One-on-One: Amex Plies Partnerships

<B> One-on-One: Amex Plies Partnerships</B>

<i>Ed Gilligan, president of corporate services, American Express Travel Related Services Company Inc., spoke last month with Business Travel News editors Sarah Welt and David Meyer about AXI, its online booking partnership with Microsoft, as well as partnerships with Portable, Maritz and other travel agencies.</i>

BTN: Are all the bugs worked out of AXI at this point?

Gilligan: Yes. We've got a very robust product on Sabre, we've got a production environment there with all the bugs worked out. We've still got a pilot with Galileo, which will go into production probably in March. We've got all the bugs worked out on Worldspan--we're in production there. So we're moving along. A year and a half ago, I would have thought we would be further ahead but I had no clue about client readiness or infrastructure.

BTN: Are clients more ready now than they've been?

Gilligan: Yes. They're coming along. The commission reduction brought even more of a focus on it because every time we've talked this through with our clients from the point of view of taking the cost out, that's the thing to do. Then the question is, is the functionality there to make it as easy or easier than using the phone. And clients are seeing that it is. It's better than using the phone on most aspects--not all yet.

BTN: What did you accomplish in 1997?

Gilligan: In '96 we really talked about Microsoft and about the coming of interactive travel, which is old news now and '97 was about getting it done, putting in the infrastructure. One part was building the product, the second was building our components that interface with it, like low fare search, and the third was building the whole infrastructure around it so that a transaction is secure. For AXI, a transaction flows from the desktop to Redmond, where Microsoft is, to Phoenix where our low fare search and fare database is, to MCI which is kind of the provider of us for making this thing run.

So we had to build a very secure infrastructure. In '97, that was completely invisible and completely unglamorous to the marketplace. But in '99 it is going to be the most critical thing.

In '97 most clients weren't ready despite the fact that everyone was talking about it. So at the same time of building all this infrastructure you have got to get client readiness up and we had to send a lot of our customers back to their own organizations to do their own analysis and evaluate their commitment. We've had continual testing with AXI, first with four clients, then 12, then 20 and hopefully by the end of March it will be up to between 70 and 90.

BTN: What were the biggest hurdles you had to overcome in 1997?

Gilligan: I'd say mostly in the infrastructure side, to make sure transactions are secure and that all the pieces hold together. We figure we have to be able to run $3 billion worth of air sales on AXI. That's what we're building for '98. Whether we'll hit $3 billion, I don't know, but it has to handle $3 billion.

BTN: What is your level of investment in AXI for 1998?

Gilligan: It is a substantial number and it is not an easy number to answer because part of it is a transaction fee , so the more transactions the more costs. And there are step functions--the higher the number of transactions the lower the fee will be because some parts to running the system are fixed and some are variable. We also are building a lot of the infrastructure around it to make it secure, which is very expensive. And making the low-fare search engine as good as what travel counselors do. That was one of the surprises, and it shouldn't have been, but if I look back a year and a half ago, I underestimated the infrastructure needed for a secure transaction. I think everybody did. The other thing I underestimated is what a good job our travel counselors do to get the low fare. We run at 98 to 99 percent accuracy on getting the low fares every time we are audited. If you don't think you are going to get a low fare by using AXI or the lowest fare, according to policy, it will never take off.

BTN: As far as a fixed investment is concerned, are we talking hundreds of millions of dollars?

Gilligan: It's huge. No, tens.

BTN: It was two years ago that you announced a two-year deal with Microsoft. So what goes on from here? Do you re-up with them?

Gilligan: Well, I don't know if I want to get into the specifics of the contract. I predict Microsoft will be exclusive with Amex through the end of the millennium and then some. We have a very good relationship with Microsoft. We had talks about it a year ago, we fine-tuned some things, and now it's about getting it done. And we are working very closely with them so it's not an issue for '98 and it's not going to be an issue for '99.

BTN: Are you doing all the fulfillment for AXI?

Gilligan: Yes, absolutely. We're doing fulfillment, but we look at AXI as seamlessly connected to our existing service infrastructure. So you book a transaction on AXI and 15 minutes later you pick up the phone, the travel counselor has to be able to get that and change that however you see fit. And 15 minutes later you have to get the change on AXI. That's not fulfillment to us, that's seamless integration.

Fulfillment, in the Expedia/WorldTravel Partners world, is make sure the transaction is quality checked and that the e-ticket or paper ticket is delivered on time and that there is a record of the transaction. That truly is just the fulfillment. That's not how we look at it. Today it has to connect seamlessly to a full-service travel provider because that's what our clients demand and it has to be global because every one of our clients that we see using it in '98 want to use it somewhere else in the world.

BTN: And how far are you from that global goal?

Gilligan: We probably will have four countries up in the second half of 1998--most likely Canada, the United Kingdom, Germany, Scandinavia and probably Mexico. Mexico is a little iffy--it probably depends on client demand. But those are the ones we are targeting. Australia is a very active market place. We also should have it in France too. We're walking this fine line of figuring out how much more functionality we add in the United States versus spreading it around the world. You can do both to an extent, but at some point you have to prioritize. And that's what we're working on with our clients.

