Ibps

A strategic
look at Web
Reservations
International

November 6

2011

This report was a joint effort by the analytics office of BBA which includes
Faisal Saleh, Daniel David, Danil Solovyev, Kevin Yang, and Sumeet Duhan.
The team divided the work equally where various members were given
different parts, and then the analytics office met various times to
collaborate and create this report for individuals interested to invest in
WRI. This report is done by BBA which is a third party that is not affiliated
with WRI, this report is independent.

A Study
Done by
“Best
Business
Analysts”

Web Reservation International strategic Analysis
By Best Business Analysts

Table of Contents
1.1 OVERVIEW ............................................................................................... 3
1.2 KEY FINDINGS........................................................................................... 3
2.1 HAMBRICK AND FREDRICKSON’S 5 ELEMENTS.......................................... 5
2.1.1ARENAS: .................................................................................................. 5
2.1.2 VEHICLES: ............................................................................................... 5
2.1.3 DIFFERENTIATORS: ................................................................................. 6
2.1.4 STAGING:................................................................................................ 6
2.1.5 ECONOMIC LOGIC: ................................................................................. 6
2.2 RESOURCE AND CAPABILITIES ANALYSIS .................................................. 7
2.2.1 RESOURCE BASED VIEW ................................................................................ 7
2.2.2 IDENTIFICATION OF STRATEGIES AND RESOURCES ................................................. 7
ACQIRED RESOURCES: .................................................................................. 7
BEING INNOVATIVE:..................................................................................... 7
BEING COMPETITIVE: ................................................................................... 8
DURABILITY:................................................................................................. 8
IMITABILITY: ................................................................................................ 8
SUBTITUTABILITY: ........................................................................................ 8
APPROPRIABILITY:........................................................................................ 8
2.2.3 VRIO FRAMEWORK ..................................................................................... 9
2.2.4 FUTURE DEVELOPMENT OF CAPABILITIES AND RESOURCES .................................. 10
2.3 STRATEGIC CAPABILITIES VS MARKET DEMAND ..................................... 11
3.1 CONCLUSION AND RECOMMENDATIONS ............................................... 13
4 APPENDIXES .............................................................................................. 14
5 REFERENCES .............................................................................................. 15

Word count: 4,457 (Excluding the title page, table of contents, appendix, and references)
Total Word count: 4, 843

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1.1 Overview
Founded in 1999 by Rery Nolan and Tom, Web Reservations International (WRI)
created a website under the domain of www.hostelworld.com. With success in over 180
countries, WRI provides online reservations to over 24,000 accommodation providers such
as Hostels and budget hotels. WRI’s main target markets are Budget youths and
Independent travellers. Since the early 1990’s WRI were the first to Identify this niche and
they were able to successfully place their business between this niche market and the
accommodation providers. Being able to generate revenue from a small reservation fee and
holding on to the accommodation deposit until the date of arrival was a key factor in the
success of their business.
This report is designed for WRI’s external investors to help them form a decision on
whether or not to invest in WRI. This report will discuss and identify the consistency and
coherence of WRI’s strategy to date, identify the strategically important capabilities and
resources of WRI, and finally explain if WRI achieved a match between their strategic
capabilities and market demand.

1.2 Key Findings
WRI was able to expand all around the world and is an ever growing business with
access to over 180 countries; WRI was also able to differentiate its self from its competitors
by targeting a different market, and entering the market through the right mediums.
Although the profit margins of WRI are low, the volumes in which these profits are collected
compensate the low return from a single reservation. Being founded on Tom Kennedy’s
previous experience and Ray Nolan’s IT skills, WRI was able to successfully create an almost
perfect and cheap system of reservations which is almost fully computerised and involves
very little office and labour work. Although WRI currently dominates the market WRI must
use their size and connections worldwide to concentrate on travellers going to Europe, East
Asia and the Pacific since some reports suggest that by 2020 1.6 billion travels will be going
there.
In the case of WRI they have a “first mover advantage” because they were the first
to tap into this market, which gave them the ability to create a large database of suppliers
and customers. Their increasing network size also gives them economies of scale and scope,
they are able to lower their costs due to the vast volume customers/suppliers they have.
Their Huge database gives them a strategic advantage over new market entrants and
prominent competitors. Their main capabilities and resources are mainly their Technological
expertise and vast network of suppliers and customers. Further in this report, a brief
analysis of how they can improve these capabilities to maximize their benefits from them in
the future.
Initially WRI had a very narrow strategy focusing on 1 specific market, that was
successful but over the long run the market demand increased due to several factors such as

