Skyscanner Business Model & Revenue Model to use in your Startup
The role of the affiliate business model for scalable low-risk businesses has grown considerably in the digital age. It allows growing quickly without high upfront investment in a way of product or service costs. For instance, such businesses as Skyscanner are set up as price aggregators. By redirecting interested potential buyers, they can earn a commission in a low-risk high-reward way.
Let’s look at the Skyscanner business model as an example. Skyscanner is an aggregation platform for flight fares, accommodation, and car hires. The Skyscanner business model can serve as a blueprint for your own startup if you choose to innovate having an aggregation of some data at the core. Whether it is a platform for plumbing services, cybersecurity consultants, or eco-friendly goods, following the Skyscanner business model can be instrumental in achieving your own success. Quite a few industries thrive by implementing the affiliate business model. Primarily, they are hospitality, e-commerce, and information technology. So, if you are considering launching a startup in any of those, keep reading for practical insights!
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Skyscanner Highlights
Today, Skyscanner is a part of the Chinese-owned Trip.com Group. The Group acquired the company for 1.4 billion British pounds (or 1.74 billion US dollars) in 2016. At that time, it was deemed as the largest travel tech acquisition. At its height, Skyscanner had around 100 million monthly travelers visit its platform.
In the chart above, you can see a sharp drop in revenues from years 2019 to 2020. It is associated with COVID-19: travel got severely restricted, so it impacted Skyscanner directly. However, the next year they managed to introduce XCover insurance premiums to help travelers navigate COVID risks, and it improved the company’s revenues. To prove it, let’s look at the funnel sessions chart below. Funnel sessions reflect the number of users going through the company’s website that perform target action resulting in final conversion. The number of travelers did go down even further the next year. However, the revenues climbed up. So with the decreased number of travelers, the revenues for Skyscanner went up thanks to introducing XCover.
Origins of the Skyscanner Business Model
Three friends from the university – Gareth Williams, Barry Smith, and Bonamy Grimes – held a brainstorming session where each of the co-founders presented three ideas. Out of the nine ideas, the one for Skyscanner prevailed. Yet, it wasn’t because the other 8 ideas were worse. It happened because it was the only one idea for which a co-founder Gareth Williams prepared a prototype. Here are his words about that:
“I was the only one that built a prototype of the thing I was proposing and I don’t think it is a coincidence we all got excited about the one that I built a prototype about. So we’d put together a kind of one-pager for all of our ideas. But they’re very dry and it was hard to judge them on their merit. Whereas with the prototype, you could actually look at it and go: “Ah, I can see what this could become”… if you can show someone what you want to do …. is so much more powerful than trying to write or explain.”
It is also worth noting, that they were all friends from computer science university. They were no strangers operating with abstract ideas. And yet it was a struggle for them to imagine and get excited about the idea without a prototype.So, when you seek help in launching your startup, make sure to check out Startup Services that offer quality prototypes among other development services. It is really a sink-or-swim factor for a startup. Even when you present your ideas among friends who support you.
Early Days
Being established in the midst of the dot-com bubble, Skyscanner had a really hard time securing any financing at all. At first, Gareth Williams quit his job to work on the startup while two other cofounders kept their jobs and split their 2 salaries among the three of them. When the company moved to Edinburgh from London, they enjoyed the cheaper cost of living there and could go full-time with the business. Yet, Edinburgh didn’t have much in the way of the entrepreneurial scene especially when it came to financing.
While the trio started working on Skyscanner in 2001 and officially established the company in 2003, their first financing was sourced in 2008 – 7 years later. The first financing was acquired when the business was already making 1 million pounds annually. To compare, in 2003, Skyscanner made only 100 pounds daily. And in 2005, it was 1,000 pounds daily. So, it was a really modest path to success.
