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On 17 August 2015, Liberty Interactive Media, which owns the homeshopping brand, QVC, announced that it would acquire internet retailer, Zulily Inc, for US$2.4 billion. With the homeshopping channel dying, this is an attempt for Liberty Interactive Media to stay relevant for the long term. Similar moves in the travel industry, though, indicate that this acquisition will fail in positioning Liberty Interactive for the future.
The main goal of the acquisition is to drive sales growth for Liberty Interactive Media. According to Euromonitor International, the sales via the homeshopping channel declined by 6% in 2014 and are expected to decline by 13% over the next five years. Because the companies have different types of customers, the hope is that they’ll be able to cross sell customers and perhaps, leverage Zulily’s experience in mobile transactions for growth:
“With the two companies under one roof, “we can expose brands to more customers,” and there will also be opportunities to introduce QVC’s customers to Zulily and vice versa, Mr. George added. The two companies also are hoping to ride the growth of shoppers who increasingly buy on mobile devices.” –Wall Street Journal
In the travel industry, global distribution systems (GDSs) are companies that connect travel agencies to travel suppliers. As traditional travel agencies were being replaced by online travel agencies (OTAs), the GDSs built or purchased OTAs to better position themselves for a future where most travel transactions were purchased through OTAs. But by 2015, all of the GDSs had divested themselves of their OTAs, incurring huge losses in doing so.
Homeshopping is undergoing a similar shift as it is being replaced by online shopping. It is not surprising that Liberty Interactive Media is acquiring Zulily to thrive in the new world order, but the experience of Travelocity serves as warning that this strategy is not likely to work.
In 2003, Travelocity was the second largest OTA behind Expedia. In 2015, Expedia purchased Travelocity for a mere US$280 million in cash. Skift.com reported on the five things that killed Travelocity:
“In Travelocity’s case, as the progeny of historically airline-centric Sabre, the Southlake, Texas-based online travel agency failed to grasp that the opportunities dangled before it by the global hotel business were existential priorities, and investment decisions often lay elsewhere. Especially in the early days, Sabre had problems balancing its supposed nurturing of an online travel agency because its main business was distributing travel content to rival travel agencies.” –Skift.com
The acquisition of Zulily is likely to be a distraction for both companies as each determines how to operate with two vastly different business models. As in the case of Travelocity, it is likely that the greatest threats to the combined companies are falling behind industry trends, misaligned incentives and bureaucratic decision making in a fast paced e-commerce world.