3


the recession and increased use of technologies, more and more people became interested
in the company and now a days they have pretty much every body using their services, not
only their specific target market (BYIT), they also diversified their strategies by including
iPad iPhone applications, different types of hotels, including links and the ability to book
flights or go to company specific websites to book from them.

4


2.1 Hambrick and Fredrickson’s 5 elements
Some define strategy as an integrated, overarching concept of how the business will
achieve its objectives. According to Hambrick and Fredrickson, strategy has five elements
which are Arenas, Vehicles, Differentiators, Staging, and Economic logic.

2.1.1ARENAS:
When it comes to arenas it’s important to know where WRI is active in the markets.
Before founding WRI, the founders profitably ran a hostel in an efficient way. By successfully
installing the reservations management systems in their hostel, they were able to serve
their customers, the travellers, needs with a better flow and less problems. After
establishing WEB RESERVATIONS INTERNATIONAL the company offers confirmed online
reservations for over 24,000 hostels and budget hotels in 180 countries. As mentioned
above, WRI’s target markets are Budget youth and independent travellers who depend
mainly on the internet and bypass the traditional channels to organise holidays and business
travel. Through hostelworld.com the company’s revenue grew and it stood as the biggest
global provider of confirmed online reservations for the budget accommodation sector.
Apart from BYIT market there is also a demand from the new markets like FLASHPACKERS
who are generally travellers in their thirties and families who are looking for some more
facilities. This site not only offers accommodation but also offers other services like pick up
from airports, bed and breakfast and travel insurance also. As the forecast suggests that
international arrivals will reach 1.6 billion by 2020 and most prominent receiving areas
being Europe, East Asia and Pacific and the Americas the company must focus on all the
trends of the market and keep itself in the top.

2.1.2 VEHICLES:
WRI as a business was able to maintain over 10 years of success, including the years
of the financial crisis (2007-Present), understanding how they were able to maintain this
success is key to help us identify if WRI should be invested in. According to the case study
WRI is established in 1999 by Ray Nolan and Tom Kennedy. Before setting up WRI Tom
Kennedy successfully ran a hostel in 1990’s and his evaluation of future market needs led to
establishment of WRI. He introduced a software programme with the help of Nolan which
allowed his hostel to manage check in and checkout process. This was not introduced
before. They introduced a new trend to the markets which made them the biggest global
provider of confirmed online reservations for the budgeted accommodation sector. Through
hostelworld.com the company offers services for 24,000 hostels in over 180 countries. The
company launched bedandbreakfastworld.com in 2010 which is the largest online bookable
B&B in Europe. WRI also owns individuals domains which ensure that if anyone searching
for hostel online will land on a WRI site. WRI also licensed its reservation technology for a
large number of affiliate travel sites which include ryanair, busabout, lonelyplanet etc... It
also developed social networking capabilities which ultimately help them to market their
services. By using all this vehicles the company has successfully made their presence in the
markets.

5


2.1.3 DIFFERENTIATORS:
WRI differentiated itself from others competitors in the market carefully. It targeted
the untapped, niche; markets by providing direct services to those people WRI
differentiated itself from other competitors. WRI is the first company to make the travel
business more efficient, they have done this by allowing the hostels to manage check in and
checkout services. It targeted the BYIT market which has been looking for cheap and
budgeted accommodation. Apart from others it provided other services like pick up from
airport, guides, travel insurance, information about travelling destinations etc. WRI
effectively adapted themselves to the changes of trends in the markets. The markets were
vastly under expected by other companies where as WRI concentrated on giving the best
service for the travellers looking for budget accommodation. There was no alternate
competitor who tapped on the BYIT markets as WRI.

