The other day I was reading a CLSA report on IT services and was shocked to find that travel booking companies have been listed under the category of “not using and no plans to use” cloud computing for the next 12 months! As I thought about it, the reality sank in!
Travel industry IT players have been the pioneers in the IT automation industry from the 1960s. With the CRS system during the 1980s, they had 400% growth in sales revenue with an agency employment increase of a mere 20%. It is a non linear growth model and in terms of cloud computing, the Travel IT industry has already “Been There & Done That”!
A look at the current GDS systems reveal that they are already operating a successful private cloud with a viable business model since the past couple of decades, even before the internet era and much before the ‘cloud computing’ terminology was invented! And they have been successfully addressing a customer base which includes Small & Medium Business (Travel Agencies and TMCs)! Note that the potential IT offerings for the SME segment in the upcoming years are worth 200 Billion USD a year, which is currently untapped. But the travel industry has been tapping the market with their end to end technology solutions, with a viable/proven financial model, with sign on bonus incentives and transaction based costing models. In one sense, it has created demand by enabling common people to take up travel agency as a business, reducing the entry barrier!
May be, the leftover activity in the cloud space in the Travel IT industry could be the virtualization of their data center, which they might be doing now, and any other internal operational activities (HR management?) that they might be thinking of outsourcing on a cloud model!
There might be a lot to learn for the IT industry (especially Indian IT companies) from the travel IT industry model of operations, be it in terms of technology solutions or business models to tap the SME market. IT companies that need non linear growth need to tap the SME market with the right solutions and provisions, which will convert Capex into Opex for SMEs.
Interestingly, I was also part of building a New Generation Cargo System from Mercator (Emirates Airlines IT) which was a multi-tenant, complete hosting model solution for other airlines as well, with subscription and Opex pricing models. I am sure that when the system was conceived as an idea during the early 2000s, the terminology “cloud computing” was not coined!
The travel IT industry has already gone through multiple cycles in terms of implementing the private cloud (without being termed as private cloud during the past couple of decades of course!). For example, the GDS industry had the issue of showing preferred airlines at the top of its search results because those airlines were part of the board of the GDS company and had a large stake in them. During the early part of the past decade though, the US government had to put regulations in place to eradicate this non-competitive spirit!
For such reasons, probably, cloud computing was not being thought of as an innovative idea during the early 2000s till Amazon found out that there was a large enough idle capacity in their data servers which can be leveraged by coming up with the cloud business model. During recent times as well, there were instances where data security came up as an issue in normal software hosting itself. For instance, Capt. Gopinath had cited in one of his interviews in CNBC TV18 that when the reservation hosting service was hosted by an IT company whose parent had ownership of another LCC, Deccan’s IT booking system collapsed many times which enabled ticket buyers to go to the other LCC! Also, there were doubts expressed by Air India employees in the media that their call center hosting company (whose parent was running an LCC) has got hold of their customer details because of which Air India’s market share went down and the other LCC’s market share had been growing.
Interestingly, security points and competitive information protection have been one of the reasons for a slower cloud adaptation, apart from integration challenges, readiness of technology and functionality offerings and a few others!
I think pure IT service companies have an advantage here since they are neutral service providers for their customers and do not have any stake of interest in their customer’s business.
If the right investments are made there is a potential SME market to tap, which would give non linear growth for the upcoming years! Are the Indian IT companies gearing up for the challenge and learning from the age old Travel IT players?