311-078-1: Strategic Management – What Next For From AtoB.com – Case Study Assignment Help

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This case was written by Prof. Dr. Malte Brettel, René Mauer and Tobias Karmann, Chair for Business Administration and Sciences for Engineers and Scientists, RWTH Aachen University. It was made possible through the generous cooperation of VerkehrsmittelVergleich.de GmbH. The case is intended for class discussion rather than to illustrate either effective or ineffective handling of management situations. The development of the case was enabled by a grant of the European Community (ENT/EFORCE). Sole responsibility for the case resides with the authors.
It was August 2010 and at first sight, the three founders of VerkehrsmittelVergleich.de
GmbH (VMV), Daniel Nolte, Johannes Grassmann, and Veit Blumschein appeared to be
in a very comfortable business situation. At the end of the previous year they had
successfully finalised a second round of financing that would guarantee the further
development of their internet platform, VMV, for the next 24 months. The platform,
which had been operating since January 2009, offered people in Germany (their home
market) a new way to conduct a travel search that included all relevant transportation
modes. This latest financing round left the founding team still owning 75% of the
company’s shares, and VMV on course to reach break-even point within the next 24
months.
VMV’s success was demonstrated by the fact that one strategic investor had recently
offered to buy the company for 6 million Euros. Then, at a meeting that very afternoon,
another investor had offered them 4 million Euros in return for a 60% stake in the
company. This latest offer would enable them to drive their international expansion,
under the domain www. fromAtoB.com, even faster. Overwhelmed by so many options,
the founders had gathered to discuss what they should do.
“Well I think we should stick to our original plan and first finish expanding in our home
market over next 12 months, without accepting any additional capital”, said Daniel. “As
you know, I would prefer us to consolidate here and still remain our own masters”.
“I know, and so do I”, agreed Johannes, “But 75% of 6 million Euros for the three of us.
 not a bad return on three years of having fun. Just think about it. And we would
still be in the driver’s seat as the management team!”
“I’m not so sure that’s the right way to go”, broke in Veit. “Bearing in mind the risk that
one of the big players may enter our market soon, maybe we should think about taking
the extra money and going international while still keeping the remaining shares in our
company”.
“But money isn’t everything. So many things would change if new investors came in…”
Daniel argued.
“And we even haven’t started to discuss or negotiate any details of the offers yet” added
Johannes. “I’m sure there’s still room for negotiation. But as the founding team, we need
to agree what we want to do and where we want to end up!”
“Quite honestly, I really don’t know.” Veit admitted. “Let’s continue this discussion
tomorrow morning… It’s late and we’ve all had a long day.”
All three founders knew they had to make a decision within the next few days. But what
was the best way to take VMV forward?

fromAtoB.com

In Germany after 2005, the internet became established as the most efficient way for
travellers to conduct a transport search and make direct bookings. However, a closer look
at this market revealed that for journeys of over 100 kilometres, the search process was
not very efficient.
Typically, it involved people in multiple search requests having to enter the same
information – their starting point and destination and the date they wished to travel – and
then repeat this for different transport providers in order to find connections. Any
comparison between, for example, a journey by rail, different airlines, own car usage or
ride-sharing, plus any local public transport connections, was a long and time-consuming
process. Searchers then had to compare the results in terms of expense and journey time.
All these operations, given the lack of transparency between the alternatives, meant that
making an optimal decision was neither easy nor assured. For example, connection costs
were not always comprehensive: whereas the total price for a railway ticket was clearly
displayed, an airline ticket usually showed just the net fare, with airport taxes and fees
only displayed during later stages of the search query. In addition, travel expenses for the
journey to and from the airport or train station were not included.
Another problem from the user’s perspective was that often, the duration of the trip was
not correctly calculated in terms of total travel time. For example, for flights only the
actual flight time was listed as opposed to the actual time of the whole journey, including
travel to and from the airport as well as check-in and boarding times.
From January 2009, German travellers could get round these problems by using VMV.
Through a transparent comparison of connection options, it allowed an efficient and optimal selection process automated on the internet platform fromAtoB.com
1
with the
help of a meta-search engine. However, VMV was only available to customers within
Germany as an international version, offering the same services and functions, was yet to
be launched.
For would-be travellers searching online, VMV compared existing travel services and
offered information on the travel duration and cost of all relevant providers in Germany.
Among others, the list of providers included the German Railway system (and their
special offers) all airlines (including low-cost carriers), web pages for matching ride- sharing opportunities
2
, long-distance bus providers
3
and public transport (including a
total of 75 public transport networks). Furthermore, fromAtoB.com allowed users to include their own car or rental car costs
4
, and any taxi rates for transport to and from a
station or airport.
The process was straightforward. On the webpage fromAtoB.com, the user entered
his/her starting point and destination and travel dates just once in a search box. The user
then received an overview, which sorted and listed the connection alternatives according
to different rates or duration of the trip. To further improve search results, in an
“Advanced Search” box users could add specific information about any railway card they
held, car consumption and so on. The novelty of fromAtoB.com was the uniform and
nation-wide presentation of local public transport systems and costs that it gave,
1. 
At the time this case was written, only the German version of fromatob.com, Verkehrsmittelvergleich.de, was
publicly available on the internet
2. 
Based on Mitfahrzentrale.de and Mitfahrgelegenheit.de, the two largest German suppliers for lift opportunities
3. 
Including Touring, BerlinLinienBus, EuroLines, and Bayern Express
4.
sixt.com
something impossible to get through any other agency, company or even the Association
of German Transport Companies (VDV). It was planned that by mid 2011, the search
would have expanded to include a from-door-to-door search option.

