Vertical Travel Ad Network CEO Cree Lawson (Part 4)

SM: How big is the market? How do you calculate TAM? What is your business model?

CL: We’ve reviewed a great deal of research on how large the market is for online travel advertising and very specifically banner advertising on travel websites. Forrester says that online travel advertising is an $8-billion-a-year industry in 2007, growing to $24 billion in 2012. (See graphic below.) Graphic advertising (rich media, banners, sponsorships) make up about 39-40% of interactive ad spend so, in rough terms, our addressable market is $3.2 billion in 2007, growing to $9.39 billion in 2008 if you restrict our business to strictly banner advertising. We’re more than that.

This method of calculating addressable market leaves out a very important factor, however. The fundamental business model behind online travel distribution is shifting to an advertising model from a distribution model. For its first 10 years, online travel distribution was dominated by Online Travel Agencies (Expedia, Travelocity, Orbitz) distributing travel inventory on a revenue share model with travel providers. Disruptive Vertical Search models like Kayak/Sidestep, Mobissimo, Yahoo/Farechase and many others are now gaining marketshare rapidly and replacing the traditional distribution model of the online travel agencies. The ramifications of online travel shifting from a centralized distribution model to a distributed advertising model are profound, and the impact is hard to calculate.

Americans spent $73 billion on Travel in 2006, more than 35% of ecommerce. So the addressable market, for Travel Ad Network, is the $3.2 billion that’s currently spent on online travel advertising, plus the impact of online travel distribution moving to an advertising model.

Any way you slice it, we have our work cut out for us.

As a business we operate on several business models, but the predominant model combines a rep firm’s focus with a network’s reach. We have exclusive graphic advertising sales representation agreements with our publishers. We take responsibility for all of a publisher’s ad operations, serving, hosting, fulfillment and collections. We take a modest commission before paying the publishers.

This segment is part 4 in the series : Vertical Travel Ad Network CEO Cree Lawson
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