2.1.4 STAGING:
It did not take long for WRI to dominate the markets they targeted. There were no
certain specific strategies for WRI. They moved according to trends of the market. It first
started as a company which helps in finding the hostels for budgeted amount. The
company’s strategy was to provide services to as many people as possible. It gradually built
relations with the hostels and through its websites offers confirms reservations to 24,000
hostels in over 180 countries. WRI also licensed its reservation technology to affiliates so
that it dominated the markets. The content is available in 23 different languages and
introduced new trends by creating social networking site called ‘Myworld’ for its customers.
In 2010 it launched a B&B services which is also largest inventory in Europe.

2.1.5 ECONOMIC LOGIC:
WRI makes it revenues by holding on to the deposits paid for the reservations.
When a customer books a hostel and the reservation is confirmed they pay a 10% which the
company holds. This is the money that the company make. As the business is web based all
the booking charges are held by WRI. With 24,000 hostels across 180 countries there is
going to be huge money. In 2005 the company’s turnover was 28.5 million euro. The
company uses its revenues in expanding their business. Expansion of WRI has offered lot of
travel agencies huge profits.

6


2.2 Resource and Capabilities Analysis
2.2.1 Resource Based View
This part is going to deeply explore the strategies and resources used by WRI. We are
going to use the Resource Based View 7 main elements as a tool for our analysis.
The Resource Based View analysis argues that firms possess resources, a subset of
which enable them to achieve competitive advantage, and a subset of those that lead to
superior long-term performance. Resources that are valuable and rare can lead to the
creation of competitive advantage. That advantage can be sustained over longer time
periods to the extent that the firm is able to protect against resource imitation, transfer, or
substitution. (York University 2005)
The main factors of RBV are prior or acquired resources, “Imitability”, durability,
“appropriability”, and substitutability, truly competitive and innovative capability.

2.2.2 Identification of strategies and resources
WRI target BYIT (budget youths and independent travellers), students, and
backpackers, by providing easy on-line booking and low-cost accommodation.
WRI has various strategic capabilities which help them successfully dominate their
market some resources are based on the internet which include IT and technology
expertise, financial capabilities, and information from other websites. Also, their
connections with a vast amount of Hotels, and Hostels which was a market that was ignored
by most travel agencies in the past can be considered as a strategic capability. WRI also has
connections with various tourist hotspots throughout the countries they support, their
website visitors are able to view details videos and reviews about various locations to help
plan their vacation using WRI’s website. Their main Resources will be explained bellow;
however the most prominent resources are their architecture, cost efficiency, and
technology.
ACQIRED RESOURCES:

In the case of Web Reservations International, its success is mostly attributed to its
owners or founders. Tom Kennedy one of the founders of WRI used to run a hostel in
Dublin. His efforts to offer more efficient services he along with Ray Nolan who is a
computer expert developed a new software. Because of their knowledge on the industry
and their intentions to offer effective services they established WRI and maintained good
relations with the Hostels and hotel which offer budgeted accommodation.
BEING INNOVATIVE:

In 1999 when Ray and Tom established WRI it was an innovative idea. There were no
other hostels which were offering these services. Managing check in and checkout online is
an innovation. Through hostelworld.com, and their newly developed iPad/iPhone app which
allows mobile users to book on the go, they are offering online confirmed reservations for

7


over 24,000 hostels and budget hotels in over 180 countries. The entire concepts of going
on holidays have changed after WRI is established. Other innovative services like pick up
from airports, travel insurance, information about travelling destinations helped WRI to be
successful in the industry.
BEING COMPETITIVE:

As we know that WRI is the first of its kind, there were lot of other companies which
copied the format after WRI. With its good rapport with the hostels and budgeted hotels
and its aim to provide cheap and budgeted accommodation WRI stood successfully in the
market. There were no other companies who offered budgeted accommodation and other
quality services than WRI.
DURABILITY:

WRI is established in 1999. In the tourism industry there is need for change in every
short period. The demands of the markets are bound to change quite often. To meet the
needs of the customers it is essential to be constantly updating the system. Updating the
services offering meeting to the demands of the market is essential for the company in the
long run.
IMITABILITY:

