ADIR SHIFFMAN Expedia’s $700m public offer brings up many Wotifs...

ADIR SHIFFMAN
Expedia’s $700m public offer brings up many Wotifs for Aussie tech sector

Last week the giant US travel website Expedia made public its offer to buy Wotif.com for about $700 million.
In the past two years Wotif has been plagued by a series of widely reported profit downgrades and market-share problems. With its share price sitting at around $2.64 before the bid, down from a 52-week high of $5.25, the major shareholders quickly supported the offer.
Assuming the deal passes regulatory and competition concerns, the Wotif brand will fall into American hands together with its own previous acquisitions, including an earlier publicly-listed trailblazer travel.com.au.
It’s hard to believe now but five years ago Wotif was positively compared to such glamour businesses as SEEK and REA, and its global potential spoken of in the same terms.
Foreign players will now completely dominate the local landscape and include Booking.com and Agoda, both owned by the $US65 billion ($69.2 billion) US giant Priceline. The $US10 billion Expedia is itself already a serious player locally and owns Expedia.com, Hotels.com, and Trivago. It used to own Trip Advisor too but spun that out in 2011.
If you add in Orbitz’s formerly Australian HotelClub.com.au, four huge US players will own all of Australia’s dominant direct hotel booking websites. Every time you book a hotel from one of these websites, at least part of those commissions will be paying technologists in the US and elsewhere.
And before you shout about the major Australian airlines and other travel brands that also offer hotels bookings, consider that they often access room “inventory” via foreign room aggregators – the most common of whom are networks from Expedia and Orbitz.
As an Australian, I have many concerns about this Wotif acquisition. Firstly it has the potential to negatively impact competition and disadvantage consumers. Even more worrying, is that it could impact tertiary jobs in the local tech scene over the long-term.
Would it surprise anyone if a few years down the track Expedia determined it was more efficient to place Wotif on its “global” platform and no longer continue to employ a local Australian technology development team?
While I have no idea of Expedia’s plans, that decision will be their right and “cost synergies” are often one of the core value drivers in justifying acquisitions of this size.
Perhaps my desire to see Wotif succeed would be more understandable if I was not also chairman of the ASX-listed Disruptive Investment Group, which owns the decade-old Wotif competitor Check-in.com.au.
DIFFERENTIATING FROM WOTIF’S STRATEGY
I have spent many hours briefing analysts and shareholders on our strategies to differentiate from Wotif, such as refusing to charge ridiculous credit card fees and allowing consumers to secure a booking without paying everything up front.
Despite these and other shortcomings, whenever I am asked my prediction of Wotif’s future the idea that they would so quickly capitulate never seemed a possibility.
Wotif is after all still a major brand and even last half reported operating profits of $36 million from 3.2 million room nights booked.
At Check-in.com.au we have formed the view that the industry is superficially competitive but very un-innovative. All of the major websites offer roughly the same experience and mostly compete on the same thing – pricing and discounts. They fight over the user experience of their apps rather than the uniqueness of their value proposition.
It always seemed logical to me that if we, as a much smaller player, felt confident then surely Wotif would see the same glaring opportunity and use it to return to growth.
While it’s true that Wotif exhibited a complacency last decade towards their consumer proposition and technology platform, that seemed to be ending. By retaining some earnings (instead of paying out 95 per cent) the company could drive real innovation, maybe do one or two quality acquisitions, and evolve into a major global force.
Instead, they decided to sell out.
Australia’s failure to retain leading companies in the sector means that we are at risk of losing the domain expertise long-term. Wotif has also been a great Brisbane-based training ground for technologists and online executives, and it would be disastrous if this were to change.
INDUSTRY LEADERS NEEDED
In order to build our technology industry, Australia needs to have industry leaders that use a highly skilled local workforce. This expertise then cascades into other startups, employees leave to become founders, and the ecosystem grows.
It’s the way of Silicon Valley, Tel Aviv, and every major startup hub.
I’ve fielded many contacts from brokers and friends since the Wotif sale announcement, asking how this acquisition will impact Check-in.com.au.
For one, it’s likely that one day soon we may find ourselves the last Australian-owned hotel booking website with direct hotel relationships. That makes me sad, not happy, as Australian is now more vulnerable to losing talent, expertise, and potential from this country.
While I generally love the idea of playing the David to an industry Goliath, I’m always upset to see Australian companies with such great potential end up in the hands of foreign owners.
If you’re a Wotif shareholder I won’t blame you for taking the cash, but you should also pressure Expedia to commit long-term to retaining the development and commercial team in Brisbane.
And perhaps you could also consider re-investing some of your payout in the next wave of Australian startups.
Hopefully this next generation can become global success stories rather than the prey of big foreign competitors.