<I>Santa Clara, Calif.</I> - Citing the need for deeper pockets to fight off increasingly well-financed competitors, TravelNet Inc. has kicked off the New Year with its Jan. 2 purchase by Reed Travel Group, which bought out four venture capital firms to become TravelNet's sole owner.
TravelNet chairman John Shoolery and chief executive officer Randall Malin will remain in their positions with the company, which will continue to operate out of its Silicon Valley headquarters, Malin said.
TravelNet's Voyager automated booking system is online at a small number of corporate sites, and serves as the booking engine of Carlson Wagonlit's ActOne suite of technology products. But industry insiders say the company had used up two infusions of venture capital funding, and faced 1997 with little left in the till-just as competitive systems from well-known technology players like Microsoft and AMR's Sabre Group are scheduled to begin rolling out.
"It became clear to us that playing this game wasn't going to be a quick hit, and venture capital companies are not interested in long-term development," Malin said. "This is going to be the year corporations step up to the plate and begin to implement this new way of doing business, and we were well aware that our competitors were raising questions about whether we would be there in the long run. If we were going to play, we needed long-term financial strength."
TravelNet and Reed are "a good fit," Malin said, in that both are independent and impartial players in the travel industry, with neither airline nor travel agency ties. "Technology is not a sideline to another business for us-it's the business we're in," he said.
For Shoolery, who founded TravelNet in 1992, the acquisition was the culmination of four years' worth of development, education and relationship-building in the travel industry. "This is really a defining moment for TravelNet; the baby has grown up," he said. "As the founder of a start-up company, it's extremely gratifying for me to see the product emerge and define a market space and be adopted."
For Reed, the acquisition brings a new dimension to a company whose interests already touch many sectors of the travel industry. Reed, which publishes Travel Weekly, also owns 50 percent of THISCO, as well as the "Official Airline Guide" and hotel marketing company Utell International. In December, TravelNet and THISCO forged an alliance to direct hotel bookings made in the Voyager system to hotels' internal reservation systems over the THISCO line- bypassing the CRSs (BTN, Nov. 25, 1996).
Although many industry insiders were aware that TravelNet had been foraging for financing, the New Year's Eve acquisition caught everyone by surprise, and elicited mixed emotions. Many applauded Reed's investment as a vote of confidence in the viability of the online booking market for 1997. But at the same time, they expressed concern over the potential for conflicts of interest among Reed holdings-and over the possibility that the Reed Travel Group, headed since May by former Sabre president Kathy Misunas, intends to build an alternative CRS.
"I think Reed wants to play in electronic travel distribution, and indeed it seems smart for them to do that in this way, given the synergies of TravelNet's development team and THISCO's sales and marketing expertise. But it raises questions from an objectivity standpoint," said one technology competitor. "They surely will try to talk customers into using THISCO to book hotels. And I wonder when I go to a Reed trade show and Travel Weekly<I> </I>comes back and writes about what's happening in the technology industry, how much ink is TravelNet going to get, and how much am I going to get?"
Danny Hood, corporate travel and technology president of Travel Technologies Group in Dallas, called the new partnership "intriguing."
"Selling the first travel technology systems, like building the first ATMs, is a long cycle, and it's not for venture capitalists," Hood said. "Technology developers will make a lot of money in this business eventually-and they'll make it for a long time-but that won't happen for a couple of years. The return on investment is there today if you're an agency or a corporation using the technology to reengineer your processes and reduce your costs. But it's not there yet for the developers."
Sherman, Conn.-based travel technology consultant Philip Wolf used the same adjective to describe the partnership.
"It's intriguing for a publisher to acquire a transaction-related company-it's a bold move, and it speaks volumes about how the industry is changing before our very eyes," Wolf said. "Change was critical at Reed, and it's safe to assume that part of Kathy's strategy is to do some serious catch-up. I think Reed wants to leverage its content in new ways, and develop an alternative distribution channel for corporate travelers. They did not acquire the customer base to do that through this deal, but they did acquire the core technology."
Misunas, however, pooh-poohed the concept of Reed's trying to compete with her erstwhile colleagues in the CRS industry. "Been there, done it," she retorted when asked if that was her intent. "I built a very successful CRS once-and I don't see my future doing that all over again."
While Reed-a division of Reed Elsevier PLC-will take advantage of TravelNet's expertise in providing online bookings over its Website, the overriding goal will be to provide travel information and database access "in whatever way customers choose," Misunas said.
"TravelNet's technical capabilities will be a nucleus for what we see as an outlet of electronic capabilities for transaction products and content," she said. "It's not just transactions or bookings we're looking at, but something more expansive than that."
Some details of the publishing and trade show company's overall strategy were laid out at a November technology conference at which Misunas announced that she was looking for a technology partner.
Although she didn't mention acquisitions at that time, Misunas said Reed was looking for "a technical nucleus for an electronic travel store, to provide a booking capability aimed at frequent travelers and eventually tied into corporate policy and personal preferences."
Reed's plan, she said at that conference, was to "look at our products as data, and ask what media people want to use to see that data. And we're looking for a broader audience of corporate and individual travelers, beyond North America and Europe to Asia-Pacific, South America and Africa."
Since then, Reed scrutinized "a long list of companies dabbling in travel technology" before finally settling on TravelNet as not only a partner, but an acquisition.
With the deal being struck over the New Year holiday, Misunas had by press time not yet discussed the ramifications of the new contract with Carlson Wagonlit Travel president and CEO Travis Tanner.
Misunas said Reed "certainly would love to continue that relationship, and I assume Travis would too." Carlson executives declined comment.
Misunas said that Reed's recent tab for acquisitions, which included both TravelNet and destination information supplier Weissmann Travel Reports, totaled $25 million, with "the majority" of that going to TravelNet.
She is confident that the money is well spent on online travel services. "I think this is going to be the year that this industry starts breaking open," she said. "People are going to be pleasantly surprised at the breadth of opportunity these systems provide, and at what they can do in terms of information management and cost management." To that end, she intends to roll out the Voyager system to her own travelers at the Reed Travel Group.
TravelNet customers seemed pleased at the company's newfound stability. "At TravelNet, funding has always been an issue in the background," said Patricia Carlin, corporate travel manager for Sybase Inc. in Emeryville, Calif. "I think people were hesitant to buy TravelNet's earlier system, Resolution, because it was hard for corporate agencies to use. But Voyager is a winner, and it's nice to know TravelNet now has the funding to give it a chance.