If Farecast serves millions of people, it is designed to fail

Farecast could absolutely change the way people think about buying airline tickets online. It is only available in Seattle and Boston right now, but once it rolls out to all cities, you will be able to see historical pricing for routes at any given time of the year. This is great because airlines are quite predictable in the pricing moves they make. Observe the pricing graph, and you can easily tell if it is a good time to buy a given ticket, or best to wait a few days.

The problem here is that Farecast is designed to be a victim of its success. That is, if everyone uses Farecast, then the airlines have a serious problem because their pricing schemes will no longer work. The result? Airlines will change how they price, which will cause Farecast to become a whole lot less good at predicting prices.

What can Farecast do to avoid this? If they have meaningful patents, they can prevent competitors like Flyspy from making the same information available to everyone. If that is the case, then Farecast could sell subscriptions. By limiting it to people most willing to pay, the impact of Farecast on revenues would likely not be great enough to force the airlines to change their pricing policies.

However, as Mike Arrington points out, it may be in the best interests of consumers that websites like Farecast exist. Why? Because if airlines are pushed, they may come up with a simpler pricing structure.

Funniest of all is that Southwest is not on Farecast, often has the best rates, has the simplest pricing of all and has been profitable for years while other airlines have declared bankruptcy multiple times.

Go figure.

Thanks to Brian Smith at Search Engine Watch for the link to this post. Read his article for more information on the "New Players in Travel Search."

Comments

[Breck]

Interesting scenario, but I think you're getting a little too far ahead with this analysis. If Farecast has millions of users, and causes one of the largest industries in the world to change their pricing models, I think the managers of Farecast would be ecstatic. If they focus on what the need is today, I think it's a terrific idea for a company( I just signed up on the waitlist for the trial.)

[Doug Sherrets]

Breck,

Ok, so should Farecast be ecstatic about the millions of users before or after their model is broken? Of course, that assumes they have millions of users, which is great because you could presume that Farecast will figure out a way to retain that user base.

But there are no guarantees of that happening. While a completely different service, Friendster proved that point.

Further, Farecast's managers may be ecstatic, but only if they are altruistic and just wanted to effect change in the way airlines price their tickets. But how do you answer to their VCs who no doubt want to see big returns on their investment?

Doug

[Breck]

Yeah good points. I forgot about Friendster--I guess having millions of users doesn't always equal success. I'm still eagerly awaiting my invitation so I can evaluate further(and book some cheap tickets).