The market

(a) European market
Between 2000 and 2010, the percentage of online travel bookings in Europe showed a
steep increase, rising to 45% of all trips booked by private customers. In some European
markets, for example in Scandinavia for flights, hotels and/or complete holiday packages, the share of online booked trips reached 67% by August 2010
5
. The share of customers
just researching travel options was even higher and on average accounted for 59% of the European travel market
6
. In total, by 2009 the European online booking market was
worth about 60 billion Euros of which 39 billion was spent on passenger traffic. Of this,
about 2 billion Euros represented commission-based sales.
This was the target market for fromAtoB.com.
(b) The German market
A closer look at the German travel market revealed strong growth opportunities. In 2008
7
, Germans spent 66 billion Euros on domestic travel and the same amount on travel
abroad, both for business and private reasons, giving Germany the nickname of “world travel champion”. In 2008
8
, domestic travel comprised around 40% of all leisure travel in
Germany, totalling around 221 million trips. The majority of these trips were in order to
“visit friends or relatives” (VFR).
Understanding customer behaviour and the target market
5. 
According to ITB World Travel Trend Report 2009/2010, page 29; www.itb-berlin.com/library
6. 
According to ITB World Travel Trend Report 2009/2010, page 29; www.itb-berlin.com/library
7. 
DRV (German association for travel) Facts and figures, 2009
8. 
DRV (German association for travel) Facts and figures, 2009, page 1
Almost 70% of trips lasting longer than five days were arranged without the intervention
of a travel agent
9
. Of those trips lasting more than one night, 91% were arranged by
customers themselves or without any pre-booking. The preferred sources of information
were web pages and on average, six different pages were consulted before a booking was
finalised
10
.
Strategically, the primary target market segment for fromAtoB.com was the business-to-
consumer (B2C) market. Of this, the most relevant target market was the Visiting Friends
or Relatives (VFR) segment. A typical user profile of fromAtoB.com was a university
student or young, weekend commuter, since they were almost 100% internet users. They
demanded a clear and user-friendly website, transparent cost and time-saving options and
high data security standards.
A potential additional market segment was the business-to-business (B2B) market. This
mainly consisted of small and medium-sized enterprises (SMEs) operating without a
dedicated in-house travel department.

The founding team

The three founders, Veit, Johannes and Daniel, met during an entrepreneurial networking
event in Aachen in 2007.
Veit Blumschein, a business administration graduate, was a serial founder who had
already created several companies. From November 2008 he worked full time for
fromAtoB.com.
Johannes Grassmann, an economics graduate had been Product Manager at Porsche AG,
where he gained experience in marketing & sales and project management. From 2008,
he worked full time for fromAtoB.com.
Veit Blumschein and Johannes Grassmann met during their doctoral studies in
entrepreneurship at Aachen.
 
TouristScope / TUI, GfK-TravelScope, page 7
10
Convious consulting 2007, Internet Reisebuchungen, page 8
Daniel Nolte’s experience was in programming. He had worked on many projects as a
freelancer and founded his own IT service company, Nolte IT-Service GbR. He, too,
worked full time for fromAtoB.com from 2008 onwards.
The three founders first began to discuss their ideas and the concept of VMV in
November 2007. The company was legally created a year later and in November 2008,
the first closed beta version went live.

