Travel management companies (TMC) were the first generation of outsourced travel services that booked flights, hotels, and rental cars for corporations. They also did soft services like consulting and outsourced personnel.
Online consumer travel management services like Expedia were the second generation and offered 24x7 flight, hotel, and car booking online. Then they launched business services like Orbitz for Business that put added pressure on TMCs and got corporate travel managers asking their TMCs to cut costs to compete with the online business.
However, no one conceived of horizontally expanding their services to include the other travel expenses like restaurants to better control corporations' spend on that instead of squeezing margins on the big three. That is, until Rearden Commerce came along.
According to Dan Ford, Director, Product Marketing, Rearden is an online marketplace that links corporations and TMCs via one consistent system and interfaces with 135,000 merchants offering air, car, and hotel plus other travel-related services such as dining, limo service, audio conferencing, and package shipping. Rearden outsources its network to TMCs, whose corporate customers use it to access those merchants. It also outsources directly to corporations for the same purpose. Ford explains, "We get paid by resellers who are reselling our platform and by corporations whose travelers are using our platform."
Users meanwhile get to pick and choose the services they want, and travel or procurement officers can enforce travel policies or shift spend to different merchants to leverage negotiated discounts--all from one application and all online. This is a radical departure in the travel industry, says Norm Rose, Analyst, PhocusWright.
Other Drivers of Online Marketplaces
Several other business-culture factors are driving the need for online marketplaces. According to PhocusWright, a travel consultancy, almost 50 percent of the travel and expense costs of customers comes from services other than air, car, and hotel. It claims restaurants alone comprise nine percent of most corporations' travel expenses. Yet corporate travel managers had little control over these expenses through traditional means like travel policies. They could set a per diem for a traveler, but they could not get volume discounts from various restaurant chains for having employees use them over other chains. Indeed, AMR Research claims up to 27 percent--or $52 billion--of these expenses are out of corporate control and do not go towards earned discounts with merchants.
With Rearden's online marketplace, these are no longer problems.
Benefits for Users
A case in point is JDSU, which creates communications test and measurement solutions for telecommunications and other companies. Since 2005 it used Rearden for air, hotel, dining, and rental car bookings and eventually online package shipping, airport parking, event tickets, and car service.
The company now has better visibility and control over all its time and expense services, says Terry Wood, Director of Workplace Solutions. It can now monitor compliance, modify policies to meet changing company and employee needs, add or change suppliers or services company-wide, and leverage its purchasing power for better contract terms.
With the Reardon platform, Wood says it was also able to replace multiple online and offline travel programs, TMCs, and Global Distribution Systems (GDS). That mishmash of solutions often meant employees would book their trips online, have to make a change on the road, and be forced to do it by phone with a travel agent that had no visibility into their booking because it was done on another GDS.
From a common Reardon interface, they now do it from a laptop anywhere. Wood says unused airline tickets also collected in separate systems so they couldn't be tracked or used. Now they appear on the Reardon interface when users book a flight from a table of flights from available airlines within their budget. Their travel manager determines their budget and other preferences beforehand.
They go through a similar process to rent a hotel and car. Wood says Rearden places the reservations in JDSU's GDS, which finalizes them with the airline, hotel, and car companies. While booking, they see prompts for other services--say, from a vendor that lets them park cars outside the airport to save money. If they need to ship materials overnight, they access a similar table of merchants with comparative pricing.
Before Reardon, Wood says accurately tracking spend using multiple systems was impossible. Also employees often didn't comply with spending policies and avoided JDSU's less expensive online travel booking tool. Now JDSU can manage what the Reardon system measures. Reardon tracks company-wide key statistics including both online and offline travel booking, as well as maverick spend by both geography and business unit. The tool also consolidates spend with fewer service providers to net higher discounts.
More Control for Managers
The online marketplace gives corporate travel managers, and increasingly procurement officers, more granular control over all spending but especially that beyond air, car, and hotel. They can, for instance, have a single console for provisioning services to different groups within the corporation and individuals within groups. Sales generally travels quite a bit, so they would have a ceiling to spend at preferred airlines and hotels and have a higher travel budget than other departments. The console also gives the managers detailed visibility into the exact expenses of individuals and departments.
Rose cites yet other advantages of online marketplaces. Now more workers work at home or from the road, so it makes their job less complicated by putting all their travel options online on one interface. He also explains that "it's a challenge for anyone managing travel at a corporation to continue to achieve savings because airlines, car-rental companies, and hotels continue to raise their rates pretty dramatically and that's impacting the true bottom-line savings for corporations. If you have a 20 percent discount and fares go up 15 percent, where's your true value?"
What's more, says Rose, increasingly "procurement officers, not travel managers, are the ones negotiating the discounts with travel providers, and they want to leverage as much volume as possible to do that." By horizontally expanding the breadth of services to include services they, not the travel manager, are used to managing, they manage to get the volume they need. Finally, he says when the cheapest service becomes obvious, corporations tend to see that employees are victims of "corporate guilt" and tend to choose the cheapest alternative, thereby gaining savings for their employers.
Lessons from the Outsourcing Journal:
- Corporations are reaching a ceiling on savings they can negotiate with travel management companies on air, car, and hotel travel and expenses. By outsourcing to a provider that leverages online marketplaces, they can expand the spend they control and have better cost-negotiation leverage with merchants.
- Online marketplaces give more choice of services and access to them anywhere anytime. Buyers outsourcing to a provider using online marketplaces are more apt to choose more affordable services and be more productive in organizing a trip.
- The technology tools that an outsourcing provider leverages allows a buyer's travel manager to set and enforce travel policy for different departments and have more granular visibility into itemized spend from a single console.