Travelocity’s Uncertain Skies
Last week’s private equity acquisition of Sabre Holdings fueled speculation as to what will become of its prized asset, Travelocity. Will the popular online reservation service have to fly solo?
Michelle Peluso, president and CEO of Travelocity, has pulled the company out of a deep hole since taking the helm in 2003 but has yet to bring it through a full year in black ink. Travelocity is among the top sites in the online travel industry, sharing center stage with Expedia and Orbitz. In the wake of last week’s deal, analysts say it will likely be spun off and go public. However, preparing for an IPO could involve painful cuts.
Sabre’s new owners, Menlo Park, California-based Silverlake Partners and Fort Worth, Texas-based Texas
Pacific Group (TPG), have kept their plans under wraps, but carving up companies is the way private equity firms usually make money. Southlake, Texas-based Sabre Holdings is ripe for such a maneuver.
Sabre’s cash cow is its business-to-business back-end system, Sabre Travel Network, used by travel agents and online reservation services. It is one of four companies worldwide that have a lock on this sector of the travel business (see “Ticket to Ride,” p. 9). Sabre Travel Network has consistent, healthy profit margins in the 15 to 17 percent range year after year. Many analysts predict Silverlake and TPG will hang onto this core business segment and turn Travelocity into a separate business entity.
If so, Ms. Peluso, assuming she’s still piloting Travelocity, may have to crank up margins in preparation for a hurried IPO. Rival Expedia has far better profits at 11 percent, while Travelocity is not yet profitable, though Travelocity still has a lot going for it. Its loyalty program and business travel segments are the most promising, says Diane Clarkson, travel industry analyst at JupiterResearch. “They’ve done a really good job... in a way that’s a win-win for both Travelocity and consumers,” she says.
Yet, there’s no way to look at Travelocity’s costs without blanching. Advertising expenses are likely in the hundreds of millions. It’s also been on a buying spree. In 2005, it paid a jaw-dropping $1.2 billion to acquire European travel site Lastminute.com. More recently, it paid $35 million for Asian online travel site Zuji.
To stay airborne, the retail travel site must keep growing. Expect turbulence ahead.
-—Sunshine Mugrabi
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Cisco Pushes Boldly Into India
Cisco is best known for making the routers that move information on the Internet. Now it plans to do some re-routing of its own. CEO John Chambers announced that a number of senior executives will move to India in the next few years.
San Jose, California-based Cisco is the first major U.S. company to make such a big move to India, and Indian observers are stunned by the news. “Never before in the history of corporate India has such a huge change been proposed,” says Sridhar Mitta, managing director of Bangalore-based outsourcing firm e4e India.
Mr. Chambers was in India for the opening of a “globalization center” in Bangalore that will help Cisco identify the next generation of products for both emerging and developed markets. “Cisco chose India as the location from which to expand its globalization vision because India has a highly skilled work force, supportive government, innovative customers, and world-class partners that already have global capabilities,” he said at a December 6 press conference in New Delhi.
The first of the executives to arrive in January 2007 will be Wim Elfrink, who will head the new center as Cisco’s Chief Globalization Officer while keeping his title of Senior Vice President of Customer Advocacy. He will report directly to Mr. Chambers. In the coming weeks, 10 more senior executives will relocate from the United States and Europe to Bangalore, including the vice presidents of finance and human resources, according to press reports.
Although Cisco does not break down its revenue by country, Mr. Chambers said India accounts for 5 percent of its revenues, which were $28 billion in fiscal 2006. When the India market starts to gallop, as it will, local executives may find the scale too daunting, says Sridhar Pai, an analyst with Bangalore-based Tonse Telecom.
“There’s no time to groom Indian managers,” he says.
A broader presence in India will also facilitate partnerships. For instance, with retail taking off, global giants such as Wal-Mart are entering India, and they will require service providers that can operate on a global scale too, says Mr. Pai.
Cisco is not the only multinational pushing into India. Motorola moved Allen Burnes from the U.S. to India in 2005, as Vice President of Mobile Devices–High Growth Markets Division. Within one year, it rose from fourth place to second in India’s booming mobile phone market. But no one’s been quite as bold as Mr. Chambers yet.
-—Kalpana Shah
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Jaxtr Vocalizes Your Online Presence
Say you meet an attractive female online, and you want to talk to her, but you don’t want to give her your real number. Startup Jaxtr has the solution for you. Konstantin Guericke (pictured) is such a believer in Jaxtr, he is leaving LinkedIn, the successful social networking company he co-founded, to become its CEO.
Jaxtr essentially brings voice to social networks and blogs. Based in Palo Alto, California, and entirely self-funded for now, the startup launched its private beta version last week. “When Jaxtr came along, it was not just a nice bell and whistle [on top of social networks],” says Mr. Guericke, 39. “Social networks are in the end about expressing yourself.”
Analysts believe Jaxtr could fill a gap in the way people use the Internet. “I think this is something definitely desirable to have, and it’s a missing piece in the social network space,” says Sterling Market Intelligence analyst Greg Sterling.
