One of the many problems faced by travel startups is, and has been for years, access to inventory. As a new player you will either struggle because you don’t have the volumes required for anyone to be willing to open their API – and you can’t get the volumes unless you have the inventory – or, they see you as a potential threat down the road and deny you access altogether.
As a result of this, the innovation happening in travel today is purely front end, lipstick on a pig. Very little is being done to the core of travel, inventory distribution. The power is centralized and the few big companies sitting on the inventory have little economic incentive to innovate themselves.
Time to change
But isn’t NDC is going to revolutionize how airlines sell their products, you say? Sure, it is giving some of the major airlines better control over their distribution channels, and it is a welcome alternative to the existing model. But an XML standard that has been in development for five years and only allows a limited number of airlines better inventory control, is hardly a revolution. What about the rest of the industry? Had IATA gone with a schema that at least tried to embrace the whole industry and not just the airlines, we could be having another discussion entirely.
Some of us believe that Blockchain technology could be the disruptive force that the industry needs. We have seen many articles about potential use cases for the industry (anyone else tired of reading about how lockchain could create the next, decentralized Airbnb and Uber?) but now is the time to take a closer look at some of the ongoing projects. Which ones are mostly fluff and buzzwords, throwing new tech at old problems in the hope of a magic fix, and which ones will actually be able to deliver on their promises?
But before we can discuss which projects are likely to succeed and perhaps even transform the industry, we need to understand the basic differences between a public and a private Blockchain.
Public or private?
A public Blockchain is a completely open network that anyone can join and participate in. It encourages open-source, permissionless innovation. Ethereum and Bitcoin are the largest public Blockchain networks today.
A private Blockchain however, requires an invitation or permission to join. There are also restrictions on what type of transactions you can participate in. It facilitates innovation behind closed doors. Ripple is currently one of the largest private Blockchains out there.
Now, let us look at some of the ongoing projects in travel:
- Webjet is building a solution which tracks the inventory of hotel rooms around the world using a private version of Ethereum. Webjet wants to make sure all the intermediaries between a consumer and their hotel get paid for their roles in facilitating the booking. Quite the opposite of what Blockchain technology was designed to do in the first place, i.e. remove the middle men…
- TUI Group is considering moving all their data to a private version of Ethereum to cut out the middlemen such as Expedia and Booking.
- S7 Airlines has partnered with Russia’s Alfa-Bank to speed up settlement times between airlines and agents. The solution is built on a private version of Ethereum
- Innfinity Software Systems will use Blockchain technology to make their online booking tool Innfinite capable of presenting NDC content and to “combine content and offerings in ways that just aren’t currently possible through other standards” according to one of their developers. Their solution is based on a private implementation of Ethereum
- IATA presented their concept of an IATA Coin, a digital currency built on Blockchain technology, at their World Financial Symposium 2016. Although no details have been given yet, looking at how IATA usually innovates it would surprise me if they decided to launch this on a public chain. For reference, here’s a corporate video explaining IATA Coin:
There are a few other projects out there but these are the ones that focus on inventory and distribution. These companies have one thing in common. They are all building their solutions on private Blockchains. Not all business processes belong on a public chain so this isn’t necessarily a bad thing. Some things might as well stay within the walled corporate gardens, although not necessarily on a Blockchain. I would argue that if you don’t need any of the features of using a public chain – network effects, lower operational costs, increased security, interoperability, decentralized control, virtual currency and collaboration with other developers – you might as well go with MySQL.
As you were
So we have a situation currently with a few companies either claiming to be using Blockchain to some extent, or looking into the possibilities. However, the motivation for most of them seems to be securing their own role and stay relevant. And many of them will probably succeed in doing that, at least for now. But there is hardly any industry disruption going on here, it is purely maintaining the status quo.
Some of the industry incumbents who have decided to invest in Blockchain at this point are reacting to Blockchain in a similar way as the banks – trying to embrace something that was designed to make them irrelevant, or at least seriously threaten their business model.
Why aren’t more companies trying to use the technology to improve the industry?
While most incumbents have limited incentive to invest in emerging technologies, at some point they may be forced to innovate faster and change their rent-seeking model. They should be embracing industry wide standards. We need to defragment and distribute(!) distribution.
Building a new protocol for the travel industry
There is one project which is attempting to fix this and democratize travel inventory. Winding Tree is the only open-source, public Blockchain project that I have come across in the industry so far. Built on public Ethereum, Winding Tree is a full-fledged crypto economy project, with its own currency. More on that later
In the words of the founders, Winding Tree is ‘a Blockchain-powered B2B marketplace for travel inventory (air travel, hotel rooms, car rentals, tours and activities, etc.)’
