InsideTrip Goes Mainstream, Rates Itinerary Quality, Provides Broad Lessons in Online Travel

5/20/10Follow @gthuang

Think about the last time you flew anywhere. How would you rate the overall experience? Unless you’re a bird, there were probably things that could have been a lot better—legroom, connection time, delays, quality of service, and so on. In fact, the general level of misery in air travel feels like it’s always going up.

But when you made your last travel reservation, your decision was probably based on price more than any other factor, with connections and seat assignments as secondary considerations. The question is, would you want more information about the flights themselves before you book them, if it were available?

That’s what entrepreneur Dave Pelter is currently exploring with his Seattle-based online travel startup, InsideTrip. The company rates each flight based on 12 metrics, such as the age and type of plane, baggage handling record, on-time record, and how crowded it is. For Pelter, it all boils down to one thing: “Do people care about quality?” he asks.

InsideTrip is part of a new wave of technologies and business models in online travel. It’s not too surprising that Seattle would be a leader in the sector, since this is the backyard of Expedia (which includes TripAdvisor and SeatGuru), Farecast (now part of Microsoft’s Bing Travel), and numerous smaller companies like Yapta and Raveable. Maybe it’s because of the combination of a strong tech community and lousy weather.

Indeed, several travel startups have been bubbling up around town lately. The newest ones aren’t talking publicly yet about what they’re up to. But they have attracted some interesting players. One of them, TravelPost, was founded by former Expedia execs and backed by Ignition Partners and General Catalyst. Another, Off & Away, is being incubated by Madrona Venture Group.

Unlike those startups, InsideTrip is ready to talk about what it’s doing. Pelter, a former airline executive and Farecast vice president, sat down with me recently to chat about his company, where it’s headed, and how it fits into the broader story of online travel businesses. As of today, InsideTrip has officially emerged from beta testing mode and is opening its consumer website to the general public. It is also in the process of raising money and signing up new partners and customers for other parts of its business.

This isn’t the first we’ve heard of InsideTrip. Pelter rolled out the beta version of his website back in March 2008 and got a fair amount of national press. And just last month, he pitched InsideTrip to investors at the “First Look Forum” organized by the Northwest Entrepreneur Network in Seattle—and won as the audience favorite.

But to fully appreciate what InsideTrip is doing, you need to know Pelter’s background. He has vast experience in the travel industry. He was previously an executive with America West, TWA, and Alaska Airlines. The last airline brought him out to Seattle—right after the terrorist attacks of September 11, 2001—to run pricing and revenue management during a devastating period for aviation. Pelter spent three years with Alaska Airlines, which he calls “an innovative place,” and then joined Seattle-based Farecast in 2005. He was Farecast CEO Hugh Crean’s first hire (employee #6), and was in charge of building relationships with airlines, among other things.

Farecast is the company, co-founded by computer scientist Oren Etzioni at the University of Washington, which pioneered airfare predictions in travel search. If you go to Bing Travel today, it’s the technology behind the recommendations to “buy now” or “wait” because fares might be dropping. You can imagine airlines might not have loved the idea of predictive algorithms crawling their pricing trends and shedding light on their ticket-selling secrets. But Pelter and the Farecast team managed to convince them that the site could help boost ticket sales; Pelter argued that it made sense, because at the time, something like 90 percent of consumers would leave travel websites without buying anything. He says Farecast got to the point where “the industry is not only not shooting us in the head, but is being supportive.”

Pelter left Farecast in May 2007, about a year before its $115 million acquisition by Microsoft. He served as an advisor to Seattle-based Yapta, the airfare and hotel price tracking site, where he helped CEO and co-founder Tom Romary (also a former Alaska Airlines exec) build relationships with airlines. But he also began to think about starting his own company in the travel sector.

Pelter realized that “nobody has done a quality analysis,” he says. So he could use his “airline guy background and back-office experience” to provide a new kind of flight search experience. That was the genesis of InsideTrip, which he began in earnest in the fall of 2007.

The company’s core technology is based on relational databases that hold information on those 12 metrics of flight quality, which then get boiled down to one number from 1 to 100 (higher is better, and you can adjust which metrics you want to include or not include). The data itself comes from both public and private sources, including airlines, the U.S. Department of Transportation, and the Transportation Security Administration.

The idea, of course, is not that people will choose flights based only on quality, but that they will factor in how much better the experience would be for just a few more dollars, say. You can imagine this could be particularly important for making decisions about long international flights or complicated, multi-stop itineraries.

InsideTrip’s business breaks down into two parts. The first is the consumer-facing website, InsideTrip.com, which is the airfare shopping site. It makes money through ticket-sale referral fees, through a key partnership with Orbitz, and advertising. The second part of the company’s business is licensing its patent-pending technology to other travel companies. For example, you might imagine InsideTrip’s software could be used to make Expedia smarter, or improve the capabilities of online or traditional travel agencies.

The company’s strategy has been to build the consumer website as a proof of concept, and then start to focus on selling its technology to other travel firms (which might be the bigger revenue stream in the long run). In terms of attracting investors, Pelter subscribes to the philosophy of building something useful before taking outside capital. “Can you create value early on, and then go raise money?” he says. But that approach can be quite challenging. For example, the things he needs to do to boost Web traffic, like search engine marketing, are very expensive for a bootstrapped startup.

Pelter says he learned at least one crucial lesson from Farecast. “Make it dead simple to understand, or you’ll lose people,” he says. That lesson is reflected in InsideTrip’s consumer shopping site, which rates the quality of each flight with just one number; it also shows things like flight durations and layover times graphically, instead of just giving text descriptions. “We want to clean up how travel is displayed,” Pelter says.

So what are the long-term prospects for InsideTrip, and the online travel sector in general? The market is certainly big enough, says Henry Harteveldt, a senior travel industry analyst with Forrester Research. He estimates that online spending for leisure air travel in the U.S. alone will be nearly $45 billion this year, and will increase to almost $60 billion in 2014, if economic trends continue. “Travel is the single largest e-commerce category. There’s a huge amount of money at stake,” Harteveldt says. “In the end, if [InsideTrip] can help airlines become more profitable, then it’s a good tool.”

InsideTrip’s biggest challenge right now is “lack of awareness” by consumers, Harteveldt says, because it doesn’t have a big marketing budget. As for the licensing part of InsideTrip’s business, he says the air travel industry is not known for looking outside its own backyard for new technologies and solutions. “Too many companies I talk to give me the excuse of ‘not invented here,’” he says.

Pelter, for his part, sees a lot of potential for successful new businesses in online travel. And, not surprisingly, he is bullish on his company’s chances in a very competitive landscape. That’s partly because he says InsideTrip is the first and only travel site focused on the quality of itineraries. “As long as there’s pain and frustration in something we all go through, there will continue to be innovation,” he says.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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