US View – June 2007

Innovate or die…


The DNA of some companies born on the web seems to be stocked with the innovation gene. Google, of course, is a prime example.


It encourages its own employees to think outside the proverbial box, and it entices software developers, from third-party companies through to the release of various Google application programme interfaces, to build all kinds of cool stuff.


Similarly, a disparate smattering of other companies that touch the travel industry or are part of it, including airlines, Kayak, Sabre, Amazon, Yahoo and Facebook, to name a few, offer APIs and developers’ platforms that enable other companies to dance with them.


In the US, the issue of how open a company should be with its APIs, and whether there should be high or low barriers to entry in this regard, came to the fore in recent weeks with news about developers’ platforms from Sabre and Facebook.


They are two very different companies, of course, with widely divergent histories and priorities.


Sabre, the largest GDS in the US, threw its weight around in recent months by sending new developers contracts to about 150 companies that previously interfaced with the GDS platform for nominal fees. Sabre stated that its new policy was meant to standardise and better-regulate third-party behaviour when their applications hit the Sabre system.


The problem is that although Sabre is handing out new contracts for several thousand dollars to some developers, it decided to charge BookingBuilder Technologies, a content aggregator, annual and per-booking fees that BookingBuilder claimed would total about $700,000 a year.


By all accounts, including Sabre’s, BookingBuilder is an innovator. Its application, used by some 8,000 travel agents, including several thousand in the Sabre fold, pulls web-only content into the GDSs and enables agents to handle the bookings and integrate them with GDS itineraries in an efficient manner.


Several companies stateside say the economic barriers that Sabre has erected with its new policy on developers are so tall that they stymie innovation.


Admittedly, this is an apples-to-oranges comparison – but take a look at the contrast with social networking site Facebook’s new initiative to release the free Facebook Platform.


It encourages other companies to create applications for Facebook that it doesn’t have the resources, talent or ideas to build for itself.


In the few weeks that Facebook made its developers’ platform available, SideStep and TripAdvisor separately built applications for Facebook and thus figured out a way to get their brands in front of Facebook’s 24 million user base. Non-travel companies developed more than 60 other new applications, as well.


The innovation gene is in the house. SideStep launched a Trips application on Facebook.com, where members can share upcoming holiday ideas and pair up, and TripAdvisor has created a travel-blogging service on Facebook through its recently acquired TravelPod brand.


Rick Seaney, chief executive of airfare prediction firm FareCompare, says he likes Facebook’s platform initiative.


And FareCompare itself has used a Google Maps API to develop a maps-based travel shopping application, Getaway Maps.


However, he says FareCompare has dabbled with almost every API in the travel industry, and he views Sabre’s “as probably one of the worst”.


One major reason for this deficiency is Sabre primarily is interested in selling airline tickets, and thus developing a robust interface for search companies or others firms that are not travel agencies is not a strategic imperative, Seaney adds.


“If the GDSs want to foster innovation, they should throw it wide open and let people do stuff,” Seaney says. However, that is not going to happen anytime soon.



Online travel firms facing tax dispute


Major online travel companies are facing more than two dozen lawsuits from cities and counties in the US for unpaid hotel occupancy taxes. One major tourist destination recently sent out bills totalling $10 million covering the past five years.


Florida’s Miami-Dade County, which withdrew its lawsuit in January, recently began a tax audit of the companies and sent out estimated hotel-tax assessments – estimates because the companies say they owe no tax and haven’t sent financial reports.


The dispute, which has been raging for the past two years, puts pressure on the merchant hotel model. Tax authorities say the spread between the wholesale rate that the online travel agencies get from the hotels and the retail rate at which they sell the rooms should be taxed. Meanwhile, the defendants say they are intermediaries and not subject to the tax.


The potential tax liabilities are big money for large cities and counties across the country, but probably affordable for the online travel agencies.


For example, the Miami-Dade County bills – if the county ever succeeds in collecting on them – have Expedia Inc-related entities owing the county more than $6 million over the past five years. When you multiply this type of tab against the hundreds of local US governments that could come after the online travel agencies, the numbers could really add up.

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