Stephen Oddo, CEO of the travel company Walks, got a preview of the daunting financial damage the coronavirus could wreak, as he saw sales evaporate for his company’s daily guided tours of Milan. Earlier this year, Italy shut down its economy to prevent the spread of , and Oddo worried that pattern would soon play out in other cities where Walks sells its speciality tours.
As global travel slowed to a standstill, the Austin, Texas-based company looked for ways to cut costs. Walks reached out to Google, where the company spends around $1 million a year on ads, and asked the search giant to work with it on a payment plan that took into account the expected revenue fizzle. (Google is still collecting on outstanding ad invoices from the first quarter.)
The two sides didn’t come to an agreement. Oddo, meanwhile, took more drastic steps to make ends meet, laying off or furloughing more than half his staff, reducing his team to about 45 people from more than 100.
“Everyone is still kind of in shock,” Oddo said. “The wind gets knocked out of you.”
Walks, which sells travel tours that include a Summer of Love excursion through San Francisco and a true crime trek through New York City, isn’t alone looking for relief from the search giant. The company is one of several small travel businesses that have petitioned Google to step up its support as sales dry up because of the coronavirus. In late March, Google announced an $800 million package to help ailing organizations and businesses, earmarking $340 million in advertising credits for small and medium-sized businesses across all industries. The credits will go to businesses with active Google Ads accounts and must be redeemed before the end of the year.
Travel CEOs say that isn’t enough. In addition to negotiating a new payment plan, Oddo would like more time to use the credits. Other CEOs are asking for cash rebates for first-quarter advertising, which didn’t yield much return because people around the world canceled their trips. The CEOs all complain that Google’s current pledge to help small businesses is little more than a public relations move that barely helps the companies.
In an email, a Google spokesman acknowledged the “unprecedented challenges” the travel industry faces, but declined to discuss specific requests from travel CEOs. “We treat payment terms with our customers or partners as confidential and we’re not able to disclose details,” he said.
Google’s travel search products also surface cancellation policies, the spokesman said, and he pointed to a pilot program the company expanded last month that charges hotel advertisers only if a guest actually uses the accommodations.
The relationship between Google and the travel industry is symbiotic. Google’s normally muscular advertising operation slumped in the first quarter, partly because of the disappearance of travel ads, analysts say. Despite the setback, Google’s well-oiled ad machine managed to beat revenue expectations. Still, the search giant reported that revenue dropped sharply in March as the coronavirus crisis began to take hold, and the company warned of a “difficult” second quarter for its ad business. Google has also slowed hiring for the rest of the year and reportedly slashed its own marketing budget by as much as half for the second part of 2020.
Even big travel companies are hurting. Expedia, which usually spends $5 billion a year in ads, said it’s outlay probably won’t crack $1 billion this year. Airbnb, the home rental company, said last week it was laying off 1,900 of its employees — a quarter of the company — one of the largest mass layoffs for a Silicon Valley company since the pandemic began.
For companies like Walks, the situation is more fraught. Oddo says the spending his company did in the first quarter was wasted. “That money was essentially burned,” Oddo says.
‘You can’t eat credits’
Douglas Quinby, CEO of Arival, a Boulder, Colorado-based travel research company, says the tourism industry is on the brink of collapse. On March 18, Quinby launched a Change.org petition asking Google and Facebook to offer ad credits to the travel industry. Google announced its ad credit relief package a week later, but Quinby says the amount Google is doling out is minuscule for a company that generates $160 billion in annual revenue.
Arival surveyed roughly 600 tourism, attraction and activity companies, and almost half of respondents said they are in danger of shutting down if travel doesn’t resume in the next six months. By some estimates, travel may not even be permitted or desirable until next year at the earliest. US Treasury Secretary Steven Mnuchin said last week it’s “too hard to tell” if the US will loosen international travel restrictions by the end of the year.
Setting a 2020 expiration date for the ad credits means they will just go unused in many cases, says Dan Yates, CEO of Pitchup, a London-based company that books camping accommodations. Many travel companies advertise seasonally, usually during the first and second quarter, to drum up business for the peak travel months in the spring and summer, Yates says. Advertising tends to die down toward the second half of the year.
The situation is bleak for Pitchup. The company has reduced staff from 48 people to about 12, through layoffs and furloughs. Revenue is down 98% since early March. One day in late April, the company generated $2,500 in sales, compared with $125,000 on the same day a year before, he says.
Yates is one of the CEOs calling for a rebate of ad purchases, rather than credits. In April, a group of German travel startups wrote an open letter to Google Chief Business Officer Philipp Schindler asking for more relief, including cash refunds. (Google didn’t make Schindler available for an interview.)
“You can’t eat credits,” Yates says. “That’s not going to put food on the table.”
Aside from the help with ad payments, Yates says he’s asked other parts of Google for help. Pitchup also uses the company’s cloud hosting services, as well as GSuite, the search giant’s lineup of productivity apps for businesses. Yates says Google has offered payment deferrals, but says deferrals won’t matter if companies like his don’t survive.
In an email from customer support, Google denied a request for payment relief for its cloud services. “We highly recommend you to lower costs if you can, while Google comes up with another resolution,” a representative wrote in an email that CNET reviewed.
‘A reasonable request’
The pushback from travel CEOs raises questions about the role of a public company, like Google, in supporting other businesses, a responsibility usually met by the government. The US is supporting small businesses through the Paycheck Protection Program, as well as sending stimulus checks to citizens to help them weather the pandemic.
Helping out the travel industry — and providing more flexible terms — could be good business for Google, says V.G. Narayanan, a professor at the Harvard Business School who studies financial incentives and management.
“A lot of travel is postponed and there will be a lot of pent-up demand,” Narayanan said. “They might even attract new customers if they say no payment is due for six months.” Google should also consider issuing rebates to select companies, he said.
Ann Skeet, senior director of leadership ethics at Santa Clara University’s Markkula Center for Applied Ethics, says the call goes beyond smart business sense. Google has a moral obligation to help the companies in a more meaningful way, she says.
“If they believe, as they have said, that they would like to do no evil, this is a moment to bring people together,” Skeet said, referencing Google’s former “Don’t be evil” mantra. “A rebate is a reasonable request. If I were Google, I’d be thinking about the long-term outcome.”
Oddo, the Walks CEO, says he’s fortunate his company isn’t at risk of folding, like other businesses in the sector. Rebuilding Walks from the damage of the pandemic, however, will take at least three years, he reckons.
Since the travel lockdown, Walks has begun to offer virtual tours around the world, including one through Wuhan, China, where the coronavirus originated. Google could go a long way in helping the travel industry — and itself — if it’s more aggressive in its support, he says.
“The best antidote we have is to restart the economic engine,” said Oddo. “Revenue will breathe life into the industry again.”