Wednesday, July 18, 2007

Pricing & Web 2.0

There are a number of industries that are currently facing what I call “disruptive business models”. Some examples include:

  • Traditional recorded music formats, such as CD’s, which were first challenged by peer-to-peer file sharing networks like Napster (Mk I), and now by the likes of iTunes;
  • “Analogue” (paper and chemical –based) photography, which is under attack from digital photography;
  • Print newspapers, and particularly their advertising revenue base, which is under attack from not only the internet (news and classified sites), but also from free commuter newspapers such as The London Paper, City AM, Metro (all in London), and MX, here in Melbourne;
  • Traditional telephony is under attack from the likes of VoIP service providers such as Skype, and;
  • Finally there is the 200 year old Encyclopaedia Britannica that is facing stiff competition from Wikipedia.

    It is now becoming fairly clear in my mind that the Web 2.0 movement is also becoming another “disruptive business model”, and like the ones mentioned above, potentially damaging to the pricing and revenue management practices of the industries or businesses they are disrupting.

    Let’s say you run a petrol station in Dublin. You service is far superior to that of any of your competitors: you clean drivers’ windscreens, you check their oil and water, your forecourt is immaculately landscaped, and you charge 5 euro cents more than the competition as a result. Along comes a site like where users can not only see how much you’re charging, they can see your pricing history and that of your competitors. All of a sudden, that premium you’ve been able to command is under pressure.

    In my posting of 8th December 2006 titled “2006: The Pricing Year in Review” , I commented about a website called which predicts whether airfares will rise, fall or remain stable over a given (US) city-pair. Farecast will tell you things like (a) whether to buy an airfare now or later, (b) when in the future it will be cheaper to travel or (c) if you’ve got $150 to spare, where you could go to with that amount of money. I challenge any reader of this blog to find an airline website that provides all that functionality.

    For many years, the travelling public’s perception of revenue/yield management is that it’s a black box that the airlines use (that other black box, the flight data recorder, is actually orange), and only they know how it works. Farecast is putting these revenue management capabilities into the hands of consumers. Not only that, it is also putting its money where its mouth is. Farecast’s forecasts are 74.5% accurate, and for $9.95 consumers can buy insurance against prices decreases that are valid for a week. The owners have also indicated an intention to not only expand coverage of the site beyond the USA, but also to expand into a host of other industries such as car rentals, hotels and the like.

    As EyeforTravel reported on 17th July 2007, the MSN travel Channel will now offer Farecast prediction and planning tools to its users . Could this be the start of the democratisation of revenue management?

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