No doubt, tourism industry is currently frozen and it is difficult to give a recipe for what can thaw it so as to attract investor interest. It seems that a possible solution is to combine tourism with the hot crypto and blockchain sectors. Bulgaria's LockTrip, which is developing a blockchain platform for renting rooms in hotels without commissions, announced in 2021 that it has raised 4.1 million American dollars from Australian travel and tourism giant Webjet. Webjet will receive 25% interest in LockTrip and the opportunity to buy a further 26% stake in the company for 4.2 million dollars in the future, in which case it will hold a controlling stake. However, this option comes with the condition that Webjet integrates the LockTrip solution into all of its sites.
Four years earlier, during the first cryptocurrency boom, LockTrip (then called LockChain - anything related or vaguely reminiscent of blockchain was bought unreservedly) raised 4 million dollars through coin offering (ICO). Since then, there have been changes in the platform that go far beyond the name change. They are most noticeable in the company's business model, which is, to put it mildly, different and stands out even more in a conservative industry such as tourism.
Crypto successes, crypto problems
LockTrip was founded in 2017 by Nikola Alexandrov and Hristo Tenchev (better known as the co-founder of XS Software and SoftUni) in order to cut costs for tourists without reducing the revenues of hotels themselves, i.e. by removing intermediaries such as Booking.com and Expedia. In the same year, it raised funds through the then-modern ICO, in which companies effectively created their own cryptocurrency-based token and raised money from supporters. Then the company managed to raise about 4 million dollars at the then price of Ethereum. At the time of writing the company's LOC token costs just over 4 dollars and has a total market capitalization of 75.6 million dollars, with growth of over 2,000% over the past year.
With this type of fundraising, companies can leave their money in cryptocurrencies or convert it into traditional ones. Hristo Tenchev told Capital Weekly that LockTrip has chosen a balanced approach between crypto and traditional currencies. For example, a year ago, with the collapse in the price of digital assets, they sold part of their crypto portfolio and then started buying again with their recovery. "Volatility is an integral part of crypto markets and no one has a crystal ball," Tenchev said.
These details are important because such a way of financing would be very difficult to implement at any time after 2017. Confidence in ICO projects died quickly, mainly due to fraud. LockTrip is one of the good examples of a company that has raised funding through ICO and remained active.
Initially, the LockTrip business model relied on users to use only the company's LOC tokens to book a hotel room. The reservation itself is done through smart contracts on the blockchain, but both components prove to be problematic.
"We started with smart contracts, but from the initial version of the product we realized that this could not happen because the network was congested and the process was delayed. The other big problem was that the price could change significantly from the time of booking to the time of confirmation, again because of the workload and the delays," says Tenchev.
Thus, in the following years, a complete reform of the project's economy began, with each change going through a vote among a total of 6,000 members of the LockTrip community that inhabits the Telegram group. The first and foremost is that payments are now made in both cryptocurrencies and traditional currencies, which are automatically converted into LOC tokens, but credit card payments, for example, are a paid service. The second is that LockTrip is probably the only travel company in the world that relies on generating profits from deflation, the company's founders said.
Like no other
In theory, LockTrip has a relatively simple business model, but not in practice. The company does not charge commissions and strives to offer about 20% lower price on average than Booking, for example. It achieves this by working without intermediaries, but directly through tour operators who have "wholesale" offers. Each search ranks the offers according to the discount compared to the average offer of the largest platforms and has a specific measure - a so-called discount score.
LockTrip can afford not to charge commissions because they are not present in its business model in the first place. Almost all services on the site are free, except for card payments, where there is a transaction fee of between 1% and 3%. Nikola Alexandrov says that the goal is for this type of freemium model to make LockTrip operationally zero cost, i.e. revenues from paid functions are to cover salary costs.
The profit comes from another place - the tokens. With each transaction in LockTrip, 3% of it goes for tokens, which are destroyed and out of circulation, i.e. supply falls while demand rises, respectively the price goes up. Thus, if a consumer makes a reservation for 100 dollars, 3 dollars of this sum will go towards buying and burning LOC tokens i.e. demand rises and supply decreases, respectively the price goes up and generates profit for the owners of tokens, the largest of which is the company itself. The problem of scale (there are only 18 million LOC tokens in circulation) is solved by the division after the decimal point, which can go on indefinitely and will inevitably be accompanied by new and new price increases, so that there is always free resource.
The idea of the company's own blockchain platform, which was later named Hydra, led to interest from Webjet and specifically Lynne Oldfield, director of corporate development at the company. From there it reached John Guscic, managing director of the entire Webjet group, and the two sides began talks in June 2019. Webjet itself also has its own blockchain solution, Rezchain, so Oldfield and Guscic are not as skeptical towards the technology as they are to the non-traditional business model.
Alexandrov and Tenchev won them over with their ideas and by March 2020 an investment was already being prepared. However, as it turned out, the month and even the year were particularly unsuitable for any investment from and in travel companies, respectively, and the plans fell through. This gave LockTrip time to make improvements to its platform that made the company even more attractive. Meanwhile, Webjet shook off the initial shock of the coronavirus and raised 250 million dollars from the stock market in 2020.
Not so much for the money
Thus, a year after the initial plan, Webjet invested 4.1 million dollars to acquire 25% of the shares and intellectual property rights of LockTrip. In the future, the company could receive a further stake of 26% for 4.2 million dollars and thus become a majority shareholder. The point is that there is no particular need for this money. Tenchev says that so far LockTrip has not even spent the money raise in its ICO funding in 2017.
The reason the two agree to Webjet's investment is primarily the ability to distribute the product and the overall blockchain approach. Webjet is one of the largest travel companies in the world with a market capitalization of 1.6 billion dollars. More importantly, the option to redeem a further 26% interest is directly linked to the implementation of the LockTrip solution in all Webjet retail sites.
"We have received many investment proposals, including from venture capital funds, but they do not give us what we need in this industry. In the Webjet deal, every outcome is attractive to us. If they execise their option, it means that they will take the controlling stake, but the condition in the subsequent investment will drive our economic model very strongly," says Alexandrov.
The plans for the company's future are clear. A year ago, LockTrip was preparing a mass marketing campaign to raise the number of users in the platform, part of which has so far remained rather neglected at the expense of software and transactions with operators. Plans are now being revived, although it is too early to be optimistic about tourism. "When there is mass tourism again, our goal will be simple: to validate our model," Alexandrov concludes.