I recently saw a pitch for a startup called Gliider and was impressed with the product. To make it simple, it’s a Firefox plugin that allows you to store travel information that you find on the web (Hotels, points of interest, Flights, whatever) by a simple drag and drop to the Gliider box. Once you are done, you can print or share you saved stuff.. Usually people will bookmark, print, copy and paste into a word document (at least that’s what I do) which is pretty bad.. Honestly, I really like Gliider.
At the presentation, one of the question after the pitch was: “Do you think this can have a sustainable business model?”. This is what we are going to find out now. I took the liberty to make a few hypothesis of course but I hope to give you an idea of a process that should be applied by every entrepreneurs who wishes to start a business.
First question: How do they make money? They have a “deals tab” in the widget that will send you travel deals (hotels, etc..) according to the saved search. That’s interesting as you can imagine those deals as well targeted.
Second Question: how much do they make per deal sold? That’s an unknown, but they do have a partnership with Expedia (source: Techcrunch) and looking at expedia’s affiliate program, you can easily find that they would make $4 per Flight transaction (which Gliider doesn’t seem to offer yet), and 5.5% to 6% of the transaction on Hotels. That seems pretty high so I’m wondering if it’s the full booking transaction or the gross margin made by expedia (which would be a lot smaller..). Anyway, we’ll stay in wonderland and imagine that it’s the full booking.
A hotel booking can go from something like $60 to an easy $250 (I’m excluding master suits!), for 1 to 5 or 6 nights in general. That ranges the potential gain per room from 5.5% x 1night x $60 = $3.3, to $250 x 6 nights x 6% = $90 commission. Pretty big range and we’ll deal with it. Most probably the transaction commission will fall in the $12 to $20 dollars on average.
Third question: how much do they have to make to be sustainable? That’s along question but I’ll keep it short by just keeping it simple. Gliider is a startup, they are small, probably somewhere around 4 or 5 people, low cost infrastructure, average salary around $90K, a professional web hosting, distribution through Firefox plug-in platform, some benefits (healthcare) and a little bit of marketing + PR.. Let’s keep it low and say $700K for the year (ok that’s low…). At $700K they can sustain the initial team and maybe improve the business a bit.
Fourth question: For users who have the plugin installed, how many will use the deal section? This is a bit like a CTR (Click Through Rate).. You might play with it after you install it, but then you’ll forget about it until you actually search for your next travel, and out of those they would need to click the Deal tab and see what’s available. I would venture a guess that this number stays in the low %.. Let’s take from 0.5% up to 5% (which would be incredible).
Fifth question: For the users who click on a deal, what would be the conversion rate (user who actually buy after clicking)? This is a classic and I would guess it in the same 0.5% to 6.5% (if the targeting is really great).
Last question: How many Active Users do they need on a monthly basis to make the necessary $700K to be sustainable?
- target revenue: $700K
- Revenue per transaction: between $12 and $20
- Users clicking a deal: between 0.5% and 5%
- Users booking a deal after clicking on it: between 0.5% and 6.5%
We are ready to plug this into Excel and play with the sensitivity parameters:
Those table tell us how many Users of the widget per month they need to have to reach their sustainability:
Ouch… in the best of the best scenario, they would still need to have about 900K users monthly.. and in the worst, 194 million.. That’s a tough call and it brings us to conclude that this model is NOT sustainable (and definitely not interesting for a VC investment). You could do the model yourself and play with different options but honestly, I didn’t find any that would be great…
So the bonus question is: How can they become sustainable? because as entrepreneurs we want to find solutions not just stare at the problem.
I think the post has been long enough for now, but in the next one we’ll talk about ways for Gliider (and probably a lot of other plugins) to reach their goal and succeed.
Any comments are welcome! and by the way: install it and try it, it’s really a good product..