With substantial losses exceeding $4 million last year and facing legal action in three states, defections by top sales executives and a class action suit, YTB has real problems that may be beyond the ability of management to resolve.
If it fails, multilevel marketing firms face a dim future in the travel industry. If YTB succeeds in a new form, it will serve as a warning for other start-up firms. YTB’s fate will largely be determined by the terms of the settlement between YTB and the State of California that is expected within weeks.
Dooley: Will YTB survive the soon to be announced settlement with the State of California? Critics argue that YTB has not only been hurt by the lawsuit but will vanish. And it’s said that if the California lawsuit doesn’t finish YTB off, then another pending action by the Illinois Attorney General will do it. Maybe, but I doubt it.
Frenaye: I will disagree with you here, I think the damage is done and even if the settlement is small, YTB likely may not recover. However you are correct that there probably are other agencies waiting in the wings looking for their share of the handout. Hey, if YTB admitted and settled that they did wrong by the consumers of California, then Illinois, Maryland (pick your state) will claim they have harmed their consumers, they too will want something. This does not even address their short term debt coming due this year, the $100 million class action suit, the unprecedented exodus of RTAs, Reps and Directors, nor the various actions currently being filed by recently terminated directors.
Dooley: If YTB is to survive, it will have to live up to the terms of court dictated settlement with the California AG. And it may have to modify some of its policies and practices. But YTB’s travel unit – with various estimates of 10,000 to 15,000 referral agents or RTA’s (some estimates go as high as 90,000)– may well recover and grow. Consider, for example the possibility of YTB adopting a new business model and becoming a franchiser.
Frenaye: The RTA number according to YTB is approximately 92,000. As for adopting a franchise model, you need to look at who their target market is right now. They are generally targeting lower income unemployed people—or professional MLM recruiters with no interest in the product. They have had to write off nearly a million dollars in bad debt for loans made to their Sales Directors. If the directors aren’t making money, who is? And remember, these people were not sold on the business to become an agent. They were sold on the business to travel like a pro, take advantage of the perks, get a deduction and make money selling the “opportunity” to others. Travel does not figure prominently in YTB’s business model, nor in the minds of most of their RTAs. And I suspect that no one has the money (no matter how small) to buy a franchise. But the largest obstacle will be for YTB to overcome the morale issue (among others) that even though a RTA may have not made any money over the past X years, the new franchise (and more money paid to YTB) will deliver the golden ring. I don’t see it happening.
Dooley: Consider also intensified education and training of YTB’s RTA’s with emphasis on the agents evolving into productive travel selling agents backed by solid marketing and technology. If only a fraction of RTA’s responded, YTB’s travel unit could become a real force in travel sales. Supplier support would not be far behind.
Frenaye: Great point George, and you are spot on. However, they invested in Marc Mancini (a respected industry trainer) and have not fulfilled their promise to the RTAs to my knowledge. They were supposed to release a segment a month for a year and they have only released 6 or 7 in the past 18 months. Additionally, I have not been able to find out how many of these people actually are participating in travel training (at yet another cost) that offers them no financial incentive. Sure they take the recruiting training (First Class) for $149 that earns them a shot at an additional 10 percent on the split. But to pay for a Mancini class (online) and only gain the knowledge is not something I believe that too many are jumping for right now.
Dooley: Next consider YTB moving into the group travel business, perhaps reviving the old idea of affinity groups – veterans, school, alumni, interests of all kinds – backed by joint supplier/YTB promotion. Impossible, perhaps. Yet YTB has shown that it has the initiative to open new market niches. How effectively they are managed is unknown, but opening new opportunities is critical.
Frenaye: Yes, they have been very good at this. I have also found that the current culture and psyche is not very agreeable to working with organizations that hold beliefs that are “different” than theirs. Outsiders tend to be the enemy. But that is not to say it could not be overcome.
Dooley: Could the “New Model” YTB travel be profitable and a solid partner for suppliers and destinations? Can YTB Travel attract new management? Could YTB’s travel unit be spun off from YTB International as a separate company or profit center? Stranger things have happened.
Frenaye: Well it is profitable for some suppliers as it is right now, so there is value to the suppliers in terms of sheer volume. Some heavy hitter suppliers (RCCL and NCL) have made the decision that the volume alone does not make YTB an ideal partner. ValuJet reinvented itself as the very successful Air Tran. New management? Sure, we are in a recession; I suspect anyone can be lured to work for them for the right price—hey even I might be tempted. But they will need to re-brand. They have already done too much damage to their brand both in the consumer and trade press. Just Google YTB and see what you come up with. Value Jet knew they needed to leave their brand buried in the Everglades to be eaten by alligators. YTB will need to do the same.
Dooley: YTB’s ability to attract thousands of prospective agents and its ability to convert some of these agents to productive travel professionals is a reality. As we learned from the ongoing saga of Joystar there are good agents working within flawed business models with leaders who are less then competent or scrupulous.
Frenaye: This is true; they know how to attract thousands—hundreds of thousands. But you need to define the attraction. Is it travel sales, or the notion to get wealthy selling websites? And while viable entities can attract new blood, Joystar, right now, will have problems attracting a mosquito. YTB is very close to that point as well. They are losing their own base (138,000 in July 2008 Vs 92,000 or less right now) and they are experiencing a huge deficit in recruiting. So can they attract new people interested in travel? I doubt it.
Dooley: The terms of the settlement with California’s AG will have to be watched carefully. On a positive note it may change YTB’s policies and check the growth of other multi level marketing firms. On the negative side the settlement may have unintended consequences for thousands of individuals. It’s the human equation that will matter.
Frenaye: There will be changes to the way YTB does business in California. California Attorney General Jerry Brown stated so when YTB prematurely announced a settlement. And depending on is the specific terms—it may indeed impact the earning potential of thousands of Reps, Directors, and RTAs in California.