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internet
business models
text and cases
Rosenbluth Int. and Biztravel.com
ANUP SHARMA
© 2005 UMFK.
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Rosenbluth Int.
• Introduction
– Rosenbluth
– Biztravel.com
•
•
•
•
•
Market studies and scenario
Acuisitions
Competition
GBF
conclusions
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Market and industry
• Traditional brick and mortar agencies served
business and leisure travelers.
• Additional information was being provided such
as car rental, cheap hotels and amusements etc.
• Agencies were primary distributions channels for
airline companies.
• Late 9O’s agencies focused on providing lowest
fare information and getting the tickets confirmed
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Market Conditions cont.
• Primary source of revenue was commission
on sale of tickets from airlines as well as car
rental and hotels.
• Market was divided in two major segmentsbusiness and leisure travels.
• Leisure travel was not very popular where
business travel market was huge and
companies were looking for reliable one
stop travel agency for long term contracts.
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Rosenbluth Int.
• Started as Rosenbluth travel in 1892, by Marcus
Rosenbluth, a Hungarian immigrant, to provide a
way to help Europeans emigrate.
• 1984- companies such as DuPoint realized the need
of one single agency for their needs rather than
multiple agents.
• Rosenbluth travel became a travel management
company and catered to business travel needs.
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Expansion phase
• 2 major strategies.
– To collect the travel data for businesses and analyzing
patterns to do further negotiations.
– Gaining ability to manage call centers efficiently and
effectively.
• 1988, company realized the geographical limitations of this
business and thus adopted the latest computer technology
to connect all the offices.
• This helped in providing correct information when needed
and gave company better control in terms of traveler’s
itinerary, travel preferences etc.
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Expansion phase cont.
• 1994, opened first “IntelliCenter”, a centralized reservation
facility in Fargo, North Dakota.
• Located in low real estate cost areas and highly productive
human resources.
• This improved the customer by far and reduced the issuing
cost of a ticket by one-third.
• Launched DACODA {discount analysis containing
optimal decision algorithms}.
• Helped clients to compare airline pricing, optimize their
travel spending, negotiate favorable airline contracts,
create holistic travel cost saving startegy.
• Launched @Rosenbluth, helping clients book tickets on
their intranet.
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Major competition
• American Express and Carlson Wagonlit
Travel.
• Characteristics:
– Managed mostly business travel sector and
minimal leisure travel.
– Provided ticket screening and best suited fare
options.
– Worked together to reduce the price of specific
careers through discounts. 53% success.
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Inside Rosenbluth
• Operations:
– Highly connected IntelliCenter, network operations center and
other offices.
– Network operations center handled the major travel contracts and
provided information for associate offices.
– Smaller reservations were handled by local account management.
– All travel service associates were monitored through the network
center. Information about the service level and performance was
transmitted on a consistent basis.
– Concentration on value added concept and removal of functions
which were using up the resources for nothing.
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Inside Rosenbluth
• Human resources:
– Biggest emphasis on the selection process.
– Complex and detailed interview process to
determine different skills of the potential hire.
– Classroom based training and hands on as well.
– Scripts and directions for all activities to guide
the associate while making a successful sale.
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Cont.
• Corporate culture:
– Very Employee centered and friendly.
– Flow of information through office bulletin boards and
flyers
– Only 2 employees had offices, hence pretty horizontal
– Employee bonus based on client satisfaction and
productivity.
– Event celebrations such as valentine day and birthdays
– Recognition of achievement thus creating incentive.
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The result…
• Lowest employee turnover
• Increase in customer satisfaction levels and sales.
• Reduction in mistakes or refunds showing
improved productivity.
• Listed as one of the “Best places to work in the
US.”
• Call answering timings were fastest among all
competitors.
© 2005 UMFK.
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Biztravel.com
• A result of online appearance of a travel agency names
Middlegates. Changed to new name.
• Personalized profile set up options
• Tracking everything from 20 frequent-flier plans to
hotel discount programs.
• Clients could choose itineraries that take advantage of
specific bonus plans and optimize your rewards.
