FYI | Jun 07 2006
By Greg Peel
Brett Morgan is still shell-shocked over last Friday’s listing of Wotif.com (WTF) which at the close of trade valued the company at $674m. Wotif was hoping to raise $172m on a $2.00 listing, but the extent of oversubscription saw the dotcom debutant close at $3.32. Not bad for introducing an idea six years ago.
Such a listing was reminiscent of the frenzied bubble that was the "dotcom boom" of last decade, where at one point Amazon.com was worth more than the aggregate value at retail of every book published in English in the history of mankind (or so someone decided).
Wotif’s formula is one so ridiculously simple it makes you want to storm around the house kicking the cat for not coming up with the idea yourself. Hotels, motels and B&Bs are rarely fully booked, and with a week to go are happy to take a discounted booking in order to return at least something on the room. Invite the establishments to advertise free on one website, add guests seeking cheap accommodation on the other side, and let the power of the internet do the rest. And take a 10% commission.
Why is Brett Morgan shell-shocked? Because Wotif wasn’t the only company to think of it. Morgan’s company okjack.com, of which he is Marketing Director, has been running off a similar formula for four years with a similar looking website model. Asked what market share okjack boasts and Morgan replies "About one thousandth of Wotif". He’s not sure whether to cry at $674m, or laugh at the possibilities such a market rating implies. Either way, he’s not going to sit around and do nothing.
All’s fair in love, war and competition. Morgan had been waiting for the Wotif float to launch his secret weapon – a loyalty discount program which he compares to Virgin Blue’s (VBA) velocity points. Now that Wotif is responsible to shareholders, Morgan sees an opening.
Wotif started life as standbyaccommodation six years ago and okjack started as standbyrates a couple of years later. Standbyaccommodation began to establish itself across the globe, but it wasn’t until the name change to Wotif that things really exploded. As Morgan believes, it all came down to a simple marketing ploy.
Wotif now has the bulk of the market share that actually includes several players such as Qantas (QAN) and Flight Centre (FLT). But with all the hotel connections those two companies should have, they are just not competing with Wotif. Standbyrates wasn’t either, but Morgan expects a name change to okjack (with a cute penguin mascot) will go some way to making a change.
The loyalty program is another. Accommodation booking agents have always taken 10%, and this is the rate Wotif charges its hotel clients when a booking is made. Under okjack’s system, loyalty will attract a starting 2.5% discount for customers, moving to 7.5% or even the full10%. On anyone’s basis a commission of 10% in this day and age is quite high. Okjack is prepared to relinquish some or all of that.
The obvious question is: can’t Wotif simply do the same? Kill the competition with discount wars just like Qantas has done forever? Morgan thinks not. He believes Wotif is now committed to its model for the sake of maintaining shareholder value.
Key to being able to offer the discount is okjack’s early attempts to set up offshore offices. Too much time was spent stuffing around in New Zealand, and Morgan soon realised it was better to invest in a currency management model that allowed the business to stay onshore. He is convinced that after a couple of attempts the system is right. Now it’s time to take on Wotif, which boasts offices in some 35 countries.
Morgan specifically timed the release of the loyalty program to follow the Wotif float, and as noted previously, even he had no idea how popular Wotif would prove. But Morgan believes there is room for five or six players in this specific field. The hard part is finding more dedicated hotels when many have already signed up elsewhere, but okjack has its scouts out as we speak.
So is he looking towards a zillion dollar listing some time soon? That’s not the immediate plan, but he has already had interested parties get in touch about possible investment. How would he go about valuing the company? Well, that’s the interesting part.