The Business model

fromAtoB.com aimed to give clients an efficient and optimal mode choice through a
transparent comparison of transport alternatives. In order to achieve this, it positioned
itself as a mediator in the value chain between various travel suppliers (airlines, railway
provider, rental car companies, etc.) and the traveller. The service to the customer was
provided by a meta-search engine and the combination algorithm, which was the core
technological know-how of the company.
In the future, fromAtoB.com aimed to generate revenues from four sources: commissions
from bookings, cross-selling activities, online advertising, and selling software and
services.
Partner commissions were earned when a booking was completed with a transport
provider after a search on the fromAtoB.com webpage. An affiliate agreement was
required in order to earn this kind of revenue. The main providers in the German market
were covered by partnership agreements and generated different prices.
Cross-selling revenues were characterized as additional revenues beyond the core travel
activity of customers, or their initial travel purpose. For example, a customer who began
by looking for an individual trip but then decided to buy a prepared city trip via
expedia.de. The commission on these products was between 5 and 25 Euros.
Besides these revenue sources a business application (B2B) was planned for the future.
The primary target was small and medium-sized enterprises operating without an in-
house travel facility. A ‘book-it-all on fromAtoB.com’ was also planned for the future.
This would give customers the ability to book the entire travel chain for their journey
through a single transaction, so boosting the company’s overall booking volume and
revenues.
Revenues from on-line advertising were generated by advertisements on the
fromAtoB.com webpage. In addition, interfaces for marketing partners were established
to allow the sharing of revenues generated by the respective partners. The overall
increase in advertising revenues of fromAtoB.com was mainly achieved through an
increase in the number of user profiles and visits. In 2007, the overall spend for online
marketing for travel advertisement in Germany reached 63.7 million Euros, with two-
digit annual growth predicted for the future
11
.
Selling software and software services to intermediaries and other search providers was
the fourth source of revenue for fromAtoB.com. This area used the know-how of
fromAtoB.com, and was expected to become a major business in the future.

Competition

Competition in the home market
Although in 2010 no direct competition for fromAtoB.com existed in the German
market, multiple indirect competitors existed and constituted a potential threat. The most
relevant were the online booking systems of transport providers (e.g. Lufthansa), meta-
search engines for specific transportation modes (e.g., swoodoo.de for flights), online
travel agencies (e.g. Expedia), transport services (e.g. ride sharing pages like
mitfahrgelegenheit.de), route planning services or global distribution services (Exhibit 4).
All meta-search engines were characterized by an outstanding functionality together with
a simplified search process for a maximum of two specific transportation modes.
However, this was also a weakness of engines active in the market: they did not include
all possible transport modes. Despite the existing indirect competition between bahn.de
and fromAtoB.com, the two organizations entered into a strategic partnership: bahn.de
providing data for fromAtoB.com.
11
DZT, Nielsen Media Research, page 45, eMarketer 2008
The market was marked by considerable consolidation and merger activity. In the Spring
of 2010 swoodoo, the biggest German flight meta-search engine was acquired by
kayak.com, an international meta-search engine for flights, hotels, and car rental services
for an undisclosed sum.
Competition in Europe
Countries considered ripe for expansion by fromatob.de needed to fulfil two criteria. The
first was demand for outbound travel from Germany to that country (Exhibit 5). The
second was that the country should be adjacent or close to fromatob’s home market in
order to allow searches for possible train and long-distance bus connections. Countries
with ferry routes running to a regular schedule were also included in the potential set. In
the summer of 2010, the fromatob team compiled an overview of existing European
market players.
Direct competitors existed in Austria, the Czech Republic, Denmark, Sweden, the United
Kingdom and Switzerland. In Austria, verkehrspilot.at offered a door-to-door search
which included data from the national railway company, ÖBB, and its bus system,
Postbus, which was owned by ÖBB. While Austria was an important destination for
Germans the reverse was also true; Germany was an important destination for Austrians,
with a share of 21% of all outbound travel activity
12
. In the Czech Republic, idos.cz
offered a comprehensive search and booking webpage that included all travel modes
including trains, buses, flights, and ferryboats. The webpage could be accessed in Czech,
English, and German language versions.
The Danish travel market was covered by rejseplanen.dk, available in Danish, English
and German language versions. All Danish travel service providers were included in this
search engine, with even ramblers and hikers included in potential travel modes. Its
neighbour, Sweden, was covered by resplus.se which included all main transportation
providers and offered a door-to-door search option. Via resplus.se it was possible to buy
a single ticket for the full journey, including different transportation providers. The UK
travel market was well connected to mainland Europe via the Eurotunnel, completed in 1994. 
The webpage transportdirect.info combined domestic train connections with
regional public transport timetables. It offered a door-to-door search and was embedded
in the British Tourist Office systems
13
. In Switzerland, routerank.com was a concept
12
Deutsche Zentrale für Tourismus, e.V.; http://www.deutschland-extranet.de/pdf/MI_KURZ_Oesterreich_2009.pdf.
13
www.visitbritain.transportdirect.info
fairly similar to fromAtoB.com. routerank.com offered a comparison between and a
combination of train, flight and car.

