By any measure, the online travel market has been a huge success, a bellwether sector of the Internet industry.
eMarketer estimates that in the US market, online consumer travel sales were $79 billion last year and will grow at a 17% annual rate to reach $146 billion in 2010.
Growth is slowing, however. While 17% is respectable growth, it falls short of the 28% annual growth rate posted from 2002 to 2006.
eMarketer is not alone in its estimation. PhoCusWright, Forrester Research and comScore Networks all agree that online travel sales growth is declining.
And slowing growth is not the only problem.
"The travel industry is undergoing a revolution that is redefining the rules of engagement between travel firms and consumers," says Jeffrey Grau, Senior Analyst and the author of the new US Online Travel: The Threat of Commoditization report. "In addition, a tighter market will exacerbate the fierce competition between online travel agencies and travel suppliers in an already commoditized market."
In other words, tighten your seat belts.
"Lower industry entry barriers are paving the way for new online travel business models," says Mr. Grau. "In this dynamic environment, current industry players must stay alert or risk being blindsided by new competitors that fall under their radar screens."
The online travel market is a hotbed for experimentation, with new travel sites seemingly popping up weekly.
"Recent offerings from Farecast and FareCompare help consumers determine when the best time is to book airline tickets," says Mr. Grau, "and travel social networking sites, where visitors share itineraries and information, are proliferating faster than conventioneers at a free buffet table."
These new sites chip away at some of the expertise that drive people to online travel agencies (OTAs), which are already pressured by travel supplier sites run by airlines and hotels.
Data from comScore show that branded travel supplier Websites (eg, American Airlines, Marriott and Avis) have been steadily taking market share away from OTAs (eg, Expedia, Travelocity and Orbitz).
The way vacationers plan travel is also changing. They are now meeting like-minded people in mainstream social networks like MySpace — or in one of hundreds of niche online communities that are sprouting up, some of which are dedicated to travel — to get destination information and make travel arrangements.
"Internet-savvy consumers are exploiting powerful online resources to find information about travel products and pricing," says Mr. Grau. "To succeed in the brave new world of online travel — no matter how fast it is growing — industry players must be willing to reinvent themselves to keep up with consumer, technology and competitive forces."