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November 2017, Amsterdam
Blockchain blockbuster: is the travel industry’s invisible battle over?
Pamela Whitby has been engaged in fascinating exchange with the founder of Winding Tree, the first ‘public’ blockchain for the travel industry
Back in 2015, when Lufthansa decided to introduce a surcharge on all reservations coming through the global distribution systems (GDSs), Max Izmaylov had just started to think about Winding Tree.
Rose, a recognised expert in emerging technology and, specifically, its impact on the travel industry, is now president of Winding Tree, which has been established as a not-for-profit foundation.
So, when Lufthansa decided to openly go to war with the GDSs, Izmaylov took this as confirmation that he was on the right track. “Lufthansa has been very progressive and fundamentally understands the challenge facing travel suppliers,” he explains.
So progressive, that last month the German airline made another powerful statement. It threw its support behind Winding Tree by pre-buying into an undisclosed quantity of Lif tokens, the travel industry’s answer to Bitcoin or Ethereum, which will facilitate transactions, and enable governance of the platform. The token fund-raising sale, which was scheduled for this week, has now been postponed until February to comply with Swiss regulations.
Lufthansa - moving blazingly fast compared to other airlines
“We needed Lufthansa’s expertise and they are willing to give it to us; they are willing to back a project like this,” says Izmaylov, who argues that the German carrier is “moving blazingly fast compared to other airlines”.
Initially, a subset of the airline’s flight inventory will be integrated into the blockchain, but the plan is that this will be increased gradually.
Public vs. Private
Blockchain is certainly the talk of the travel town right now, but there is an important distinction to make between public and what Izmaylov likes to refer to as “nonsense” private platforms.
Like Bitcoin and Ethereum, Winding Tree is a public blockchain, an open, permission-less network in which anybody can participate, and nobody dictates the rules.
Other travel industry focused blockchains have, to date, been private. Webjet’s Microsoft solution and TUI's are the two most cited examples. But elsewhere, Siberia’s S7 Airlines and Alfa-Bank have launched a private blockchain platform for the automation of trading operations, and airline trade association IATA has recently announced plans for an IATA coin. Tech firms too, like IBM and Amadeus, also want a slice of the action, but these too will be private blockchains. Amadeus, for example, says it is exploring a range of different blockchain initiatives and has developed prototypes for things like baggage tracking.
So what is the difference?
Izmaylov provides this “very simple” analogy: “A private blockchain is like an intranet. Yes, you can build this for your company, and yes it does have value in that you can share resources and so on. But a public blockchain is what many very clever people are calling the new Internet. The Internet changed the world. Does an intranet change the world? No absolutely not. An intranet is not ground-breaking technology.”
Winding Tree, which is aiming to be to the travel industry what Bitcoin and Ethereum are to financial services, is - or so Izmaylov and his team believe.
The value of Bitcoin, as well Ethereum (the most popular platform for smart contracts), lies in the fact that no single person or organisation owns the network
“The value of Bitcoin, as well Ethereum (the most popular platform for smart contracts), lies in the fact that no single person or organisation owns the network. That is revolutionary,” he says.
A company that uses a private blockchain (or any other database), controls everything. By definition, they can change the rules and the commission fee any time they want.
Theoretical physicist Joerg Esser, a former group director at Thomas Cook and now independent consultant, is currently preparing a webinar for Lufthansa’s sales team, to help them better understand the implications of blockchain following their recent collaboration with Winding Tree. Interested in blockchain primarily from a business transformational point of view Esser, who will be speaking in Amsterdam next month, articulates it like this: “There are two key areas of impact, the first being optimisation or ‘platforming’ of supply chains, which is primarily about efficiency (aka WebJet and TUI). The second is disintermediation, with Winding Tree obviously being the prominent one in travel.”
Secrets and lies
Interestingly though, the world’s biggest travel company doesn’t seem worried. At a recent forum held by travel content provider Skift, Priceline CEO Glenn Fogel was reported saying: “We’re not going to be worrying about it tomorrow or pouring a lot of investment into it. Of course our engineers are curious. But from my understanding, they’re saying ‘there are other things you can panic about.”
