internet, creating media was expensive and time-consuming, requiring substantial investment in people and resources. Consumers paid for content through subscriptions and purchases. The internet revolutionized this by slashing distribution and creation costs to near zero, leading to an explosion of user-generated content. Media companies, unable to compete with the cost-efficiency of these platforms, saw their value diminish as control shifted to content distribution platforms.

Similarly, software creation is currently costly due to high developer salaries. This cost can be paid through licenses, subscriptions, and other pricing models. However, LLMs can drastically reduce these costs by automating the translation of human language into code. When software creation costs plummet, we’ll see a surge in diverse software solutions, similar to the content boom on the internet.

Vogue wasn’t replaced by another fashion media company, it was replaced by 10,000 influencers. Salesforce will not be replaced by another monolithic CRM. It will be replaced by a constellation of things that dynamically serve the same intent and pain points. Software companies will be replaced the same way media companies were, giving rise to a new set of platforms that control distribution. — Chris Paik

Chris points out that the “old” model of software business building, where the expense associated with creating software was a moat, will be significantly disrupted by the rise of LLMs. This could potentially make current computer science majors as obsolete as journalism graduates in the late ’90s.

6. The State of Tourism and Hospitality – McKinsey

Tourism and hospitality are on a journey of disruption, driven by shifting source markets, new destinations, and evolving trends, according to McKinsey’s latest report: The State of Tourism and Hospitality. The 68-page report highlights four major themes in great detail:

More regional trips, newly emerging travelers, and a fresh set of destinations

are powering steady spending.
The way we travel. A survey of travelers reveals disparate desires, generational divides, and a newly emerging set of traveler archetypes.
Updating perceptions about today’s luxury traveler
Preparing for the tourist flows of tomorrow
Six trends shaping new business models in tourism and hospitality

7. Experiences

The McKinsey report highlights the rising importance of experiences to travelers, noting that this space remains highly fragmented. Many operators are small businesses with limited digital presence, creating a prime opportunity for tech-forward companies. Private companies like Viator, GetYourGuide, and Klook have capitalized on this, achieving significant growth. GetYourGuide grew its revenue fourfold between 2022 and 2023. Viator’s revenue increased by 49% during the same period, and Klook reported twice as many new customers in 2023 compared to 2019.

8. In Defense of Founders and Founder CEOs

The above graph is a bit dated (1990 – 2014), but I found this updated graph of the performance of founder-led CEO companies vs. the S&P 500 that paints a similar story:

“Holdings” and “Assets” = Founder-led companies. Source: Finbox

9. Founder & Chief Risk Injector

A Founder’s job is to inject risk into the business. It’s flooding it with new ideas, stuff that seems hard to do, ideas that no one else would dare try, placing the kinds of bets that only someone who started the damn thing would be willing to wager. – Jason Fried, Founder & CEO at 37signals (makers of Basecamp and HEY).

10. The Evolution of Warfare and What it Could Mean for AI

Here’s a different approach to where AI is heading. In The Evolution of AI: Hoplites, Centurions and Napoleon, Fritz Oberhummer draws parallels with the evolution of human warfare to explore how AI might evolve. He takes us on a historical journey, from Hoplites to Centurions to Napoleonic tactics, shedding light on AI’s future trajectory. Along the way, he even manages to inject it with a travel twist. Despite the tumultuous undertones of the post, there is a hopeful and happy ending, envisioning a future where AI and humanity coexist harmoniously.

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