• analyze client eligibility for seating upgrades on the
flights clients have selected--and then go ahead and
request an upgrade when the availability window
opens
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Industry information
• 3% of total U.S. travel was done online and
half of them was through online travel
agencies.
• Online travel booking grew from $4.2
billion to $16.6 billion by 2OO3.
• Estimated sales online for air travel was
highest among other transportation up to
73%.
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The need to go online..
• Online sales were getting popular day by day.
• Convenient and time saving ways to manage
travel was getting extremely popular within
corporate clients.
• Competitors were having strong online presence.
• Online business proven as a beneficial for the core
company and its operations.
• All in all moving with the trend….
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The decision.
• In 1999, Rosenbluth decided to buy major
stake in Biztravel.com in a deal believed to
be worth more than $100 million.
• Major reason of this purchase along with
the need was to target the SOHO {small
office, home office} market.
• Rosenbluth itself could not cater to this
market because it just could not cost
effectively serve it.
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Cont.
• Other investors included Accel Partners,
British Airways, Comcast Corporation,
Continental Airlines, Hummer Winblad
venture, Marriot Int., Sun Microsystems.
• Benefits from these partners:
–
–
–
–
They were leaders in air travel industry.
Better access to airline inventory
Provision of frequent flier programs
Goodwill
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Value to the client




live agent support through a well set up IntelliCenter
by Rosenbluth as a back up to the website.
Emails, live chat and other online communication
methods were adopted based on the need of the
client
85% of calls were answered in 3O second period,
email response within 6 hours and online chat was
almost instantaneous.
Reduction in cost and errors due to trained
Rosenbluth employees thus increasing efficiency
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Cont.
All Biztravel.com customers received up to
5O percent discounts on some fares because
of new partnership.
Rosenbluth provided the technological
support to the website and thus enhanced
the quality of service.
Examples include addition of features like
“Fareguard” and “My company.”
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Cost and Revenue analysis
Primary source of revenue were commissions and
sponsorships and advertising.
• Biztravel.com charged airlines a fee for
communicating with its customers.
• Ads companies were charged $35 per 1OOO
views which was above industry average of $7$15.
• Biztravel.com’s relationship with airlines was
based on effecting their market share hence they
had more compensation than competitors.
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Cost and benefit analysis.
Average price of an airline ticket sold
$
per ticket revenue received
$
no. of times bought
5-6 times
estimated revenue from a customer per year
$
150.00
variable cost per ticket
$
10.00
annual variable cost per ticket
$
60.00
contribution margin per ticket towards fixed costs
$
90.00
tickets to breakeven
25.00
100,000
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145.00
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Some concerns..
• Clint associate and website booking wasn’t
looking as a great mix.
• Clients were still requesting personal attention for
information which could be easily obtained on the
website.
• Frustration and confusion among employees due
to huge loads of emails and phone call on wait
• Increase in errors and miscommunications.
• Website was not serving the purpose it was taken
over for a long time.
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The death
• Biztravel.com staff could not adapt to the
changing environmental needs and issues.
• The costs were increasing faster than
revenue sources.
• September 11th attacks was the final nail in
the coffin.
• Rosenbluth Int. terminated Biztravel.com
on september 22, 2OO1.
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Mangement comments
“The Web site was struggling from the slumping
economy, but the drop in business after the
terrorist attacks was the final straw. After the
actions of Sept. 11, we've seen up to a 70%
decrease in bookings, and that was basically the
last blow we could take,"
Marc Kaelin, vice president of Biztravel
© 2005 UMFK.
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GBF?
• Network effects:
– None to minimum
Economies of scale:
– Absolutely there
Customer retention:
- yes . High switching costs, Profile set up
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conclusions
• Rosenbluth was acquired by American Express
2OO3
• This mega merger was to support the success of
these 2 major competitors.
• Depending on client retention, American Express
could wind up managing close to $11 billion in
annual travel by both associations and
corporations.
• Acquisition or mergers were the next steps for any
major players in the market after gaining
successful market share.
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