Imitability is a factor to consider. Software and the systems can be easily imitated in
every industry. This is where WRI stands unique from other competitors. Offering quality
services and budgeted accommodation cannot be imitated, in the sense that gathering all
this information and generating vast databases of customers, hotels, and hostels is not
easily replicable. WRI is known for offering accommodation at low cost without any hassles
is hard to imitate for any other company.
SUBTITUTABILITY:

It is easy for any company to substitute a major player in the industry if they offer
services more efficiently. In the case of WRI there is no other company which offers
budgeted accommodation reservation, and other services for low cost. The goodwill of the
company is hard to substitute. Also, although it is simple to create a website, it will be very
hard for a new market entrant to successfully place itself in competition with WRI due to the
huge database of customers, hotels, and hostels that WRI has.
APPROPRIABILITY:

WRI offers services directly to the customers. It is appropriate that both the
company and the customers benefit. Since its establishment in 1999 till this date WRI has
grown and its revenues have increased year by year. The company has to cleverly manage
these revenues to see that the company meets the market needs effectively. In summary,
WRI was able to successfully plant itself between the suppliers (hotels, hostels, etc.) and the
customers (travellers) and develop their relationship through WRI’s web outlets. WRI also
was able to tap into other areas where tourists are interested in and present information,
videos, and reviews on various key tourist locations, which in turn helps WRI play a bigger

8


part in their customers chosen journeys. This is one of the key success factors in WRI’s
strategy; being able to infuse their website in many aspects of their customer’s trip. WRI has
to, however, try and adapt various reservations in their website, similar to some of their
competitors, where their website visitors are able to reserve seats in non residential
locations such as theatres, festivals, or concerts.
When WRİ was initially developed their website; it allowed the customer to book
online, choose the location, price and quality of the hostel. This was quite different and rare
back then because there was no reservation system that allowed customers to book and
make sure the reservation holds up until their arrival. The WRİ has been developed on the
outstanding booking technology which was implemented in their websites such as Hostel
World. They have continued with innovations throughout the years of their business. Their
most recent innovation has been the development of their app for iPads and iPhones. There
is a greater chance that a customer will continue using your website if it is simple to use and
that’s what WRİ have implemented in order to have a direct relationship with their
customer. Three additional key points are identified in relation to their capabilities.
1. Due to their financial capabilities WRI can lower prices for a certain time period to
prevent new market entrants or competitors from growing.
2. Perhaps the most prominent policy of WRI is owning most of the domain names
which customers may use to reserve tickets, this reflects their financial capabilities
and their vast network capabilities. Their ability to control such a huge number of
websites and domains such as..:



www.hostetwortd.com
www.hostets.com

www.ryanair.com
www.trav.com

.. Demonstrates their IT management skills and capabilities.
3. Their recent iPad and iPhone apps demonstrate how they adapt to the market as the
market grows and the market demand changes. This keen sense of innovation must
continue in the future to insure the growth of WRI. For example, allow all smart
phones to access the WRI APP

2.2.3 VRIO Framework
When looking at the VRIO framework, we can extract 3 main strategic capabilities
and from the previous analysis, and they are; IT skills and management, Financial resources
and volume, and their access to a Vast networks and database of customers and suppliers.
(A table clarifying the VRIO findings is available in appendix 1)
According to Barney and Hesterly (2006), VRIO “stands for four questions one must
ask about a resource or capability to determine its competitive potential:
1. The Question of Value: Does a resource enable a firm to exploit an environmental
opportunity, and/or neutralize an environmental threat?

9


2. The Question of Rarity: Is a resource currently controlled by only a small number of
competing firms?
3. The Question of Imitability: do firms without a resource face a cost disadvantage in
obtaining or developing it?
4. The Question of Organization: Are a firm’s other policies and procedures organized
to support?”
When looking at WRI’s strategic resources using the VRIO framework the following
conclusions arise (Please refer to appendix 1):
1. WRI has a vast network of customers and suppliers which they can use to their
advantage to expand and grow their business. This “architecture” also acts as a
competitive advantage in the sense that in this industry the bigger your network is,
the more customers you can satisfy, and the more money you can make.
2. WRI are able to profit from the volume of customers they get every day, and
because of this vast amount of people and companies using WRI’s websites, they are
able to maintain their current market position and also due to their great service
they are able to retain many customers as well.
3. WRI’s sophisticated reservation system is a key resource they have which
contributes to their current market position. Their reservation system according to
their management team is “simpler and easier to use” when comparing it to their
competitors.

