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Oyo layoffs, Airbnb’s delayed IPO and the long-term quandary of investing in travel startups

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It’s the best and worst of times for travel startups.

Massive growth over the past few decades has made tourism one of the big global industries, covering everything from recreation to business conferences to shopping sprees.

But doubts about the future of the industry are growing — and not just because of the novel coronavirus and COVID-19. The rise of remote work and the increasing stresses from tourism on urban and environmental systems portends tougher times ahead.

Given the spate of bad news the past few weeks swirling around global tourism startups, I wanted to go over where we are and what the future holds — and why that’s going to be so challenging for startups in this space.

One massive tailwind: The number of people who want to travel is multiplying

Global tourism has been one of the great inexorable growth industries over the past few decades. The rise of East Asia, China and now India, cheaper airfares, mobile devices with GPS and translator apps, deepening international business ties and trade and a sense of shared humanity have all accelerated the numbers of people traveling abroad every year. According to UN data, the number of international tourists hit 1.4 billion in 2018, with about half of that in Europe, up from just a few tens of millions a couple of decades ago.

And that growth is not about to stop. Political leaders of all stripes have made courting tourists among their national priorities. In Japan, which is (presumably) hosting the Summer Olympics in Tokyo later this year, Prime Minster Shinzo Abe is targeting 40 million tourists by this year, doubling the number of arrivals in Japan from just a few years ago. China’s middle class alone may send out tens if not hundreds of millions of more travelers per year as their economic prospects brighten in the years ahead.

Programs to attract tourists shouldn’t be surprising, of course. Tourists are vacationing, freely spending money on hotels, food and goods and driving local economies forward. All that spending creates bountiful jobs, and while the service industry often doesn’t pay extremely well, expansive employment is a big win for political leaders. Even today, leisure and hospitality remains one of the largest industries in tech’s epicenter of San Francisco in terms of employment (if not wages).

Those tailwinds have driven huge gains for startups in the industry, and specifically in hospitality. Airbnb has been valued at upwards of $35 billion, massive India-based hotel brand Oyo has reached $10 billion, vacation rental platform Vacasa raised $319 million from Silver Lake just a few months ago, group-traveling apartment platform Domio raised $100 million in December and, going a little further back, HomeAway was acquired by Expedia in 2015 for $3.9 billion.

A few weeks ago on Extra Crunch, we interviewed a bunch of the top VC investors in travel and tourism to ask where they saw investment opportunities. One major theme that arose from those discussions is that while there has been huge investment in the consumer travel market, business travelers remain surprisingly untapped, and are still owned by legacy players like American Express.

Where top VCs are investing in travel, tourism and hospitality tech

Expansion, growth, scale — these have been the buzzwords of the travel space for years now.

And now, a sudden shock of headwinds

Times change really fast, however. Now, there is a global retrenchment in the tourism industry, particularly for the once high-flying startups that once bore the flag for the industry’s success.

Airbnb is presumably delaying its IPO, potentially to 2021. Oyo announced today that it is laying off 17% of its global workforce, firing 5,000 workers with a huge number of them in its largest growth market of China. Booking Holdings, which owns Bookings.com, has seen its share price decline by nearly a fifth as global travel sours and competition from Google forces up marketing expenses.

SoftBank-backed Indian startup Oyo to cut 5,000 jobs globally

Yes, yes, coronavirus is one immediate aspect of this, but it’s temporary, and at least so far, it’s on par with a typical economic recession where travel typically takes a dip.

Remote work is going to be a huge dampener on travel

What the spread of coronavirus is actually doing, though, is forcing many business leaders and some tourists to consider whether all that jetsetting is actually useful (or even fun) in the first place.

Remote work has in just a handful of years gone from weirdo-on-the-beach-in-Thailand-with-laptop-coding to a mainstay at major Silicon Valley tech companies. Investors are clearly impressed: Shares of video-conferencing software Zoom have zoomed themselves, doubling in just a few months, while Slack has been one of the most successful companies through its trailblazing direct listing.