In contrast, the biggest competitor – Kayak – launched in 2004 and it had $8.5 million in the first round of funding. Today, Kayak enjoys 41 million monthly visitors compared to 29 million for Skyscanner. And for the affiliate business model, the number of visitors is the main predictor of success. However, Gareth Williams saw operating without financing in a positive light. The company retained full control and was adamant about doing what was right for the user. Even if it meant not maximizing the full revenue potential.
Affiliate Business Model
The idea behind the affiliate business model is to assist others in the sales of their goods or services and benefit from this. Commission can be earned on a sale or lead basis. In the case of Skyscanner, it benefits from the affiliate business model by pay-per-booking and pay-per-click-through.
In the early days, Skyscanner mostly scraped flight data from airline websites. Consequently, it didn’t earn any commissions if users saw the price they liked and booked it. To start earning money, Skyscanner had to grow its user base as proof of solid traffic they could redirect. After they’ve achieved that, they started using airlines API and if the sale is made through a provided link by the airline, Skyscanner earned a commission. Or if a user came to the airline website from Skyscanner, depending on the arrangement.
In terms of aggregate platforms like Skyscanner, you attract users with the idea of a one-stop shop. Users do not need to visit each of the airlines individually, compare prices, and so on. So, you provide value in pulling the prices in one place for ease of comparison and making an informed purchase decision.
How do you connect your business to an affiliate business model?
There are lots of other platforms that can help set up your affiliate business. They are:
- ShareASale: it is a platform for affiliate partnerships. Vendors create and post their affiliate programs, and affiliates sign up to start earning commissions;
- ClickBank: it is also an affiliate network similar to ShareASale, where merchants register their goods for affiliate programs and affiliates sign up to sell these;
- FlexOffers is also an affiliate platform focused on performance-based marketing. It has customizations available and supports payouts per click, per sale, and per lead.
- Rakuten Advertising offers an affiliate network for financial services, retail, and travel industries. It has flexibility and AI capabilities to help match merchants with the best affiliates including influencer marketing;
- JVZoo is yet another large affiliate network with over 800,000 affiliates ready to promote and sell merchants’ goods. The platform differs by offering instant payouts.
- Impact is an affiliate network that mainly targets brands and publishers. Its landing page features brands such as Adidas and Lenovo among others.
Skyscanner Business Model & Revenue Model
Here is the business canvas of the Skyscanner business model.
Value Proposition
Skyscanner’s value to the users is in its price aggregation capabilities. Whether it is achieved by data scraping or API, Skyscanner can pull the prices for a variety of airlines, hotels, and car rentals. The company is well-known for its transparency and putting its users first.
Gareth Williams saw a major difference between traditional business and digital business in revenue vs user engagement as proof of business viability. Since Skyscanner was born during the dot-com crisis, a lot of startups manipulated investors by using revenue as proof of their significance. For example, they did it by signing advertising agreements between them to exchange a million dollars both ways. So on paper, they could show a million-dollar revenue, but in reality, there was none.
With a focus on user engagement, you provide genuine value to the users. In turn, this creates a platform for acquiring more merchants for the affiliation business model. User engagement goes hand-in-hand with the quality of the leads you can provide.
Customer Relationships
Ultimately, users are Skyscanner’s source of revenue. Therefore, to engage them, Skyscanner creates a wide range of functionality.
- It includes basic functionality such as searching for prices based on user parameters.
- In addition, Skyscanner creates functionality such as price alerts, emission labeling for eco-friendly travelers, and other options such as amendable tickets, free cancellations, promotions, deals, and others.
- Moreover, Skyscanner posts different information for travelers to help them navigate their choices. It includes reviews, tips, and rankings.
Channels
Skyscanner first launched its website. However, it was the introduction of mobile apps that bootstrapped the company’s growth and user engagement in 2011. That year, the app was downloaded 5 million times.
Customer Segments
Being a price-aggregator platform, Skyscanner’s main custom segment is a budget-conscious traveler. Whether it is an affluent person careful with their money, a large family on a budget, or a business traveler watching their expenses.
