Several years ago, Lincoln, Neb.-based travel management company Executive Travel launched a no-fee option for online-originating transactions. The catch: Clients that took the deal had to source all hotels through the agency to generate a revenue stream that would fund online fulfillment, online booking tool fees and some profit margin.
Since then, CEO Steve Glenn has set his sights on “zero/zero,” as in $0 in fees for online bookings and $0 for offline bookings. He thinks he’s found the path, and it involves a financial model tied to client revenue performance, blockchain-based smart contracting to govern deals and data access that gives transparency to each side.
Those are three foundational components to Executive Travel’s new TMC model, which should be available to clients and prospects this year.
Regarding the financial model, most TMCs make money through transaction fees that clients pay for each online and offline transaction, but also through supplier and intermediary revenues, including hotel commissions, global distribution system incentives and airline overrides. With a no-fee model, Executive Travel is focused on the latter revenue bucket.
“Even though it’s zero/zero, it has to be profitable, and of course, the profits come from hotels, GDS and other ancillaries,” said Glenn.
How can a TMC thrive on that? Glenn’s approach to grow revenue and sustain such a model is “performance-based pricing.” This means the more revenue a client generates in intermediary and supplier revenue for the TMC, the lower its fees go—all the way down to “zero/zero.” Indeed, Glenn said fees could be higher, depending on the revenue profile, and it could even go subzero, meaning revenue sharing or rebates for the client.
“We think the model of the future will be performance-based,” he said. “It’s saying to a corporate customer: ‘Your pricing is based on what your consumption is, the type of consumption and the performance on the revenue it can generate.’”
So, how do you measure and build trust in such a model? This is where data transparency and blockchain-based smart contracts come in, Glenn said.
The model requires a high degree of transparency, and that cuts both ways. The client gets a full view of all revenue the TMC makes on that account, while the TMC gets a full view of client spending. That includes TMC access to both payment data and supplier data to make sure the client is pushing as much spend through the agency as it can. “That’s another thing a company has to do: They have to allow us to access their data,” said Glenn. “The nice thing is: There’s very good data aggregation now in the form of Domo and others that give us the ability to capture multiple levels of data that we couldn’t before and that would be the basis for the blockchain smart contracting.”
That’s the third foundational piece: the blockchain-based smart contract that “will measure and contract and price based on performance,” said Glenn.
Executive Travel has enlisted blockchain developers from outside the travel industry to build out the smart contracting system. This is in development, said Glenn. “A lot of industries are looking at smart contacting through blockchain, which would allow, basically, from a reporting model to be able to identify the performance of the client, based on the revenue generated, and be able to decide what the pricing is on a real-time basis,” said Glenn.
That means pricing is not static. It can vary on revenue performance, which could be assessed quarterly, semiannually or at some other interval, said Glenn.
He expects the model to be an option for clients and prospects by the end of the third quarter this year. This awaits finalization of the smart contact system, more financial modeling by the TMC to make sure the business model is sound and further testing.
“We have to test and retest and retest,” he said. “We don’t want to get egg on our face.”
Glenn isn’t sure how the market, clients or prospects will respond or who will be brave enough to take the leap with the TMC.
He said TMC pricing models, revenue streams and sustainability are regularly called into question and that there is some mistrust among buyers on how TMCs get their revenue. He said this new structure is sustainable and transparent.
“We’re excited that this creates a new model that aligns the customer with the TMC and with the vendors, too, because we have to perform for the vendors for the customer to earn the savings as well,” he said.