City Insider: Could travel become a SMAC addict?

City Insider - FT journalist David Stevenson on the travel industry

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Travel industry execs should hunt down a fantastic research paper by investment bank strategist Ed Maguire.

It’s called “2020 Forces Converging: Crossing Creative Disruptions” and on many levels it’s a classic piece of jargon-heavy, crystal ball gazing about mega trends.

But Maguire is a class act and once one cuts through the techno mumble jumble, one gets to a particularly powerful explanation of how technology is changing the business world order – with potential for a huge impact on travel.

For Maguire this new world order comprises three key trends:

Digitisation and dematerialisation: Everything becomes software – “The forces of digitisation (of information and media) and dematerialisation (reducing goods and services to software) have profound implications for the economy and for society on a global basis.

“Rendering physical goods into digital bits and bytes has profound implications across the value chain, impacting manufacturers, the supply chain, distribution, retailers and end users.”

Digitisation turns services into software: “Over the next decade, we expect to see further disruption and transition as physical goods and services are increasingly attached to and replaced by software.”

Dematerialisation turns gadgets into bits: “An example of dematerialization is the transformation of consumer electronics into software applications.

“Historian Steve Cichon looked at a 1991 ad by Radio Shack. He calculated that 15 items, including pocket calculators, cameras, mobile telephone, video camera, clock radio, portable CD player, video cassette player and other items were worth $3,054 at the time (equivalent to $5,100 in 2012 dollars).

“He found that the functions of all of these items were included in a $600 iPhone, a 10:1 compression of value.”

The global economy that emerges out of these three big shifts will resemble what some call the “software-driven digital metasystem” – a mobile-first environment of near-infinite compute power and connectivity with the capacity to scale massively sophisticated analytics in real time.

Crucially though, the travel industry needs to realise that ‘products’ are now becoming ‘experiences’.

According to Maguire: “This also touches on a potentially more profound shift away from a consumerist culture based on ownership of physical products.

“Sharing-economy businesses like Uber, Airbnb and Lyft address needs through a shared-asset model. In How Smart Connected Products Are Transforming Competition, a November 2014 Harvard Business Review cover story, co-authors Michael Porter of Harvard Business School and Jim Heppelman, chief executive of PTC, outline how an emerging generation of cloud-service-enhanced products will create new partner ecosystems and fundamentally new value chains in the economy.”

Key to winning in this battle is the fact that so many of the world’s leading corporates are now what is called a ‘platform’.

According to Maguire: “A platform can be defined as a system that must provide a useful function or service and allow third-party access.

“Examples of platforms include Microsoft (which allows companies to develop and run applications . . . Venture capitalist Marc Andreessen says, ‘A platform is a system that can be . . . adapted to countless needs and niches that the platform’s original developers could not possibly have contemplated.”

In simple terms, the advantage of platforms is that they can harness innovation from ecosystems of partners, creating aggregate value far greater than could be developed by a single company itself.

To do this will require a dreadful new acronym called SMAC + T – social, mobile, analytics and cloud plus T for physical things where devices become smarter.

“Combining location-based services with social technologies along with mobility and analytics creates new opportunities for products. We believe there is enormous potential for smart, context-aware objects and devices enabled by apps built on the SMAC stack.”

I apologise for the tsunami of jargon and acronyms but it strikes me this analysis contains the germ of a powerful business concept.

The travel sector is in the eye of this storm, too reliant on big physical things that drain capital.

In the future, successful travel brands will “dematerialise” (shed assets), ramp up their virtual platforms and then massively scale at speed.

But sitting at the core of this is the fact that travel must be about an all-encompassing experience, from research through to post-event customer service, all transacted online.

And the smart organisations will willingly embrace other disruptive travel brands as third-party content providers on their own channels.

Maybe the Thomas Cook deal with Fosun and Club Med, which I referred to in my last piece, really is the start of something very big.

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