2.2.4 Future Development of Capabilities and Resources
After a brief but deep analysis of WRI’s strategic capabilities, it is clear that WRI’s currently
controlling a substantial amount of the online hotel reservation market. Investing in them,
given their current resources and capabilities, would be appropriate based on their previous
growth. However, in order for WRI to sustain their current position in the market they must:
1. Continue using their IT and management skills to further communicate with
travellers, and also expand their market as they are doing now from Just BYIT to
other markets such as businesses and tour groups.
2. Further expand their network and database to more locations and to attract more
customers, remember, a study showed that in 2020 1.6 billion travellers will be
interested in Europe, East Asia, and the Pacific. WRI must insure that they can exploit
at least 50% of that market and they should start on that from now by
communicating more in social networking websites, and by affiliating their
website(s) more with tourism in major cities across the world.
3. Invest, using their financial capabilities, in more software to tap into further markets
(not only the apple OS users but also other Smartphone and tablet platforms such as
blackberry BBX, or Google honeycomb, or Google android.). Also WRI must invest in
allowing their customers to reserve seats for other tourist attractions such as
festivals, theatres, clubs, restaurants, and concerts.

10


2.3 Strategic Capabilities VS Market Demand
It is vital to understand that every company will have to meet the demand of their
customers and this includes WRI as well. In the past WRI have been successful in meeting
demand of their customers by introducing the following techniques and strategies:
WRI were the first one to introduce the system which would allow the customer to
book into the hostel through the use of Internet. This eventually changed the whole culture
of the travelling allowing the customer to see and experience the hotel before booking into
it. This internet strategy have also opened horizons geographically allowing much more
customers to be booking into the different hostels which allowed for much greater profit
generation.
The strategy has slightly changed since the past so as the consumer. Nowadays the
customers of the Hostel World Website not only students and people that love travelling
but also customers such as families, couples etc. The hostels nowadays offer great
experience offering single rooms like you would get in the hotels, internet access, breakfast,
lunch and dinner options, tourist activities etc. This has diversified the whole hostel culture.
A different review on the website allows the customer to make the decision about the
certain hostel. The reviews, photos of the hostel, additional features such as car rental,
cheap flights booking, insurance etc. allowed the WRI and hostel World Website in
particular to diversify and attract more customers to its business. The website would offer
different locations around the world which allows the customer to choose from the variety
of places and certainly allows the company greater revenue.
The world is changing and the customer is becoming more conscious about the
comfort but at the same time value for money. WRI have changed the initial culture of the
hostels being for students and being seen as the cheap budget accommodation now it is for
everyone. They have also diversified into different areas of the business and websites such
as bed and breakfast world which was launched in 2010 offering different bed and
breakfasts accommodation throughout the world. This has certainly allowed them to keep
the business going through the recession.
The WRI have developed internally their website such as Hostel World by offering
different service features meeting the customers demand. The website also allows the
customer to communicate with other customers and about their experience of tier travels.
This attracts more people to the website and provides quality service as the customers can
make up a decision talking with the other customers which have already some experience
from the past.
The world has moved recently to the mobile communication where the people are
able to do all the reservations and purchases from their mobile devices such as IPhone, I pad
etc. The WRI have also adopted this strategy in order to keep up with its customer and
created an iPhone/iPad application which allows customer to deal with the website through

