Room Service

If you’re able to make hotel reservations online, you probably ought to thank John Davis III of Dallas. But please—no tipping.

DALLAS, TX, MARCH 7, 1996. The world’s leading hotel chains today launched TravelWeb, the first Internet Web site from which hotel rooms can be selected and reserved directly from a personal computer.

Four years and an Internet lifetime ago, John Davis III issued a now-quaint press release to stake his claim to a footnote in online history: the first real-time hotel booking in cyberspace. And not a minute too soon, since a mere five days later Fort Worth’s Travelocity would go live with full capability to book not only hotels but also airlines and rental cars, backed by the firepower of American Airlines’ Sabre reservation system.

Undeterred, Davis patiently built TravelWeb and its parent company, Pegasus Systems, into a powerful, nearly invisible backbone of the world’s network of electronic hotel re-servations. By embracing the glamour-free dirty work of transactions processing, building user interfaces, and collecting and paying reservations-agent commissions, he has maneuvered himself into the enviable position of collecting fees of up to 5 percent on the majority of all online hotel bookings—a situation that’s likely to improve, thanks to Pegasus’ recent acquisition of REZsolutions. The hotel-services company had been among the world’s most powerful reservations facilitators; in a single stroke, Davis increased his workforce from 150 to 2,100 and his number of offices from 2 to 50, and he quadrupled his annual revenues. He also gained the tools necessary for global expansion: access to international hotel markets, contracts with major non-chain hotels, and a network of reservations offices around the world. The hidden gem of the deal is REZsolutions’ NetRes technology, which makes possible Web-based communications between hotels and their customers and vendors.

The acquisition comes at a good time. The online travel industry is booming for the simple reason that the travel marketplace is ideally suited for the Internet. The product sells itself and easily translates to audio and video. There’s nothing to ship or warehouse. And even an online novice can click and buy in a matter of minutes. A leading online travel researcher, PhoCusWright, which is based in Sherman, Connecticut, estimates that e-hotel sales alone generated $1.1 billion in revenues in 1999, with $4 billion projected for 2001. Factoring in airline bookings, rental car reservations, and the like, the e-travel category was worth $7 billion in 1999, with $20.2 billion expected for 2001.

Much of that activity has a Texas tie. Travelocity is the world’s largest online travel service; after buying out the number three e-travel provider, Preview Travel, earlier this year, its projected annual revenues ($1 billion) and number of registered users (17 million) should far surpass those of number two, Microsoft’s Expedia.com. Travelocity is also the number four e-commerce site in the U.S., trailing only Amazon.com, eBay, and barnesandnoble.com. This dominance is at least partly the result of the company’s alliances with high-traffic Web sites like Yahoo!

Of the state’s other online travel sites, the most successful is aa.com, the Web site of Fort Worth-based American Airlines, which posted $575 million in bookings in 1999. Southwest.com, the site for Dallas’ Southwest Airlines, is easier to navigate; it’s almost certainly a significant revenue generator, though the company won’t release specific figures. On the discount-travel side, there’s hoteldiscount.com, the e-home of Dallas’ Hotel Reservations Network, which estimates $150 million in sales in 1999. Arlington’s subscription-only bestfares.com, primarily a place to make off-peak and last-minute travel reservations, pulled in nearly $104 million in 1999.

Each of those sites is better known to the public than Davis’, but few are as indispensable to the operation of the overall online industry. It’s the hotel-booking engine behind many of the biggest e-travel sites and nearly every major hotel site. Pegasus has reservations relationships with more than 32,000 hotels and 115 of the biggest hotel chains in the world, and Pegasus Electronic Distribution is a hotel-booking mechanism for 300,000 travel agent computers.

But two of Davis’ more recent innovations confirm his ability to wring the last cent of profit out of a transaction. Pegasus Commission Processing, developed in 1992, extracts fees from more than 80,000 travel agents (including rivals such as Travelocity) for collecting commissions and from hotels for processing the commission payment. Two-year-old Pegasus Business Intelligence, meanwhile, compiles booking data and sells it back to the hotels to analyze sales strategies. Inelegantly put, Pegasus is like the hog farmer who can boast that he uses every part of the pig but the oink.

How did the company carve out such a position for itself? It all began in 1988, when Davis was hired to be the president of the Hotel Switching Company, or THISCO, a consortium of fifteen major hotel chains. Even though he wasn’t especially well suited to create a program that would make it possible to book hotel rooms electronically—“I owned a computer and I had stayed in hotels; that was the extent of it,” he says today—he was given the task of developing a computer “switch” to link directly the chains’ diverse reservations systems with the eight major airline computer Global Distribution Systems (only four major GDS exist today).

Their faith was justified. A graduate of Texas Christian University with a degree in business administration, he had tried his hand at politics in his twenties with mixed success. At the age of 25, he served as the campaign director for U.S. senator John Tower’s successful 1978 reelection bid. Davis subsequently ran for state representative and lost in a close race—“Probably saving me,” he says, “from living in a mobile home for the rest of my life.” After politics came business. He was the president of Mid-South Drilling Company and founded a Dallas telemarketing company, ATC, which had grown from 12 employees to 1,200 by the time he sold it two years later. Perhaps his most notable accomplishment was co-founding 1-800-FLOWERS, the teleflorist that has since added a dot-com to the end of its name. The company was foundering financially when Davis was bought out by his partner, Jim McCann, but the centralized marketing concept

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