Why the Travel Industry Fears Crypto

//Why the Travel Industry Fears Crypto

Why the Travel Industry Fears Crypto

By | 2018-03-16T13:02:29+00:00 October 17th, 2017|Travel|0 Comments

As a species, we evolved by travelling — by migrating from one place to another. Anyone who’s used 23andMe (or any of the other companies who offer genetic testing) is familiar with the idea of the haplogroup — the ancestral groupings that show the paths taken thousands of years ago as many humans migrated from Africa to Europe, slowly treading well-worn paths through the Levant, or up across the Iberian peninsula.

Travel is literally in our DNA, and the transport possibilities of the 21st century mean that more people than ever move from country to country, crisscrossing the globe for business and leisure on more than 100,000 scheduled flights every day.

Why do we still travel, when technological innovation has offered us alternatives? Migration is one thing, but many short trips could, in theory, be replaced by high-tech alternatives. In Total Recall and a thousand other scifi movies, we are sold the idea of immersive VR holidays, yet they can never quite take the place of the real thing. Videoconferencing is commonplace, yet there is still a reason why people take business trips.

I’ve worked on many productive distributed teams with colleagues working both offshore and nearshore, talking many times a day on Google Hangouts or Skype, but in cases where one group of team members has physically travelled to the other group’s office and spent time hanging out in person, productivity massively improved afterwards as the beneficial effects of human contact kicked in. It seems there is something about being physically present in a location and meeting new people and having new experiences that satisfies some primal need in us.

For these reasons, the hospitality industry isn’t going anyplace soon. Humans love to travel, and along with the planes, trains and automobiles that get us to our destination, we need a bed to sleep in when we get there.

But the face of travel is changing. Our expectations of staying away from home have undergone a seismic shift in the last decade or two. Yet the travel industry as a whole has yet to adapt to this new way of being.

I recently had to book a night in a hotel in my home town, Torquay, a faded but still beautiful seaside resort on the southwest coast of England. With its spectacular wooded gardens leading down to the sea and its grand dining rooms, the Palace Hotel felt like the tail end of a dying era: long corridors of grand but dilapidated identikit bedrooms, once the destination of hundreds of home-grown holidaymakers who descended on the SouthWest every summer, in the days before package holidays. Two weeks after I stayed, the hotel closed down, bought by a Singaporean hedge fund, its future uncertain. It was a huge blow for the lovely staff, who lost their jobs, and for the elderly regulars, many of whom had been visiting since the Fifties.

Yet, even if the hotel carpets had been replaced, the televisions upgraded to flat screens and the interiors dragged into this century, it would still have been doomed to fail. The grand hotel experience of yesteryear, where you travel to a particular resort, stay in a large hotel with standardised rooms and have the same experience as everyone else is not what today’s travellers crave. The modern travel experience is about authenticity, feeling like you can be someone else for a few days and that you are having an experience tailored to your own personal needs and desires.

When we stay in an Airbnb or a boutique hotel in a hip neigbourhood in Barcelona, San Francisco or London, we are buying into the fiction that this is our local coffeeshop, our neighbourhood deli. For a few days, we are immersed in someone else’s life and we are all the richer for it.

Boutique hotels have sprung up to fill the niche — small, luxury establishments where the traveller feels like they are treated as an individual, not a number. Small chains such as the Dutch masters of modernity, Citizen M, capitalize on this trend towards individuality, allowing guests to graze on what they want at whatever time of day and to customize their own room lighting themes with a cool custom app.

But even for traditional hotel chains who have not yet embraced this level of customisation, personalisation and getting to know everything about your customer is increasingly important. It makes a customer feel valued if they feel they are being treated as an individual rather than a number — and they are more likely to keep coming back.

For any kind of business, it makes sense to invest in keeping existing customers rather than spending extra money in finding new customers. That’s the rationale behind traditional hotel loyalty or bonus schemes. On the face of it, it seems simple: reward regular guests with price discounts and extras. Many hotels already do this, but the whole rewards system is fundamentally broken for two main reasons — lack of interoperability, and the overwhelming presence of online travel agents.

The lack of interoperability between hotel reward schemes is a frustration for any traveller who ever stays in more than one hotel chain. I mentioned Citizen M, who go out out of their way to provide a unique, personalised experience. Yet they operate only in seven cities, which means that even if they ran a rewards scheme, most people would be unable to rack up enough points to make a difference unless they only visited a handful of places in their lives.

Hence even those travellers who can be persuaded to join a loyalty scheme end up with small amounts of points sitting in accounts with different companies, which is never quite enough to tempt people away from using the online aggregators (online travel agencies, or OTAs).

These behemoths of the travel industry, such as Expedia and Booking.com, offer convenience and the promise of a bargain — but in reality, they sit as an obstructive intermediary layer between traveller and hotel, taking a hefty cut and standing in the way of a healthy interaction between parties.

If you’ve compared the price of a hotel room across the major OTAs, it is generally identical. The OTA sites may work when you want to compare the price of many different hotels in a particular city or area, but it is an illusion to think you are getting a bargain by favouring one OTA over another.

Often, it would make more economic sense for an individual to book directly with the hotel. The 20–30 per cent which is claimed by the OTA middleman could be split between traveller and hotel, or used to provide great incentives and extras which would provide the traveller with a richer experience and turn them into a repeat customer.

So what’s stopping a traditional intermediary company setting up their own loyalty scheme? There are many challenges, not least the disparity between the participating suppliers.

