Leader February 2008 – Develop or die

Business journalists are a mischievous bunch at the best of times. Read some reports about the fate of the economy and there is almost undisguised glee that the global markets are heading for an apparent meltdown.

The French trader who notched up unimaginable debts for the Société Générale bank is, in some quarters, revered as some kind of anti-hero.

As the saying goes: it all makes for good copy.

But there is an odd paradox to all this. The markets we write about may well suffer – and, in turn, our own jobs – if the dreaded ‘R-word’ kicks in.

Nevertheless, the threat of a downturn gives us hungry hacks something new and interesting to write about.

In fact, the very idea that the media and its financial analyst sources often talk the markets into a recession is not a particularly outrageous suggestion.

There are, however, some worrying signs for the travel industry – which most people recognise. One company boss said recently that travel companies will naturally suffer because the products they create are expendable by belt-tightening consumers.

This is a rather simplistic forecast, given the complex nature of how travel products are now distributed.

In the maturing online world, web distribution opens up channels not used on previous occasions when there was a significant shrinking of the global economy.

The last time the markets turned southward, online travel agencies – or at least those with a solid financial base – reaped the rewards because suppliers saw the web as a useful method to offload inventory quickly, and often cheaply.

In recent years, suppliers have generally got their act together and have improved their technology, marketing and web presence.

Most would say that in many respects they have now got the edge over their partners, the OTAs, when comes to pricing.

Given this apparent progress by suppliers, there are still two likely outcomes if the market contracts.

A slowing economy will put downward pressure on pricing, Douglas Quinby, a senior director for research at PhoCusWright, says. But equally if demand slows enough, suppliers may return to the OTAs to help shift stock.

This, ironically, given the often open hostility from suppliers, could also see the meta search sector come to the fore and rescue some of those seeing pressure on the distribution side.

This brings us nicely to how the start-ups will cope with a slowing of the economy.

The frighteningly flexible new kids on the block are actually in a strong position as they can – with a solid footing – adapt quickly to market forces and shape and re-shape their online offering.

Investors, typically, are not worried about the economy if they see that their money is being well spent on a project that will either ride a downturn – ‘recession-proof’ – or is inventive in the eyes of consumers.

However, their larger and more cumbersome counterparts are, some suggest, may well find themselves a little bit slower to move and adapt.

What is clear is that those in the research and development department should not be left to twiddle their thumbs as pressure mounts and focus turns to the core business.

As Quinby points out: “What is very clear: no-one can afford NOT to innovate. Budgets will get cut; line items will get slashed; but pull back from research and development at your own peril.”

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