Despegar.com: From Online Travel Agency to Software Developer
Despegar.com (and its Brazilian affiliate Decolar.com) was created to solve one of the main bottlenecks that travellers faced in Latin America: queuing for hours in front of a travel agent to book a flight. With Despegar.com, passengers were able to book flights and hotel rooms online without the assistance of a travel agent in just a few minutes.
Like many other start-ups in tech space, acquiring a broad base of customers is crucial to obtain economies of scale and be profitable. Hence, Roberto Souviron, Mariano Fiori, Martín Rastellino, Alejandro Tamer and Cristian Vilate decided to create and roll-out Depegar.com in several countries in 1999, opening 9 offices in key cities in LatAm in less than 10 months[i]. Additionally, they followed an aggressive strategy by acquiring almost every online competitor in LatAm in order to rapidly increase its customer base and reduce external threats.
The success of Despegar.com was followed closely by many institutional investors since the beginning. The list of investors that participated in one or more rounds of financing is long and includes names such as Merrill Lynch, Accor Group, Hicks, Muse, Tate & Furst, Sonae and Yahoo[ii]. The actual shareholder base is composed of top-tier PE & VC funds such as Tiger Global (main shareholder with a 70% stake), General Atlantic, Sequoia Capital, Insight Venture Partners and Accel Partners[iii]. Even Expedia acquired a minority stake in Decolar.com (16.36% at $270 million)[iv] Nowadays, Despegar.com is one of the only 7 unicorns in LatAm and operates in 21 countries, employs 4,000 employees across LatAm[v] and is one of the top five travel agencies in the world[vi].
Despegar.com addressed customer concerns in 1999, but in the first decade of the 21st century customers wanted much more than making reservations in just a few minutes. In this new century, almost any travel agency was able to create a website to book flights and hotels, so this feature could not be Despegar.com’s key feature going forward. The company understood that it needed to provide an intuitive, fast, and efficient platform and make this platform its stellar product.
With this idea of creating a renewed platform, in 2007, the company made a quick turnaround, deciding to transition from pure online travel agency to a software developer company. The management understood that in order to remain competitive it should stop acquiring new technologies from traditional developers in India, US, and many other markets, and start building their own software, 100% tailored for its customers. By doing so, Despegar.com would be able to leverage its extensive knowledge of the LatAm market and provide a platform that matches its customers’ preferences, providing a layout that was more friendly, intuitive, and efficient.
The new platform was a complete success but the current decade started with different challenges and new trends. Now an efficient and intuitive online platform is not enough and customers are looking for a completely different experience: an app based experience. Despegar.com showed great agility to understand its customers tastes and doubled down on its R&D efforts, focusing most of its resourcing in developing a mobile app that offers almost all the functions and options than website does. On this end, Despegar.com increased its technology and product innovation division from 6 employees in 2007 to 900+ in 2015.
The mobile app was launch in 2012 and downloaded 24+ million times. The company has grown 30% per year on average and mobile booking now represents roughly 50% of their revenues. Going forward the company expects that most of its customers will migrate from online to the mobile platform.
Data suggests that Despegar.com is moving in the right direction. eMarketer says that smartphone use reached 39% of the market in 2015, rising to 45% (182 million users) and 57% (246 million users) in 2016 and 2019 respectively. However, there is one caveat to this figure, 84% of smartphones users are based in Argentina, Brazil, Chile, Colombia, Mexico and Peru in 2015.
[i] CEO de Despegar.com: ‘En los próximos 5 o 10 años, el mercado se va a duplicar o triplicar’http://www.nacion.com/economia/CEO-Despegarcom-negocio-duplicar-triplicar_0_1472652833.html
[ii] Despegar.com – La Agencia de Viajes Online de LatAm http://www.startups.com.ar/2014/03/despegar-com-la-agencia-de-viajes-online-de-latam/
[iii]Billion Dollar Unicorns: Decolar is the Latin America Entry to the Club http://www.sramanamitra.com/2016/05/19/billion-dollar-unicorns-decolar-is-the-latin-american-entry-to-the-club/
[iv]Travel Booking Site Mergers and Acquisitions in 2015: Expedia’s Big Year https://skift.com/2016/02/22/travel-booking-site-mergers-and-acquisitions-in-2015-expedias-big-year/
[v] Despegar prioritises online development for LatAm boom http://www.eyefortravel.com/social-media-and-marketing/despegar-prioritises-online-development-latam-boom
[vi] Despegar.com: de agencia de viajes a “unicornio” teconoligico http://www.infobae.com/turismo/2016/09/21/despegar-com-de-agencia-de-viajes-a-unicornio-tecnologico/
I love despegar.com! I feel like all my life I’ve been getting ripped off buying tickets through travel agents in LatAm, and I finally found a website that not only addresses the burden of going to a travel agent, but also provides me with amazing deals.
I think that the shift that they made from online to apps makes a lot of sense given the context. There are still many households in LatAm that lack the financial means to own a computer but own phones, so an app not only enhances the user experience for existing customer, but also enables despegar.com to target an untapped consumer segment.
It will be interesting to see the degree to which competition within travel-booking websites such as despegar.com will affect the price for the products they sell (flight tickets, hotels, etc).
Like the above comment, I agree that moving to an app-based experience is particularly strategic in Latam where access to the internet is increasingly mobile-first. Also in many categories what we saw in Google was that searches from mobile were meeting and exceeding searched from desktop, so providing a mobile experience is key. However, I think a big opportunity they have is to provide alternative means for payment other than credit cards. Other airlines like LatAm airlines give users the option of printing a voucher and paying in a supermarket or making a deposit at a bank.
I guess Despegar still has some challenges, most importantly: how will they remain competitive as airlines develop their own app experiences and aim to retain customers through points programs? How will they retain customers that are not willing to pay a booking fee? Another major challenge is not to become invasive as they try to push deals to customers when they download the app, they must use customer data wisely to provide deals that are actually welcome at the right time.