A traditional Air Miles programme works — to some extent — because the corporate participants are limited to airlines. It is expensive and difficult to get an air transport licence which puts the participating entities on a level playing field, so there is little incentive for companies to game the system.

However, this is not the case for hotels, where there could be every incentive to game the system. Any platform where the rewards may have a disparity in value between the issuers has this temptation. Hence a hotel chain like Hilton may have a disincentive to participate in a global scheme where some of the other participants may be modest bed-and-breakfast establishments who could issue tokens to friends or family without a genuine booking having occurred, and which would then devalue the whole rewards scheme.

Blockchain startup Trippki offer a resilient solution, leveraging the unique security proposition of the Ethereum blockchain. Because tokens are issued on the blockchain, tied into smart contracts linked to proof of payment, this cuts out the possibility of fraud.

This is written with the assumption that the reader has some familiarity with the way Ethereum works: essentially, it is a global, open ledger in which anyone can participate, similar to the Bitcoin blockchain, but with an additional capacity to execute small pieces of code on each of the computers that run the network.

The rewards would be issued in the form of tokens, called TRIP, as part of the unique Proof of Stay mechanism. When the traveller checks out from a reservation made on Trippki, their wallet is credited — so-called Proof of Stay. Unlike loyalty points earned from a hotel’s own reward scheme, the TRIP can be spent at any other hotel which is signed up to the platform.

This has significant benefits for boutique hotels who may want to initiate their own points scheme, but who do not have the technical resources to implement and secure it. In this way, blockchain technology can lower the barrier to entry for smaller players, removing the need for them to hire security specialists because security is already baked into the system.

In this way, the smallest of establishments can compete — the platform is entirely size-agnostic, meaning that someone running a bed-and-breakfast with a single room is on a level playing field with a multinational chain.

But lower running costs and ease of implementation are just the tip of the iceberg.

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There are advantages for the traveller, too. The traveller does not have to commit their personal details to a succession of untrusted third parties. Instead, all identification is done via a third-party blockchain proof of identity system, allowing the user to reveal only the level of personal detail that is necessary in any situation.

Scarcely a week goes by without news of individuals’ personal details being hacked, with Equifax being just one of many such events. If you, as a traveller, decide to enroll in hotel loyalty schemes, it is just another potential point of failure. And the more schemes you join, the more information is floating around about you… where you stayed, when and with whom.

And — at the opposite end of the spectrum from the impersonal OTAs — the system allows hotels to target guests directly with personalised offers based on their loyalty and preferences.

It’s often said that in the digital world, personalisation is the new gold, allowing retailers to present customers with special offers that are targeted to their preferences and which are much more likely to be acted upon.

But savvy consumers are increasingly wary of personalisation that feels ‘creepy’ and where it is based on third parties possessing too much of their data. Instead, the new identity systems that put proof of identity squarely back in the hands of the individual, allowing us to reveal only what we are comfortable with, are the key to powering a future where personalisation can allow us to enjoy targeted services without the uncomfortable feeling that some all-seeing entity knows everything about us.

All too often we are left with the uncomfortable feeling that we are selling our data for rewards… no more so than the supermarket reward points that reward us with a trifling few cents here and there, while reaping their payment in huge amounts of very personal data about us.

While the use of blockchain technology is not a magic bullet, the travel industry is genuinely a potential use case where it can help. All it needed was a Bitcoin enthusiast with a background in the travel industry to put the pieces together.

With a background in the travel industry in Southern Africa and an evangelical belief in the transformative possibilities of Bitcoin and its associated ecosystem, Trippki CEO Ed Cunningham founded the company with a strong conviction that a blockchain-powered loyalty platform with its own native token could solve all these problems.

“The idea was a culmination of first, having owned my own safari company and boutique hotels and understanding the silos of getting business via all the middlemen and second, discovering Bitcoin and blockchain,” he explains.

Sadly, the recent trend for total ICO mayhem, where any idea can be tokenised and many entrepreneurs are becoming rich without any need for a coherent business plan, has meant that some startups are not thinking carefully about the use for their token once the sale is over.

The TRIP token, like most other tokens on the Ethereum blockchain, will be tradable after launch and will have its own value as an exchangeable cryptocurrency, providing liquidity and demand, but this is not the end of the story.
Cunningham sees this ability to trade TRIP via, for example, cryptocurrency exchanges, as an integral part of the whole experience:

‘It was simple to see how by introducing crypto economics to a controlled silo / cartel with a rewards utility that offered points that have an actual value, are transferable and tradable at will is a really rewarding experience that builds loyalty.’

Of course, one challenge with utility tokens is balancing genuine price discovery against ensuring a sufficient supply of sensibly priced tokens within the system. This is especially important during the initial stages of the business, before the network effect is properly realised.

Trippki’s solution to the liquidity problem is to commit around 40% of the TRIP supply to a specific Vault smart contract, from which only verified hotel suppliers or guests can buy it, thus guarding against bad actors buying up too great a share of the tokens and driving up the price in such a way that the token loses its utility on the network.

To travel industry outsiders like me, perhaps one of the most interesting parts of the Trippki vision is the idea of building an entirely new ecosystem, where third parties are able to come in and build new applications and layers on top of the platform. In contrast to closed systems like the existing OTAs, this is a truly forward-looking step, leveraging the power of blockchain technology to make for a better travel experience for all participants.

This blog post was contributed by Rhian Lewis, co-developer of countmycrypto.com.

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