Think about it for a moment – over $600 million in capital has been raised in seven years by companies in the tours and activities sector.

It is also seven years since Phocuswright published its debut report into the sector: When They Get There and Why They Go.

Yet despite the large scale investment in travel’s third largest segment and the profile it has received (with an upcoming report from PCW: Tours and Attractions Come of Age), it still remains heavily fragmented, mostly offline, and no clear leader or major player has emerged.

NB: This is an analysis by Jon Fauver, CEO of TrekkSoft.

A large portion of the investment has gone towards consumer facing platforms.

Of the 197 companies funded since 2005 that Phocuswright has tracked, less than 30 were B2B reservation systems.

The vast majority are consumer facing reseller marketplaces or person-to-person marketplaces – striving to create a better consumer experience, disrupt the trip planning cycle, and become the Booking.com of activities or the Airbnb of trips (Wait! Aren’t they doing that themselves?).

Despite the hype, there has been no breakout brand and Viator continues to be the primary channel for most consumers, as well as the most heavily used by suppliers (in both Phocuswright and our own research).

Its position is now supported by the $200 million sale of the company to TripAdvisor in 2014.

Key findings in the new report shouldn’t come as much of a surprise to anyone who has been working in the trenches with suppliers during recent years, but it is great to have it validated with hard numbers from Phocuswright.

The market is big, important, and growing, but remains fragmented, challenging and primarily offline

Here are some datapoints:

• Estimated at $129 billion, tours and activities makes up 9% of the global travel market.
• This will reach $174 billion by 2020.
• More than half the suppliers generate less than $250,000 gross sales revenue per year and handle less than 5,000 customers.
• More than 80% of the gross bookings remain offline.

There remains a huge amount of friction in the distribution landscape – and the future shows some promise – but right now there remains a lot of work.

More datapoints to consider:

• Although an estimated two-thirds of suppliers list products via OTAs (here Phocuswright emphasizes that the sample is weighted towards larger suppliers), OTAs accounted for just 4% of tour and attraction sales globally.
• Viator, GetYourGuide and Expedia Local Expert dominate the OTA landscape.
• Only 13% of reservations via online distribution partners happen via some form of real time connectivity.

Despite last-minute, in-destination bookings being the cornerstone of UX for B2C platforms and mobile technology, most suppliers still cannot support last-minute, same-day bookings via resellers.

There is now an early foundation of plumbing between most B2B reservation systems and the OTAs – however, the first step of contracting remains mostly manual.

Suppliers that are using a reservation system often face challenges and delays getting listed on OTAs.

In turn, OTAs struggle to handle the backlog of suppliers that want to connect (and this is still a minority of the overall industry, the rush is still to come).

OTAs have focussed on where they can fulfil consumer demand best – ie. cities and high-traffic destinations where the ROI on time and energy is secure.

From a business perspective this makes sense, but it is also limiting their growth as their share of mind with the consumer is low, and limiting the reach and added benefit they can provide to suppliers that are not in high volume tourist destinations.

The diverse product range adds another level of complexity to things like price category mapping, terms and conditions, and cancellation policies.

Further complexity arrives in the form of weather-dependent activities – products that require a certain skill set or physical fitness, and providers who require a minimum number of participants.

In short: suppliers have been slow to adopt and many have not yet felt the pressure to evolve.

They are in the privileged position of being the driving force behind most recreational travel and benefit from the fact that, regardless of how painful the process, people who have already paid for flights and hotels are going to find a way to book and pay for their experiences.

Trends indicate evolution is about to speed up

Why can we say this?

• Gross online bookings for tours and activities are growing even faster than the overall segment, expected to double by 2020.
• Suppliers claim growing online sales as their top priority for 2017.
• Three-quarters of suppliers claim they will have live online bookings within a year, and 61% claim they will have a mobile site supporting live bookings.

The success in online of early tech adopters and the continuing change in consumer booking habits are reaching the point where suppliers who have been lazy are going to start feeling the pressure to evolve or become extinct.

We see suppliers increase their online sales 30-50% year on year after adopting a reservation system, and suppliers that distribute via OTAs report to us 20% more bookings versus those who don’t.

This is against the backdrop of a continued focus and attention from big players that will drive more adoption.

TripAdvisor continues to highlight tours and activities as being next big area for the company, whilst Expedia is investing heavily in its Local Expert service and even Airbnb is getting involved in trips – all of which help change consumer habits that will eventually put more pressure on suppliers.

The coming-of-age party is scheduled soon, but let’s not forget to learn to walk first

It is worth noting that B2B technology in the sector received less than 15% (a conservative figure) of the capital invested in the overall sector.

Okay, maybe it’s not as sexy, but it is the foundation that will allow the B2C innovations to unlock the majority of tours and activity inventory that remains unsold.

Educating the suppliers, getting the inventory online, and fixing the plumbing remains the key challenge.

Yes, the industry is fragmented and averse to standardization, but with the education of (and pressure on) suppliers, and B2B tech guiding them around major bottlenecks, we expect to be seeing change at a faster pace.

Tours and activities have one huge fundamental difference to flights and accommodation: a large amount of the product has high variable costs compared to fixed costs.

There is a limited to no advantage for suppliers to fill capacity with heavily discounted or high commission seats.

Therefore, commission paid for distribution should be offset by a saving in marketing costs or efficiency.

We advise that to not cannibalize a supplier’s direct bookings without adding significant value.

Lest we forget, direct bookings are sacred ground, if we really want to incentivize the suppliers to embrace change and evolve, prove to them that we can bring them more guests and access to different markets.

Let’s make sure as an industry that we come-of-age as a well-rounded, healthy, and stable member of the travel community.

Flights, hotels and vacation rentals have all made this journey already.

We should try and learn from their mistakes and take advantage of the new opportunities in mobile and SaaS tech to avoid some of the pitfalls.

NB: This is an analysis by Jon Fauver, CEO of TrekkSoft.

NB2: Dinosaur image via Pixabay; tour guide and Munich tour images via FreeImages.