The Upcoming Shakeout In Travel Tech


Image Credits: KimsCreativeHub (opens in a new window) / Shutterstock (opens in a new window)

Warren Lee


Editor’s note: Warren Lee is a general partner at Canaan Partners where he invests in travel, enterprise software, and marketplace startups.

The last few years have been a dizzying and heady time for travel startups, filled with mammoth funding rounds, high-profile acquisitions, and dramatic examples of young startups soaring past incumbents.

Last year, Uber eclipsed Hertz and Avis after it raised money at an $18 billion valuation. The rapidly growing company then went on to raise another $1.6 billion at a $41 billion valuation as it continued to draw business away from taxi companies and traditional car rental agencies. Sharing economy standard-bearer Airbnb closed a $475 million funding round at a reported $10 billion valuation last year and is now reportedly raising another huge round of funding at a $20 billion or more valuation.

For comparison, Starwood and Hyatt publicly trade at $13.5 billion and $9 billion respectively. Priceline acquired meta-search provider, Kayak, for $1.8 billion in 2013, and in 2014, SAP picked up Concur, a business travel and expense management software provider, for $8.3 billion.

Travel tech is at a pivotal point in its growth and development.

In many ways, the future for the travel tech industry looks bright and sunny. The travel and tourism sector generates $7.5 trillion a year worldwide, accounts for 1 in 11 jobs globally, and makes up 9.5 percent of the global GDP. It’s a massive industry and is only getting bigger. A study by Oxford Economics forecasts that the travel industry will grow 5.4 percent annually over the next 10 years, which is 2 percent higher than how quickly the global GDP is forecasted to grow.

Yet despite this explosive growth, there are a few clouds are on the horizon as the sector gets heavily saturated. The travel industry has grown increasingly fragmented, crowded, and fiercely competitive, which ultimately will lead to a shakeout among both incumbents and smaller companies. As a small handful of travel startups thrive, incumbents will be forced to respond by making meaningful moves to protect and expand their business. This will make it more difficult, but not impossible, for new startups to gain ground and succeed.

Uber, Airbnb and a small number of other travel startups will eventually go public. One major component of their success is due to their innovative marketplace approach, which expands the market on the supply side and which in turn creates new demand for that service. Furthermore, they do so in a scalable and cost-effective fashion that makes it difficult for incumbents to compete.

For example, Airbnb expands the accommodation and hospitality market by enabling people to open up their homes to guests. This sharing economy model provides travelers with a greater variety of lodging options that can be significantly more affordable than staying at a typical hotel. The costs are also lower for Airbnb, which does not own or expend resources managing the properties.

Other sharing economy companies like RelayRides, Lyft and others are doing the same for local transportation. These marketplaces are saving travelers money while also providing authentic “local” experiences on a global scale. Not only are different types of travelers using these services, including business travelers, but the marketplace model is moving beyond transportation and lodging to include a range of other travel-related services, such as rail, cruises, boats and buses. As the leading travel startups continue to grow, they will make acquisitions to further fuel their rapid growth and fill out strategic gaps.

In response to the expansion of travel upstarts, incumbents will be forced to make meaningful moves to protect their businesses. Consumer travel behavior is changing and travel dollars are increasingly moving online and to mobile. Over the next two years, Oppenheimer estimates that global online bookings will accelerate at twice the pace of overall market growth — great news for companies like Stayful and Rocketrip.

Today’s traveler also has increasingly high expectations when it comes to their travel experiences, including immediate and accurate pricing and availability information, mobile booking, user ratings and reviews, past travel history and preferences, real-time alerts, hassle-free check-ins, online concierge services, and more.

In order to keep up with the rapid pace of innovation and deliver the types of experiences travelers want, incumbents must act fast. The fastest way to do this is through acquisitions. Hertz and Avis may need to acquire “cheaper” startups in order to effectively compete with Uber. And as Airbnb steals away personal and corporate travel business, the large hotel groups (Marriott, Starwood, Hilton, Hyatt, IHG, etc.) will need to play defense by making acquisitions of their own.

For example, Barclays predicts that Airbnb will surpass the major hotel groups in terms of actual guest bookings in a few years — a scary prospect for these publicly traded companies.

This hyper-competitive environment means that incumbents are also going to look for ways to expand their business. The travel industry is highly fragmented with hundreds of niche travel apps that cover one specific thing, whether that is in-destination activities, dining or reviews.

In an effort to capture a greater share of traveler wallets, incumbents are striving to become the go-to digital portal for all things related to travel. They are looking for opportunities to move into adjacent segments that allow them to leverage their existing customer base.

We’ve already seen this happen with Priceline’s purchase of OpenTable, which marked its entrance into restaurants. Another example is TripAdvisor’s acquisition of Viator in order to break into the local events and activities space. Incumbents are also consolidating the spaces they are already in and will continue to do so. Even once powerful incumbents are not immune, and risk getting taken over by bigger players. Priceline’s acquisition of Kayak and Expedia’s acquisition of both Travelocity and Orbitz are examples of this.

In addition to these large acquisitions, we’ve also seen a robust market for small buys. TripAdvisor has done 20 deals since 2006 and they are all tiny. However, there are simply too many travel startups — 750 and counting — competing in this sector and too few acquirers, which creates big challenges for new travel startups.

With large, well-funded, powerful companies battling it out in the big leagues, it’s becoming prohibitively costly and difficult for small startups to succeed. They don’t have the same resources as these cash-rich companies, and fundraising will become more challenging, except for those businesses that are truly unique or strategic to a potential acquirer. This means we’ll likely see a number of new startups struggle to differentiate from the rest of the crowd, forcing many to either shut down or continue to build a mediocre business.

Despite challenges that may lie ahead, there has never been a more exciting time to be investing in travel. Marketplaces, mobile devices, a growing global base of travelers, and millennials are all working together to enlarge and transform the industry. Seismic changes are happening and both incumbents and startups will feel the impact.

While this changing travel landscape will be increasingly tricky to navigate, it will also prove to be an exciting and potentially lucrative time to be a travel startup or a travel investor.

*Canaan Partners is an investor in RelayRides, Stayful and RocketTrip. 

More TechCrunch

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

5 hours ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

2 days ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

2 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?