History/Situation: STA Travel is a subsidiary of a privately held company, Diethelm Keller Holding LTD, marketing as “the world’s largest student travel organization helping students travel in over 90 countries”. Historically, STA utilized retail travel agencies located near or on college campuses; however the Internet has introduced new online competitors. The internet is predicted to account for more bookings than offline alternatives. In response to STA’s global customer base, STA delegated the responsibility to the local level while using an integrated information system to provide global support and solutions. STA’s philosophy is “local as possible, global as necessary”. STA launched a business strategy, One Company, to align business operations with customer needs across the world. In support of this global standardization emerged BLUEe, a unified sales and booking system supporting every STA point of purchase backed by a single network, infrastructure, finance and reporting system. STA’s North American division developed STATRAVEL193.COM, an interactive website with video reports from STA customers about travel destinations. They also were the first to explore the Second Life (SL) marketing tool. STA’s Global Webmaster, Craig Hepburn, also welcomed the SL idea however he knew it would be a tough sell to marketing departments in other countries.
STA had a two prong approach to utilize SL. One was to hold a movie making competition among SL residents which would highlight their virtual worlds. STA could then use the best of the videos to provide the services to the SL world as they do in the real world. The second element evolved into creating a separate orientation landing where new comers would be provided basic orientation information and then STA would lead them to exciting places in SL providing another opportunity to provide the services currently provided in the real world. Matt Nixon, Director of E-Commerce, STA Travels North America Division, needed to decide if STA should investment in SL. What is second life? SL is a virtual marketing tool which would provide STA a marketing presence in a computer-simulated virtual world. From the SL website, players can download client software for the game. Players are given a virtual self, an avatar, and a “second life”. There is a process for new players to get setup with their avatar, name, account info, avatar accessories, orientation, and avatar skills before choosing to transport to the mainland to begin their second lives.
Players can purchase a premier membership status which provides players an opportunity to setup a business and participate in an economy exchanging US$1MM daily. Opportunities: There was strong evidence of network effect in SL. By early 2007, there were over 3 million “residents” registered on SL, of which 700,000 had visited SL in the previous 60 days and 12,000-18,000 were typically on line at any given time. Also, real life (RL) businesses, brands and not-for-profit organizations began to explore their own second lives. STA has an opportunity to be one of the first to market in the virtual world travel category. In doing so, they can begin to form partnerships with other RL businesses. As more businesses residents join, STA can continue to grow their partnerships and advertising within SL. Problems: SL is new technology and history shows that technology has a short life cycle. There is risk that SL will not continue to grow long enough for STA to cash in on this significant investment. SL could also have a negative impact on STA’s brand image if potential customers begin to identify STA with a virtual business and not a real life business that can provide real world travel services. STA’s real world revenue will be a key metric in measuring the impact of SL.
Although, STA’s SL approach simulates the services they offer in the real world; I think it will be difficult for residents to make the connection from STA’s virtual world services to the real world services. Also, college students’ schedules are packed full with studies, work and socializing therefore majority will not have time to maintain a virtual second life. Finally, the current retail travel agencies will likely resist the SL marketing tool because the success of SL represents lost commissions for the retail agencies. What type of individuals make up the Second Life community? What do you believe will be the evolution of Second Life and other Massive Multiplayer Online Role-Playing Game (MMORPG) in the near future? The primary users in SL are gamers and tech savvy individuals who spend a lot of time in at the computer. Those that prefer virtual reality often don’t have a desire to travel the world for several reasons; they don’t like flying, leaving home, they can’t afford it, or their schedule doesn’t allow enough time. I don’t believe the current SL users will seek out STA’s real world services.
I also don’t believe there is an opportunity for STA to gain share through SL because those who enjoy traveling in real life prefer to experience it in person not virtually. These two demographics are independent; therefore the virtual players cannot provide a read on travel trends for the real life traveler. I also don’t expect SL to continue long enough for STA to make any gains in market share. How do you propose that STA Travel should go about establishing a presence in Second Life? How can the firm spawn the traffic needed for generating revenues? I struggle to find any basis for STA to move forward with establishing a presence in SL which will appeal to their target audience and generate revenues. I believe there is a missing link between the virtual reality and the real world services. I also think STAs target audience will remain a minority in the SL virtual reality user community. Evaluate the Total Cost of Ownership (TCO) of this initiative.
What would you propose to the executive team if you were Matt? Why? The SL actual costs not provided in this case, however the total cost of ownership must include the following: lease, setup, development, training of STA employees, maintenance, end of life, migration, integration with software programs, security, testing, data backup storage, insurance, marketing expense, global staffing to maintain site 24/7. I believe the cumulative cost of these categories will exceed the benefit because. How would you evaluate the value of Second Life to STA? At this time, I’d do not recommend moving forward on the basis that I do not find any value in SL. STAs target college audience is a minority in the SL user community. I evaluate the value of SL based on the projected increased revenue, profitability, market share and the risks or opportunities. The risks noted previously outweigh any potential advantage SL may provide.
Online community- SL is a virtual reality community brought together by a common interest of wanting to escape reality. Pay for service- SL primary revenue model; they charge a membership to users who want to upgrade and participate in the SL economy which exchanges US$1MM daily. Disintermediation- Historically STA utilized retail travel agencies, however the Internet introduced new online competitors. Market efficiency- STA online competition provides lower costs researching trips. Rather than physically going to the retail travel agent, consumers can search for pricing and availability online. Two-way conversations- STA North America has an interactive travel blog where customers can post videos of their travel experiences. Recommendation: I do not recommend SL because the risks exceed any gains that may exist. Also, there is not a link between the virtual and real world. I recommend that STA explore other online marketing opportunities.
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