11


this application and being able to use all the features as the website offers as well. The WRI
flagship websites such as:
www.hostelworld.com
www.hostels.com
www.trav.com
www.bedandbreakfast.com
They have also affiliated licences to the different companies such as Ryan air,
Aerolineas and different travel websites such as Trip advisor, Visit Britain, Travel Port
Leisure etc. This allows the customer to be able to access their websites from the WRI
Flagship websites. This increases turnover of its own websites and gets an advertising
income to the WRI Company.
The IPhone application has been extremely successful since its launch in January
2010. There were 100.000 downloads in the first 6 months. Following the success and
constant demand of customer the WRI decide to launch videos for the top 200 properties
and it has also allowed properties to upload its own properties. This has developed huge
interest from the customers and more visits to the website. Although the economic times
are tough the WRI still tries to maintain its business through the use of technology.
In terms of differentiation WRI has taken its own niche since 1999. They were mainly
focused on the low-middle class customer and huge turnovers though their websites which
are mainly based on budget accommodation. Their initial image was cheap however it has
certainly changed over the years. Nowadays the booking websites of WRI are used by
everyone. It has also become more sustainable since the world economic crises has hit.
Nowadays people are looking for value for everything and WRI and its websites would suit
their needs in all the parameters. Hotel World Website offers great prices and has
generated a lot of income through making numerous bookings for the customers and
holding unto its 10 % deposit from the booking price. Going back to the fact that it is a
recession and there are more bookings made through the low-medium priced
accommodation websites WRI have maintained and generated some income over the last
few years. The customer is given opportunity to review all the stays and services offered on
the website. And this gives a great opportunity for the other customers to look at it and
book their own stay. By doing this WRI maintains its relationship with the customer in the
long run. They want the customer to go back to their website and book again.
The speed of the whole expansion has been at an amazing level. Technology and
Innovation are the main key factors that have driven WRI Company to its success. The
resources of the company have been obtained in very economically smart manner where
they have taken booking deposits for the hostels. There are few points of attraction when

12


the person books its stay such as destination, the actual hostel and the website experience.
Those 3 are the key factors that have been sold and satisfied the customer in the past. WRI
has also taken up its niche and continuously made its profits even that there are more and
more competitors on the market. Overall WRI developed strong business model in the past
and leading it in the future by transferring its websites to be accessed from mobile devices
etc.

3.1 Conclusion and Recommendations
When WRİ was initially developed their website; it allowed the customer to book
online, choose the location, price and quality of the hostel. This was quite different and rare
back then because there was no reservation system that allowed customers to book and
make sure the reservation holds up until their arrival. The WRİ has been developed on the
outstanding booking technology which was implemented in their websites such as Hostel
World. They have continued with innovations throughout the years of their business. Their
most recent innovation has been the development of their app for iPads and iPhones. There
is a greater chance that a customer will continue using your website if it is simple to use and
that’s what WRİ have implemented in order to have a direct relationship with their
customer.
WRI was able to tap into a part of the market that was not previously explored by
web tourist agencies; WRI’s reservation application also was a key factor in their success.
For the investors, WRI would be a good company to invest in because they have maintained
a significant amount of growth throughout the world’s economic ups and downs. And they
were able to tap into a market that never has an “off season” since people travel
throughout the whole year none stop. We would recommend WRI to consider our
recommendations described in section 2.2.4 as they would greatly benefit the profitability
of WRI and their level of “invest-ability”.

13


4 Appendixes
Table Summary of VRIO and Competitive Implications
Strategic Capability

Valuable?

Rare?

Technology

Yes

Yes

Costly to Do they have any Competitive
Imitate?
structured
Implications
organization
to
use this resource?
Yes
Yes
Sustained Advantage

Architecture

Yes

No

Somewhat

Yes

Temporary Advantage

Cost Efficiency

Yes

No

Yes

Yes

Temporary Advantage

Technological Capabilities*

Yes

Yes

Somewhat

Yes

Temporary Advantage

*These are linked to the IT Skills and IT management, this mainly describes the reservation software developed by WRI in the
90's

Appendix 1

14


5 References
J.B. Barney, “Firm resources and sustained competitive advantage,” Journal of
Management 17 (1991), p. 101;
R.M. Grand, Contemporary Strategy Analysis (Cambridge, England: Blackwell
Business, 1991), pp. 100-102;
M.A. Hitt, R.D. Ireland, and R.E. Hoskisson, Strategic Management:
Competitiveness and Globalization, 4th ed. (Cincinnati, OH: South-Western
College Publishing, 2001); G.G. Dess, G.T. Lumpkin, M.L. Taylor, A.A.
Thompson, and A.J. Strickland III, Strategic Management (Boston, McGraw Hill,
2004) pp. 141-148.
York University, 2005. The Resource-Based View of the Firm. [Online] is theory
yorku. Available at: http://www.istheory.yorku.ca/rbv.htm [Accessed
November 6, 2011]

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