Risks and Opportunities

In its home market, the biggest opportunity for fromAtoB.com was the growing travel
sector, specifically the growing share of online travel planning and booking. Further
opportunities lay in the extension of the potential market, e.g. an expansion of the
offering to B2B customers.
Expansion into other European markets was planned in two stages. The first stage would
be to offer outbound travel from Germany to other European countries by integrating
other travel providers. Access to airline data in all European countries was already
available to fromAtoB.com, but at the end of 2010 information on other modes of
transport such as train, long-distance buses and public transport was not yet available.
The second stage in internationalisation would be for fromatob to offer domestic and
outbound travel search services to countries outside Germany.
Another risk was a potential breach of the partnership with the German railway company
Deutsche Bahn AG. If that occurred and access to the DB travel connection database was
no longer available, it would open up a huge gap in the travel database and eliminate a
major component of fromatob’s offer. Fortunately, an agreement with bahn.de was
finalised in 2009.
Another problem was the possible entry of new competitors – both indirect and direct –
into the market. Indirect competitors, for example meta-search engines like swoodoo,
which only offered one or two transport modes in 2010, might extend their services to a
full range of transport modes.
New direct competitors, too, might appear. In this event, fromatob’s technological
advantage might prove too small, especially if the potential entrant was financially well
equipped. The resources of Microsoft Corporation and its search engine bing.com, or
Google Inc., for example, would allow either of them to drive ahead fast with software
development and rapidly acquire partner companies. And although direct competitors in
the German market were non-existent at that time, it was not impossible that a firm based
on similar concepts to fromAtoB.com might enter the market. On the other hand, a fast
adaptation or imitation seemed unlikely since contacts with travel information providers,
particularly to bahn.de, and the coding of the combined search algorithm, would require
special skills and access to fromAtoB.com’s network.

Financial development of fromAtoB

The first phase of the company’s life was financed by the founders, who benefited from
the state run support program EXIST, offered in Germany to university, technology-
based start-ups. The founders received a budget of around 20,000 Euros for material cost.
In May 2009, a first financing round was conducted with two German business angels,
both experienced founders of internet companies. The investors, specialists in search
engine optimization, usability and conversion, took a combined share of around 5% in
the company in return for a 30,000 Euro investment.
The growth phase of fromAtoB.com began in September 2009 with a 350,000 Euro
investment from a Venture Capital (VC) fund in return for a 20% stake. The VC fund
also committed to investing a further 1.5 million Euro in 2011 in return for additional
shares, on condition that the business developed according to the forecast plan. These
investments guaranteed the operation and further development of the fromAtoB.com
platform in the German market until June 2011. The company’s financial development
for the five years to 2016 would depend on the decision taken by the founders in January
2011 to accept additional funding for their international expansion, or refuse it and
remain confined to their home market.
In January 2009, the webpage VMV was released after about 12 months of testing phase.
At that time, fromAtoB.com had around 13,000 daily users or 350,000 monthly users in
Germany. The conversion rate (the usage of links for booking online travel offerings
divided by the total number of site visits) was between 0.1% and 2.0%.

The next morning

The next morning found the three founders gathered in their small office again. From
their sleepy appearance, they had all had a restless night.
“Guys, I suggest we do the maths today. Let’s evaluate the value of fromAtoB.com
according to the options we collected over the past days,” suggested Veit.
“OK. Let’s get started! And after that we should discuss how to put our financial strategy
on a more solid footing.” agreed Johannes, “And then decide whether we can afford to go
ahead with our expansion outside Germany, or if we should concentrate on consolidating.

University: Stotts College

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