Jaxtr provides a widget for users to paste, for example, on their MySpace or LinkedIn profile page, or even in an email signature. Someone can click on the link, enter his or her phone number (which can be hidden from the call receiver), and the two will be connected through a unique number assigned by Jaxtr for every relationship. Users can assign either their landline or mobile numbers for calls to be forwarded to.
The service even works internationally, allowing callers to avoid international charges for calls. Once the number is assigned, the caller can store that number for the Jaxtr member in their phone memory and always use that number to call them, thus eliminating the need to use the computer to make calls.
Complicated as it may seem, Mr. Guericke thinks the company brings an element to social networks that hasn’t existed before. Of course, he will have to build up the user base. Only then can he think of monetizing the business, which he expects to do in the next few months by providing value-added services, as Skype has also done.
Still, competition on several fronts will be a challenge. A number of web sites already offer “social phone numbers” to mask your true number, while VoIP competitors such as Skype, Jajah, and Google will not find it difficult to emulate Jaxtr’s offerings.
-—Falguni Bhuta
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Sordid Sex.com Saga
The man who registered the sex.com name, lost it to a career criminal, and eventually won it back in court now seems ready to accept that he may never recover the $65 million he is owed by the crook who stole his Internet domain.
Stephen Cohen was released from jail on December 5 so that he could start paying back Gary Kremen, who has spent more than $5 million in legal fees to regain control of the sex.com web site and track down his nemesis’ assets. But Mr. Kremen doubts that his adversary will ever abide by the 2001 U.S. court ruling ordering him to pay Mr. Kremen $65 million in damages and restitution. “I’ve come to the conclusion in the last couple of months that it is not going to happen. I’ve kind of let go,” Mr. Kremen says.
Mr. Cohen conned his way into control of the sex.com domain in 1995. Mr. Kremen regained control of it in 2001. He has already sold it for a rumored $14 million and reached an undisclosed settlement with Verisign, the domain registry group that briefly owned the company that transferred control of sex.com from Mr. Kremen to Mr. Cohen.
The long, sordid saga took a sobering turn the day of Mr. Cohen’s release, when his Mexican lawyer was attacked in a gangland-style assassination attempt in Tijuana, Mexico. Gustavo Cortés Carvajal is believed to be the only person with access to some of Mr. Cohen’s assets in Mexico. He escaped unscathed, but two people were injured in the attack.
Mr. Cohen had been jailed more than a year ago on a civil contempt charge after earlier fleeing the country and refusing to turn over his assets. He has not been tied to the shooting, but Mr. Kremen would not rule out that possibility. He noted that several people helping him recover assets from Mr. Cohen over the past several years have received threatening letters and phone calls that authorities traced back to Mr. Cortés. “I am concerned for my safety,” says Mr. Kremen, who also founded Internet dating site Match.com.
Mr. Kremen has taken possession of several of Mr. Cohen’s properties and his lawyers have identified banks in Latvia, Luxembourg, the Isle of Man, Mexico, Vanuatu, and the British Virgin Islands that are linked to Mr. Cohen. However, they have not been able to recover any funds.
---Scott Morrison
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Big Studios Collaborate on YouTube Rival
Who says media moguls can’t get along? In the face of the YouTube video juggernaut, heavyweights CBS, NBC, Fox, and Viacom have gotten together with the aim of creating a video web site that would enable them to sever ties with YouTube.
A consolidated web site would not only allow the studios to avoid copyright issues, but more important, would provide a cheaper way to launch video marketing campaigns to promote their movies and TV shows. Online video advertising is expected to become an increasingly critical advertising medium. eMarketer Inc. expects U.S. online ad spending to reach $2 billion in 2009, up from $410 million this year.
While YouTube, owned by Mountain View, California-based Google, has a head start in size, video search technology, and revenue streams, cutting ties would give the big media companies better control over their copyrighted content. YouTube has been notorious for hosting clips posted by users without copyright clearance. It would also allow the media companies to reduce advertising costs for viral video marketing strategies that MarketingSherpa estimates to cost between $2,500 and $10,000 per campaign.
But analysts believe going up against Google is almost a losing battle. ”It would be a mistake to try and recreate YouTube,” says Joe Laszlo, senior analyst at Jupiter Research. “I don’t think the studios can bring to the table any more than Google already has to offer, so there isn’t a reason to undertake the cost and the risk.”
If history provides a glimpse into future success, then the site could remain stuck at the starting gate. It took Disney, Fox, Paramount, Sony Pictures Entertainment, Universal, and Warner Bros. nearly seven years to get a digital cinema project off the ground. The group formed the Digital Cinema Initiative in 2002 to develop an open architecture for delivering movies digitally rather than in multiple film cans. The project is now in the initial stages of rollout.
Then there’s Movielink, a movie download site owned and operated by MGM, Paramount Pictures, Sony Pictures Entertainment, Universal Pictures, and Warner Bros. “Movielink has been existing for several years, and it doesn’t appear to be more successful than other competitors,” Mr. Laszlo says.
Still, studios seem to think they can work together. “If you’re able to work through the priorities, studios have a commonality that drives us to eventually reach an agreement,” says Sean Carey, executive vice president at Sony Pictures Entertainment, which is not involved in the latest initiative.
-—Laurie Sullivan