Although Izmaylov is keen to point out that destroying middlemen like Priceline, Expedia, not to mention Uber and Airbnb, is certainly not the goal, he believes that Fogel is “fundamentally wrong”.
Either he [Glenn Fogel] just doesn’t see it, or he intentionally downplays the importance of the technology because, well, he can’t just say ‘our business model will be disrupted soon'
“Either he just doesn’t see it, or he intentionally downplays the importance of the technology because, well, he can’t just say ‘our business model will be disrupted soon',” Izmaylov says.
TUI, after all, the world’s biggest travel company, which consulted with Winding Tree to better understand blockchain, has bought into it – admittedly with a private blockchain. But TUI CEO Fritz Joussen has publicly said that he believes “blockchain technology will fundamentally change the Internet – in all areas”. And he has also not ruled out the possibility of making TUI's private blockchain public.
*Correction: The sentence above previously referred to TUI's Hotelbeds Blockchain. TUI actually sold its intermediary business Hotelbeds last year as part of a wider strategy to focus on content and services, which it believes blockchain facilitates.*
The Winding Tree concept is garnering support elsewhere too. Following a recent presentation to VRMA, the industry body for vacation rentals, Izmaylov says that the audience was “extremely excited” about the philosophy behind Winding Tree.
This growing enthusiasm he attributes to people being tired of monopolistic business practices where the oligarchs don’t care about innovative start ups until they achieve scale, and can be acquired. This frustration is something he experienced first hand with Roomstorm, one of his own entrepreneurial ventures.
Having said that, while powerful middlemen may be blocking the road, removing them, he reiterates, is not the goal. Instead, it “is to enable innovation in the travel industry, which today is hindered by the ‘winner takes most’ system that we have”.
Izmaylov cites the example of Uber, who many would argue has been the ultimate innovator of recent times: “Did you know that Uber's commission fee was 5% five years ago? Today it's 20-25%. Do drivers have a choice? In many locations they don't. That's what I call ‘uberisation’. The model is simple: squeeze the competition out by subsidising the service and making it cheap, then when there is no competition, raise the price. That's what Priceline and Expedia and others have already done too.”
Winding Tree, on the other hand, plans to open up the data, and by creating a marketplace that is not censored and that is cheap to work with. And in this ideal world, it will be possible to advertise a service/business/property/anything on a completely decentralised platform and sell it peer-to-peer without an intermediary extorting a fee.
To be clear though, Izmaylov and his team are not purporting to be like Robin Hood and his band of merry men. That the mysterious bitcoin founder, Satashi Nakamoto, now has billionaire status is clearly a motivating factor.
“Yes, we want to benefit from this,” he says. This explains why 20% of the tokens in circulation will be ring-fenced for founders, advisors and employees, but is also an incentive to create a successful platform.
It is, undoubtedly, still early days for blockchain technology but with Lufthansa throwing its weight behind Winding Tree, the much written about ‘potential’ for disruption can no longer be ignored.
Ultimately it's about decentralisation of power
“Ultimately it's about decentralisation of power. In other words, the power that is now concentrated within just a few big corporations will be distributed among millions of people,” Izmaylov says.
But what worries some is exactly this. If regulated corporations disintegrate, and significant wealth becomes vested in the hands of individuals, who choose to keep that wealth tied up in crypto-currencies, then what happens to taxes? Izmaylov, for example, is hoping that Winding Tree Lif tokens will become extremely valuable in future but says he only expects to “pay taxes when I convert those tokens to a fiat currency, only a few years from now, if ever.”
Another conundrum is that like the internet, which democratised access to information drastically for some, new technologies like blockchain may only benefit those that can access or afford it, thus further widening the already yawning gap in levels of equality.
But much as Izmaylov would “love to solve inequality everywhere for everyone, no one can do that.”
So Winding Tree is tackling a very particular industry here, the multibillion dollar travel industry, where a great deal of power is vested in the hands of a few. Interesting times!
Watch out for an upcoming Q&A with Max Izmaylov on some of the finer points of how Winding Tree’s public blockchain will work. Or join us in Amsterdam in November where Joerg Esser will be sharing his insights on panel titled Man vs Machine