Upgrading AI-powered travel products to first class

In the race for dominance in the AI travel industry, even a small lead matters right now.

Every player in the space trying to capitalize on the promise of new AI/LLM (large language model) technologies is struggling with the fact that major platforms like ChatGPT are limited by data that is outdated or not real time. In an industry like travel, where fickle plans and itineraries literally change with the weather, this is particularly problematic.

As both investors in AI travel and advisors coordinating deals for startups in this space with other investors, we like to see companies pushing boundaries and providing value for users in new, concrete ways.

For instance, Kayak and Expedia have launched ChatGPT plugins, but GuideGeek from travel publisher Matador Network provides real-time flight data (GP Bullhound has provided financial advisory services to Matador Network). Meanwhile, Roam Around has a strong visual element to its interface.

But travel information is complex, and incorrect information — or AI “hallucinations” — are a challenge. Roam Around sometimes recommends one site while showing a photo of another (and potentially linking to a third), and in one of our queries, GuideGeek conjured a cleverly named pub that simply doesn’t exist.

At this early stage, our firm and other investors in the space we work with don’t have an expectation of perfection. The advances between GPT-3 and GPT-4 are so apparent that it’s easy enough to look at the underlying technology and say, “Eh, they’ll figure it out.”

We’re more focused on how companies are shaping and augmenting this technology for travelers and the market segments within the travel industry they are positioned to capture.

Differentiation is key — you need more than a skin for ChatGPT

Most AI products seem to be built on ChatGPT. While each travel company may start with the same baseline, we really like to see proprietary data that can train the AI to produce superior outputs. OTAs (online travel agencies) like Expedia and Booking.com have an advantage here with massive amounts of information about their customers and how people plan and book trips.

Small agile teams have an opportunity to adopt this technology and rapidly scale up before the big guys can effectively implement or risk disrupting their existing business. If consumers can use an AI tool to search all airlines instantly, why does an OTA need to be in the loop?

The OTAs are built on recommending what the masses want, but the whole point of AI is that the answer is now customized to the individual. An average ranking of 8 for a hotel doesn’t apply to a specific person whose main priority is to be close to a lesser-known local surf spot an AI surfaced for them.

To try to drive utilization, startup players have to get more creative with product design. Getaiway and Roam Around have focused specifically on itineraries, with the latter simplifying the user input down to one word — type in a place and get an itinerary, then refine from there. Matador says it plans to include influencer videos from its wide range of content creators in the GuideGeek messaging interface.

While giving an AI language model a more intuitive user experience could help attract users, whichever travel company is first to master autonomous AI “agents” like Auto-GPT will be very attractive. Travel information and planning is a natural application of generative AI, but using Auto-GPT to actually complete travel arrangements is a compelling proposition.

Travel AI revenue models that resonate

In the current economic climate, the familiar “build users, figure out revenue later” mindset doesn’t apply. While currently generating revenue isn’t a requirement for funding, a clear road map to it is.

SaaS models are particularly viable in this space given the scalability and financial/operational requirements for hosting and running an AI app. There are many travel organizations out there that won’t be able to harness AI on their own, such as destination marketing organizations (DMOs) and tourism boards; hospitality groups; niche apps for certain kinds of travel like fishing or skiing; airlines; cruise lines; and even bus lines.

Another way to drive revenue from these types of organizations is by using a commission/affiliate model. Travel AI products can use this option effectively but need to practice moderation, because to overdo it could undermine the usefulness of their product.

Consumer subscription software (CSS) has worked well in industries such as the outdoors in recent years. The majority of OpenAI subscribers are individuals, so consumers seem willing to pay for sufficiently useful AI tools as well.

Don’t neglect business travel

Most travel AI products on the market seem to focus on tourism. In a way, this makes sense because leisure travel levels in 2023 are set to exceed their previous 2019 highs, while business travel continues to lag behind historical levels. But we’re finding that the most promising companies in the space also have a plan for business travel.

An AI product that can help drive business travel and supplement existing corporate concierge services would be very attractive to a wide range of partners. Employers could set guidelines or parameters within a business travel AI tool they offer their employees. AI could steer business travelers from the company toward options that fit budget limitations, brand preferences or best practices.

AI for business travel will likely roll out incrementally with some tech-savvy business travelers using consumer tools before adoption occurs at the enterprise level. Business travel is more of a long game, but one that’s likely to reward companies that devote resources to it early.

Please remain seated with your seat belt fastened (for now)

Despite the fast pace of AI innovation within the travel industry, it’s important for entrepreneurs and executives to keep a cool head. Getting overheated on a particular niche or feature could leave you less prepared to pivot when unexpected developments arise. After all, Auto-GPT wasn’t a term virtually anyone knew just a month ago.

Established travel companies diving into AI should not neglect the core aspects of their business, but instead should come up with ways AI can augment, accelerate, or otherwise complement them. Focusing on AI makes sense, but we still want to see a durable company with depth that can succeed regardless of where trends may lead.

When you think about it, other than Airbnb, there really hasn’t been a major shift in how we plan and book travel online in decades. It’s time-consuming and tedious. AI presents a clear opportunity to do this better. Exactly how that will look remains to be seen, as industry giants and startups alike vie to define the next chapter.