BTN: Is that part of why you chose Portable? As it's a better global solution?

Gilligan: That's part of it, but if you back up and look at what we've done and what you will see more of, I hope, in '98--we are trying to understand and get a much sharper focus on where we add value to the customers. Our goal is to meet customer needs and be better quicker and faster than ever before, because that's what our clients demand. Clients need advice, they need new solutions, they need information, and that's what they are willing to pay for. Other things they want you'll have to provide at cost and it's more of a commodity. Sometimes we find ourselves not competing against any one company, we find ourselves racing to meet client needs and I like that feeling. We're not paranoid looking over our shoulder at competitors--we're sitting with our 20 largest customers in the world who are saying here's the five things we want in '98 and here's the order we want them in.

BTN: Are there some things you've discovered are definitely common denominators among buyers?

Gilligan: Absolutely. Global information that will aid in controlling and negotiating is the number one thing our clients want. And that's not just travel information--it's information from the card side of things, from expense reports and from travel. They don't just want data, they want advice to help them negotiate. So we have to get the information, we have to interpret it and we have to do it globally and get it back to them in a way that is going to lower their costs. So it became less important for us to own the software development for expense management than to capture that information and combine it with other pieces of our travel process. We had to move from an e-mail platform to an Internet platform. Obviously we came down to deciding we need it faster, quicker, cheaper, and Portable had it.

BTN: So the relationship is just between you and Portable, not between Portable and Microsoft?

Gilligan: Right.

BTN: I can understand why you would partner with a company like Microsoft rather than acquiring them, but a company like Portable--why not just buy them?

Gilligan: We could. They'll probably go public. We may take a stake in them, we may not. It all depends. We could possibly buy them if we thought it was a good investment. But if all our customers want is information, we don't necessarily have to tie our capital up in owning them. We just want to be able to provide a service to our customers so they can save money and their employees can save time.

BTN: Yet they're pretty attractive right now. And you wouldn't want someone else coming in and taking over.

Gilligan: True, from a defensive point of view, and that's the way you have to look at it. They have an opinion on that as well, so I don't want to talk out of school--that business is created for the owners to make a lot of money. From our point of view, we need the software to provide a solution to our customers. Marketing alliances are pretty weak. I think you're vulnerable on just a pure marketing alliance, so I think there has to be skin in the game.

BTN: It's interesting to see all the relationships developed recently. What about the Maritz relationship with Amex?

Gilligan: We can pick a Microsoft, a Portable, or a Maritz for a piece of the solution. Just like we can pick others, such as Wright Express for fleet card. We could have built a fleet card on our own, spent X millions of dollars and it could have taken two years or we could partner with them and bring the two capabilities together. With each one of those partnerships, it's more than a marketing alliance. None of them are just handshakes. Both companies have stakes in them or we wouldn't partner with them.

BTN: Are there more areas to work together with Maritz?

Gilligan: Yes, I think there are. I have had a very good experience working with Steve Maritz and I have met Bill Maritz. They've run a very good company. But we said, let's do what we've agreed to do very well, get that launched because we created a joint venture. It will be in the market in the very near future. I sit on the board of directors with Steve Maritz on this and assuming that works well, there are probably other things we can do together.

BTN: So do you expect that you will go further in that relationship?

Gilligan: We could, we've talked about it, but I wouldn't make any predictions yet. Get that first step done and get it done well because what we've decided to focus on is a very big market and Maritz has made the decision to dump MasterCard and come to Amex with its incentive card business. We've decided not to go it alone but to go with the best incentive house in the country to market a joint product. We can both work together successfully and still be competing on the travel side, which we are.

BTN: The relationship you struck with the Paris-based travel agency Havas two years ago seems to have been working. Is that going to be a model for other relationships in the future?

Gilligan: It very well could be. There are certain markets we've been in and we are not the top two player. We want to be the top one or two in key markets and there's probably 15 to 20 countries we've identified in that range that we want to be the number one or two player in. Europe is probably a little more than half the list. But certainly in Canada, key markets in South America and in Asia. Two years ago we looked in France where we were probably the tenth largest travel agency and the breakthrough was to create a joint venture with Havas that's worked extremely well, so we went from number ten to one by working with them. And it didn't look like there were any prospects of us growing internally anywhere near the rate we would need to get relevant quickly.

BTN: What else are you working on?

Gilligan: We're building our global data warehouse and have been for a while, combining card, travel and expense report data. It's going to reside in Phoenix but it's going to be fed from different databases. We're finding out that very few companies have ever done this before, but we're building it with consultant help. Then we're trying to put together a series of alliances we feel are the best in class.

BTN: When will that be completed?

Gilligan: The first products probably will come out in the next two to three months. The latest buzzword you'll hear is not data warehousing but data marts, which is taking it in smaller bites. Building a data warehouse means working forever to put every piece of information in there, and at the end of it you'll have something unique. Data marts take it in chunks. They are a modular, step by step, common sense approach. We are piloting our first data mart on global air charges.

We'll start reporting using the air data mart in April and then we will start adding data marts on card data, travel data, expense report data. Three years from now we will have a complete data warehouse, but in the meantime we have reporting out of it starting this year--in a couple months.