Slack’s share price and the future of direct listings

There are a couple of factors pushing companies to remote work. First, and this is actually in line with WeWork’s rise, is the increasing demand for geographic-agnostic employment and flexible work arrangements. Remote work facilitates a lot of employee demands, whether students taking classes, working mothers or people with specific work patterns who need the flexibility that remote work provides.

Second, the tools for empowering remote work have gotten significantly better, even if they aren’t perfect. TechCrunch itself is perhaps a great example — this site is written by a decentralized web of editors and writers working through Slack, email, our CMS, our editorial calendar and other productivity tools to keep our business growing. We aren’t alone — from my conversations with founders over the past year, almost all have at least some component of remote work in their businesses, often from day one of the company’s founding.

Third, and perhaps most importantly, there is a shift in psychology around remote work. These days if you are a knowledge worker, you almost certainly know someone who does remote work or works remotely for your organization. As tricks-of-the-trade and best practices diffuse throughout business, the cognitive barriers to doing a meeting by videoconference instead of in-person start to drop.

All that portends huge challenges for the travel industry going forward. Business travelers spend more than a trillion dollars annually, and if even a fraction of those meetings and trips are replaced by virtual substitutes, the effect on travel could be tremendous, particularly given how business travel drives up the market price of many parts of the travel segment.

The fear of over-traveling

It’s not just remote work though. The longer-term headwind against the industry has to do with the changing tenor of travel itself. Once viewed in a deeply positive light filled with the language of exploration and adventure, tourism and business travel is increasingly being perceived as a burden for the planet, as well as the locals who have to interact with these travelers.

Even before the coronavirus, Europe has been putting restrictions on tourism while actively trying to discourage ever more people from arriving on the continent. There are increasingly strident reports about how tourism is harming famed cities like Paris, Amsterdam and Rome, plus local coalitions of residents are working to restrict tourism even further through policy initiatives.

Then there are the environmentalists, who are increasingly pointing out the atmospheric damage of air travel and urging travelers to stay local. This isn’t a one-time political movement that will suddenly melt back into the waves. The increasing concern over climate change is putting more and more facets of the global tourism industry under a microscope. While there are travel startups specifically trying to address climate change in their models, much of the industry today doesn’t pass muster.

The future of travel startup investing

The huge and arguably durable tailwind of global population growth and prosperity at the top of the customer funnel is increasingly coupled with a variety of headwinds that, while small now, each have the potential to cripple the sector going forward.

What was interesting from our survey of travel VCs wasn’t their theses, but rather how many voluble consumer and even B2B VCs declined to answer any questions, essentially saying that they didn’t really have much thought on the space today. Travel always had robust engagement from VCs, but these days, there are fewer and fewer investment theses that seem to be attracting attention.

Startup investments take more than 10 years to mature, on average, which means that these headwinds could very much affect any investment made today in a startup.

So where to look? First and foremost, start listening to the data and look for the small distinctions in the data. Whole segments of the world are coming online and traveling for the first time, and the global tourism industry mostly doesn’t cater to them. Oyo itself, while going through a tough patch here and regularly accused of exaggerating its numbers, is approaching the problem correctly, identifying a type of customer underserved in today’s market and offering them better alternatives.

Along the same lines, expand the definition of “travel” to include virtual replacements; a16z recently invested in Run The World, a digital platform for building online-hosted events. These gatherings aren’t conferences held in convention centers, but instead act as a sort of live events substitute. Plus, a lot more attendees who might not have been able to take days off from work to attend a conference might suddenly pop in as well. That’s market expansion, not just market replacement.

Finally, spend even more time looking at the climate change-aware sector of the tourism economy. Climate change is changing everything, and tourism is no exception. But there are going to be all kinds of new opportunities to make tourism better for tourists themselves, and the planet as well.

Yes, there is a lot of bad news from the sector these days, and the bad days are probably not behind us just yet. But there are still so many interesting facets of this industry, and even more opportunities to capture in the years ahead.

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