Make money while you sleep

• Josh Mehlman
• 30 March 2009
• Page 1 of 3 : single page

“The dot-com bubble had burst, but I think a good idea is still a good idea no matter what the market circumstances are”. Photo credit: Anthony Geernaert

The best new product and business ideas are those that convince people they can’t live without something they previously didn’t even know they needed. Inventing a new category is the pinnacle of marketing success. And the best online business ideas are those that use technology to do the work for you.

So when information systems consultant and technology entrepreneur Graeme Wood heard about an online business idea that did both, he jumped at the chance.

“The idea for Wotif came along and seemed a good one, and I was looking around for something a bit gutsy to get involved in; it seemed like a good idea at the time,” he explains.

The trouble was, Wood and his business partners decided to launch Wotif.com in March 2000, when stock markets around the world were littered with the shattered hulks of dot-coms that fell to earth.

“The dot-com bubble had burst, but I think a good idea is still a good idea no matter what the market circumstances are,” says Wood. “So this struck me as being a good idea that needed to be pursued, because if I didn’t do it somebody else would.

“I wouldn’t stop doing something just because times are a bit tough out there. I think it’s a good time to do it because a lot of people are distracted by all the mayhem going on. If you’re focused, you can steal a march because everyone else is going around saying that the sky is about to fall in.”

The idea behind Wotif.com was convincing hotels that instead of leaving unsold rooms empty, they could offer them online at a discount.

“There was no value in an empty hotel room at midnight, but it took a while for hoteliers to comprehend the potential value sitting there,” Wood says. “If it could be sold to anyone, even at a discounted price, they still made a profit out of it. And they still got to sell them breakfast the next morning or a few beers that night, once they were in the hotel.”

The clever part was working out a way for hoteliers to upload their ‘stock’ of unsold rooms and create a marketplace for consumers to search for and buy them.

“Implementing that was the key part,” says Wood. “We had to invent a completely new user interface for the consumer, and a very user friendly interface for the hotelier, and some pretty tight software in the middle that integrated it all together into a real-time inventory.”

It didn’t take long for the flaws of the initial system to become apparent, once customers started taking to the idea.

“We started off with a pretty flimsy set of software that ignored a lot of the real needs like robustness and scalability and security,” Wood explains. “But as soon as the volume started to creep up, it was obvious that it was flaky and we embarked on some heavy-duty design work to provide a system that could stand big volumes.

“Over the years, there have always been debates about whether we should chuck it out and start again or modify what we had; in the end it was a bit of both.”

Competitors didn’t take long

In the online world, you never get much of a headstart against competitors. In Wotif.com’s case, it took less than a year before competing sites emerged in the Australian market

“They all started copying our user interface which helped legitimise it, and they’ve never stopped coming,” laments Wood. “They come and go a lot. Some come and stay, and we take notice of what they do.

“But if you’re always copying somebody, it’s a bit hard to leapfrog them in design ideas or business ideas, so once we were out in front, we just ran as hard as we could to stay there.”

As well as a range of online competitors, Wotif.com now competes with many of the hotels themselves, which sell their rooms at a discount through their own websites. This eliminates one of the online company’s key advantages: lower rates.

“Hotels will always try and sell direct but if they really do the sums though, look at the cost of their own direct marketing, their own technology, their own Google AdWords costs, most of them would find that the cost of doing business with us is about the same,” Wood maintains.

“Because we’ve got such scale in our technology and in buying AdWords, for example, we can spread those costs across hundreds of thousands of hotel rooms. If you’re a small hotel or even a medium-sized chain, you simply can’t get those benefits of scale.”

Sleepless nights

The beauty of Wotif.com’s model is that it automates the process of matching buyers and sellers. In theory, the hotels, the customers and the technology do all the work. In theory, Wotif.com’s staff could put their feet up and watch the money rolling in. This is the essential promise of selling online. Of course, the reality is rather different.

“It always looks like not much work, but in reality there is an awful lot that goes on,” Wood points out.

For one thing, if customers can buy your products 24 hours a day, they may have a problem with your product outside of business hours. At any time of day or night, they may want to find out more or tell you what they think of your service. That’s a sobering thought for any online business with just a few staff.

“Initially we only had one person on the phone and that person couldn’t stay awake all that time,” Wood chuckles. “It wasn’t until maybe midway into the second year when we moved to offering 24-hour support.

“Especially if it’s an international business, because they’re awake while we’re asleep, it also adds an extra challenge of running the technology. You can’t shut the system down for a two-hour batch update every night, as some do.”

That said, the call centre is a valuable channel for communicating with customers.

“One of the interesting things about online businesses is you seldom get to meet or communicate directly with your customers, so the call centre is pretty important to us as a way of understanding who our customers are and what they expect,” says Wood. “Normally when they ring, they’re a bit cranky because something has gone wrong.”

Growth can’t last forever

In less than 10 years, Wotif.com has expanded to more than 400 staff, selling accommodation in nearly 50 countries. Each month the site attracts 3.2 million visits and handles more than 200,000 bookings.