Key Activities
There are three biggest determinants of the company’s revenues for Skyscanner:
- State of the travel industry;
- Competition;
- Search algorithms.
With the first one, Skyscanner can only find ways to mitigate the impact but has no way of influencing it. For instance, the way Skyscanner was able to respond with XCover to the Covid crisis for the travel industry.
However, the last two are actionable. Thus, one of the key activities is constantly improving Skyscanner’s functionality to better resonate with the changing competitive landscape and to always remain desirable to the target audience. It includes improving the information display through search and on the website, as well as adding new features and improving the overall performance.
Search engine algorithm updates pose a different sort of challenge for Skyscanner’s SEO. Traffic that goes to the website directly impacts the revenues. Therefore, Skyscanner has a recurring need to update its SEO strategies and algorithms to always show up on top in searches. For a travel meta-search industry, search engines often provide at least a quarter of the traffic. The picture below shows the traffic origins for Skyscanner and, one of its competitors, Kayak.
Key Resources
The Skyscanner business model capabilities rests on three vital resources:
- Technology;
- Partnerships;
- Brand reputation.
Key partners
Affiliate business is based on the Skyscanner’s ability to strike partnerships with airlines, hotels, and car rentals. A great improvement was made in 2017 when Skyscanner created a feature of completing a booking directly through its platform. Simplifying the purchase process has led to better conversions.
Revenue Streams – Skyscanner revenue model
The Skyscanner business model combines the affiliate business model and the ad-based business model. Therefore, there are three major revenue streams:
- Affiliate business model – pay per sale;
- Affiliate business model – pay per click-through;
- Ad-based business model – pay per impression (display).
Overall, there is a great choice of business model for you to consider for your startup. You can often mix and match a few of them for the best results. You can read about them in Top 10 Business Models to consider for your startup.
In addition, Skyscanner launched its own affiliate program. With that, the company pays other affiliates if the user comes to the Skyscanner website and performs a qualified action.
The latest available online financial statement for the year 2022 is shown below. In 2022, the company has managed to make:
- From flight commissions: £216 million compared to only £84 million in 2021
- From hotel and car hire commissions: £15 million compared to £6.5 in 2021
- From advertising: £39 million compared to £17 in 2021
- From B2B services: £5.7 million compared to £3.8 million in 2021
- And from other services: £6.5 million to only £2 in 2021
Official data for the year 2023 is likely to be available around October 2024.
Cost Structure
According to the official financial statement, Skyscanner’s balance sheets took a hit during COVID-19 but made a good recovery in 2022. The situation is likely to improve further.
Cost of sales, Administrative, and marketing expenses represent the biggest part of Skyscanner’s cost structure. These correspond to platform maintenance and development, salaries, and costs of using API and cloud storage for data. Customer-facing side of things goes into cost of sales, while non-customer-facing goes under administrative. The latter includes platform security, licensing, compliance fees, and so on. Skyscanner’s own affiliate program goes under Marketing expenses as well as other promotional and advertising activities.
FAQ: Skyscanner Business Model & Revenue Model
Skyscanner operates on an affiliate business model, aggregating data from airlines, hotels, and car rental companies. It earns commissions from pay-per-booking and pay-per-click-through transactions. Additionally, Skyscanner uses an ad-based revenue model, earning from display ads.
Skyscanner generates revenue through multiple streams: affiliate commissions from flight, hotel, and car rental bookings, advertising fees, and B2B services. They also launched an affiliate program to earn commissions when other affiliates direct traffic to their platform.
If your startup aggregates data (e.g., services, products), you can adopt Skyscanner’s affiliate model by partnering with vendors and earning commissions based on referrals or sales.
Skyscanner’s success is built on its advanced technology, strong industry partnerships, and a trusted brand reputation, all of which help deliver value to users and attract partners.
Skyscanner must constantly update its platform and SEO strategies to remain competitive and adapt to changes in the travel industry, competition, and search engine algorithms.
