From disruptor to disrupted: How Wotif lost the plot

Many of today's hot technology stocks are merely exploiting transient opportunities in quickly evolving markets, and are liable to eventually be snapped up or wither away.

Wotif’s acceptance of Expedia’s acquisition has important lessons for the Australian business community, along with illustrating the limits of the tech start-up sector.

The sale of Wotif to Expedia for $3.30 per share -- slightly higher than the 3.06 the stock closed at on its first day of its trading just over eight years ago -- shows some good ideas have a finite life.

At the time of floating, Wotif had annual revenue of $360 million, 130 staff and customers in 35 countries. By 2013, the service was only reporting $146m in sales, little growth and declining profits.

Plenty of other commentators have pointed out that Wotif was in an unfortunate position of being outgunned by major international players with deeper pockets that could pay for stronger alliances, better technology and global marketing campaigns.

In this respect Wotif’s woes are a warning for all Australian businesses that global players are investing in the modern technologies, skills and alliances needed to compete in the 21st Century. Local businesses that don’t do so risk being steamrolled.

The 1980s model so beloved by Australia’s business and political leaders -- slashing costs, screwing contractors and skimping on capital investment, particularly in IT -- is clearly no longer a sustainable way to run a business.

In May, Business Spectator described how US hire car service Uber is more than just a threat to the taxi industry (Uber’s taxi offensive is here to stay, May 2). Service industries previously thought safe from global competition are at risk from automation and online technologies. Wotif’s journey illustrates just how vulnerable businesses that don’t invest are to disruption.

Transition effects

Wotif also represents another aspect of today’s economy where brief windows of opportunity open as industries adapt to new ways of operating, giving savvy entrepreneurs the chance to grab a profitable -- if short-lived -- niche.

Graeme Wood and Andrew Brice, Wotif’s founders, are two savvy entrepreneurs who stand to pocket $250m between them if the acquisition deal proceeds, having found a niche in a sector being battered by change as the travel industry was upended.

Wotif was one of the breed of new middlemen the internet has become so good at developing and that is reaching its zenith -- or perhaps nadir -- with sites like Reservation Hop.

Reservation Hop books tables at popular San Francisco restaurants and then sells them through their website. Buyers are given the name of the booking to use on the night.

It’s difficult to think of a business that would irritate restaurateurs and diners more, even if there’s certainly a market need for proxy queue-jumpers -- although one wonders how profitable it is when the transaction fees are under $10.

Yet Reservation Hop illustrates how opportunistic entrepreneurs are blindsiding businesses that follow traditional business models and fail to invest in technology. Australian taxi companies have discovered this as Uber and local booking apps like GoCatch and ingogo provide safer, more convenient and reliable services than anything the protected incumbents can.

The fact that local service business such as the taxi industry and local travel agents can be disrupted in this way suggests there are few sectors that don’t face significant challenges from savvy entrepreneurs or deep-pocketed multinationals.

The conceit of ‘digital first’

Probably the biggest conceit in today’s business world is ‘digital first’ -- where an organisation’s management claims to be putting online services at the forefront of their operations.

The reality is every business is now digital, as almost every field of operation depends upon computers and the internet. An organisation that appoints a chief digital officer is as lost as one that employs a general manager of electricity.

In this respect, Wotif -- or for that matter Freelancer, REA Group or Seek -- are no more tech stocks than Woolworths, Telstra or the Commonwealth Bank. While the latter group don’t rely on websites to sell their products or services, their fortunes are just as much tied up in technology.

The real lesson from Wotif is that many of the hot technology companies we see today are exploiting transient opportunities in quickly evolving markets and many of them will eventually wither away or be absorbed by bigger companies.

For established businesses, particularly Australia’s incumbent duopolies, the moral of Wotif’s story is that neglecting technology investment leaves a company exposed to nimble disruptors or deep-pocketed multinationals.

Hopefully that’s a lesson being heard in the boardrooms and government offices around the country.

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