It aims to aim to remove any rent-seeking intermediaries from the distribution landscape by building a platform where suppliers can regain control over their own inventory, and list it at almost no cost. In fact, Winding Tree will not charge you any transaction fees, the only cost is that of posting the transaction itself to the Blockchain, i.e. a “miners fee”, which on Ethereum is paid by spending ‘gas’.
The basic concept is that gas is used to pay the miners to make processing power available to run smart contracts as well as store data on the chain. Reading information from the chain is free however so pulling data, like doing an availability search, will cost you nothing.
So what is it, really?
So what is Winding Tree actually building? It is not an app, in fact it doesn’t have any user interface at all. In its own words, it is ‘just a set of APIs’. That is a modest statement. One of the most exciting aspects of the Blockchain tech stack is how it encourages innovation at the protocol layer to a much larger extent than what we saw happen with the internet. Investing in the shared protocols of the Internet (such as TCP/IP, HTTP, SMTP, FTP etc.) did not generate a lot of income for most players. Most of the fun stuff was, and still is, happening on top of these few protocols – in the application layer. This is where the Googles and the Facebooks live.
In crypto economy projects and companies we see quite the opposite happening. Most of the value in the Blockchain stack is being concentrated at the protocol layer and we see new protocols being built on both new and existing Blockchains almost on a daily basis. The large majority of these on Ethereum. The protocols and their tokens are usually made available to the public through an Initial Coin Offering (ICO).
And this is exactly what Winding Tree is doing, building a new protocol for the travel industry.
It is going to be a basic infrastructure which other travel companies can build their own dapps and even new protocols on top of. Suppliers can list their inventory on the platform and agents and others can book through it. APIs will be released to allow for easy integration with the platform. Existing data exchange standards such as NDC, OTA, HTNG and others will be supported. This means that if you are a supplier and have an existing solution built on any of these standards, you can simply point to Winding Tree’s API endpoints instead of the existing infrastructure’s.
More than a token gesture
The crypto currency of Winding Tree, its token, is Líf. Líf will be a spendable currency with scarce supply. Suppliers will pay their miners fee in Líf when posting their inventory to the Blockchain. Agencies will need to spend Líf to book a hotel room, or make any type of transaction on the network. If you are a little tech-savvy yourself you can even use it to book your own travels through Winding Tree. If you are concerned about the volatility surrounding crypto currencies, that risk is mitigated by Winding Tree allowing parties to convert Líf to fiat currencies at the time of a transaction.
The question is, after Winding Tree has held their token sale, for which the dates and details will soon be announced, will Líf start seeing real world usage that will cause it to rise in value? After the initial value increase that most tokens receive once they get listed on the exchanges, purely due to investor speculation, market demand will be driven by a desire to use the tokens and by speculation over future use-value. The founders believe they have designed the economics in a way that aligns all the token holders around the same goal though — token price appreciation. To avoid extreme volatility and market manipulations Winding Tree is launching a market maker after their ICO to maintain short-term price stability.
Regulations and rulings
ICOs have been receiving a lot of heat lately, and have been labeled ‘The Wild West of investing’. However, the recent guidelines issued by the SEC , ruling The DAO tokens as securities, is seen as a first step in bringing regulation to the scene, and as a result, cleaner ICOs. The SEC uses the 71 year-old Howey Test to evaluate whether a token is a security or not and Winding Tree is working with lawyers experienced in the crypto scene to design a solution that works from a regulatory standpoint as well.
Winding Tree is incorporated as a non-profit foundation in Switzerland. They want to fund and support community projects such as open source databases, APIs and protocols. Funds from the token sale will be locked away in a smart contract (like escrow) and allocated to this type of project. Developers at travel companies will primarily use the Winding Tree APIs to build their own solutions on top of it but they will also be able to submit their own ideas as to how the platform could be improved. With it all being open source and fully transparent, anyone can study the code and propose changes.
This could open up for industry-wide developer collaboration like never seen before in our industry. With most of the founding team being developers themselves, the focus is definitely on developer experience.
I imagine early adopters of Winding Tree are likely to be smaller companies that need an easy and inexpensive way of listing and accessing inventory, as well as its startup peers who share their passion and enthusiasm for the project. If it does succeed with this initiative we could hopefully see some of the larger incumbents becoming interested too. Fear of missing out could force innovation.
As Winding Tree is a distributed autonomous organization (DAO) fully controlled by its participants – i.e. token holders – the governance part of the platform will be important. The founders would like to see all kinds of travel companies, and even travelers, participating in the governance of the marketplace, to prevent centralization of power. Without a diverse network of participants, they will simply not have a truly decentralized system. Decentralization with an open consensus model and no clearly defined leadership comes with its risks though. The last thing they would want is to end up like Bitcoin Core, unable to make decisions and progress due to ideological, political and corporate conflicts of interest.
I believe Winding Tree’s most important task over the coming years will be industry executive education on Blockchain technology. There is so little knowledge out there and very few companies have taken a stand on the technology yet