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A Game Theory View on the future of SaaS Ticketing

February 28, 2019

 

What will the future of SaaS Ticketing - aka eTaaS - bring? 

 

As for any SaaS company, a tremendous amount of data is acquired by the SaaS provider, and it is this data that is more valuable than the bare margins of the services that are sold. That is why the large tech firms are so successful, they found ways to monetise that data by using smart algorithms.

 

Despite stringent data privacy legislation, such as the GDPR directive in Europe, but also the Canadian PIPEDA, soon to be followed by similar legislation in other jurisdictions, the possibilities to increase revenue are still not yet exhausted - on the contrary.

 

An interesting approach is to apply insights from game theory in the SaaS service offerings. How did SouthWest Airlines, in 2009, generate $75 million extra revenue without offering any additional service, with just a minor change to its booking systems (that costed probably less than $50,000? Prior to that year, SW had no assigned seats for its cattle - sorry - passengers, and used the principle of first-come, first-served. All passengers were grouped in a boarding category A (which could board first), then B and C. Passengers who checked in first, ended up in category A. But then they introduced Early Bird seating. For a small fee, $10 at the time, passengers got bumped up in the ranking. Being in category A meant they had better choices of picking a seat they liked. Initially, only a handful of passengers purchased the option, and they all ended up in category A, with the best choices. But soon, most passengers, more than 95% bought the option, so the chances of ending up in category A were nearly 1/3, just as before. You could buy Early Bird and still end up with a seat next to the lavatory! However, NOT buying this option, guaranteed you WOULD. This is an example of the Prisoners' Dilemma, an iconic example of Game Theory. If all passengers would commonly agree not to buy the option, they would save money and still get the same service. But it suffices that one passenger buys it to get a preferred treatment. While SW initially generated $75 million from their Early Bird Ancillary service, they made $642 million in 2018.

 

This is just one example. There are many cases from Game Theory that can be used to increase revenue (some are less 'evil' than the Early Bird scheme), and SaaS companies are in the very best position to implement and offer such services. Many smaller companies don't have the knowledge, the scale, the means and the data to implement such algorithms. Some algorithms will also use psychological decisions, which are for example used in the Ultimatum Game. Look up examples on the Ultimatum game, i.e. splitting $1,000.

 

I predict that in the years to come we will see this happen much more. While until now the basics for SaaS have been laid out and implemented, we are now entering a phase with significant new growth potential. It is this knowledge and ability to execute that will propel the future of SaaS, especially in the ticketing business.

 

Later SouthWest made the Early Bird prices dynamic, in order to increase their success. But while such smart algorithms are now used more by various suppliers, there are other SaaS companies that do the same, but in order to beat these algorithms. An interesting example that hit the press lately is Skiplagged. This small SaaS company now makes millions by trying to beat the airlines algorithms, like finding the hidden-city ticketing routes. So it’s a war of algorithms actually, and just like the Cold War, they are ruled by the principles of Game Theory.

 

 

Do you want to get to know more details about our vision and insights on what the future of SaaS ticketing aka eTaaS will bring? Become the unicorn in your business and expand your knowledge by subscribing to our Newsletter. This will also keep you informed where you can join the next meet-up. We are looking forward to connect!

 

  

 

This article was written by Lea Vanessa Stiels.

Photo: unsplash

 

 

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