Wednesday, June 24, 2015

All Roads Lead to Vertical Integration

As companies mature and look for new ways to increase revenue, they inevitably look toward vertical integration.

Companies with great customer relationships move up and/or down the purchase path to increase revenue. Let's look at three examples of vertical integration in the travel sector: one historic, one current, and one I predict will happen soon.

Historic: Why Airlines Sell Vacation Packages
The majority of people planning to take a trip that includes a flight will start planning their trip by researching flights first. Before most people look into booking accommodations, a rental car, and/or activities, they look into flights.

Many years ago, airlines figured this out and started selling vacation packages. Since customers started planning their trip on an airline's website, the airlines realized they could sell other services while they had customers' attention. (They also make a lot of money by selling hotel rooms.)

That's vertical integration.

Current: Why Google Created Hotel Finder
15 years ago, Google started teaching Internet users that to find what they were looking for online, they should start by searching Google. Plenty of people still use Google, but when it comes to booking travel, some people turn first to sites like Expedia, Orbitz, or Hotels.com.

As a result, Google has started providing more than just links as results from hotel-related searches. Google created google.com/hotels to keep users coming back to Google to find hotel rooms. Google continues to improve this service and I think it's great (but I'm a little biased).

That's vertical integration.

Next Up: Airbnb
Airbnb is reportedly worth billions of dollars. While Airbnb has plenty of room for growth in its core business of connecting those looking for accommodations with those looking to rent out their accommodations, I think Airbnb will inevitably turn to vertical integration for growth. I see a future in which after booking accommodations on airbnb.com, customers are then offered deals on activities and tours near their rented room.
  • Want a private chef to come cook you dinner while you're on vacation? Add it to your Airbnb reservation.
  • Need an in-room massage? Add it to your Airbnb reservation.
  • Need a pet sitter for the afternoon? Let Airbnb recommend a few for you.
In a home away from home, Airbnb has an opportunity to connect people with the services they're used to or services they never receive at home.

That's vertical integration.

Add This To Your To-Do List
Is your business looking to vertical integration for growth? If not, maybe it's time to start.

There's never a lack of ideas.