The Transition to E-Commerce:
A Case Study
of a Rural-Based Travel Agency
J. Michael Pearson
ABSTRACT. When the Internet started to establish itself in the corpo-
rate world, some observers foresaw a diminishing role for, if not the end
to, many intermediary functions. Consequently it has been argued that
suppliers will need to use the Internet and related technologies to cut
costs and establish closer links with consumers by bypassing organiza-
tions that currently play an intermediary role in the traditional transac-
tion system. The objective of this case study is to enhance the
understanding of the process of transition from a traditional business
model to an e-commerce model. It focuses on a very small business that
has successfully navigated the transition to e-commerce. [Article copies
available for a fee from The Haworth Document Delivery Service: 1-800-
HAWORTH. E-mail address: <email@example.com> Website: <http://
www.HaworthPress.com> © 2003 by The Haworth Press, Inc. All rights re-
Christine Alexander is a PhD Candidate in Management, Department of Manage-
J. Michael Pearson, DBA, is Associate Professor, Department of Management,
Leon Crosby, DBA, is Associate Professor, Department of Management, Grand
Valley State University, Grand Rapids, MI 49504 (E-mail: firstname.lastname@example.org).
Journal of Internet Commerce, Vol. 2(1) 2003
2003 by The Haworth Press, Inc. All rights reserved.
When the Internet started to establish itself in the corporate world,
some observers foresaw a diminishing role for, if not the end to, many
intermediary functions. Consequently it has been argued that suppliers
rently play an intermediary role in the traditional transaction system.
The network would serve as the market, enabling the direct exchange
between buyer and seller.
opportunities that the World Wide Web (WWW) offers, many do not
understand what the advantages are and how they can exploit them.
This is particularly true of very small businesses (VSBs).1While VSB
owners may want to jump on the WWW bandwagon, they may not un-
derstand how their company competes, what value their product brings
to the consumer, and how the WWW can facilitate this. How can they
know what results to expect from these opportunities?
The objective of this case study is to enhance the understanding of
the process of transition from a traditional business model to an e-com-
merce model. It focuses on a very small business that has successfully
navigated the transition to e-commerce.
TRAVEL INDUSTRY BACKGROUND
The traditional role of the travel agent in the 1970s, 1980s and into
the 1990s was as a mediator between airlines and hotels and travelers.
They added value by matching the traveler’s needs with the wide array
of services that were offered. A traveler would usually select one travel
agency for each trip. Because of the commodity-like characteristics of
the service being sold, it is difficult for travel agencies to differentiate
themselves from their competitors. Differentiation can take the form of
destination expertise or quality of service level provided.
The ability of a travel agent to compete was significantly impacted
when public access to the Internet became commonplace. While the
Internet gave travel agencies the ability to reach worldwide markets
easier, it also gave airlines the ability to deal directly with their custom-
ers. Because of their emerging ability to reach customers directly, air-
lines dramatically reduced the commission they were willing to pay
travel agents, from 20-25% to a mere 5% for a paper ticket. Addi-
50 JOURNAL OF INTERNET COMMERCE
tionally, many airlines imposed a cap on the amount of commissions
they were willing to pay. From no caps on their commissions, travel
for electronic (or e-) tickets. Further, many airlines are offering incen-
tives such as bonus frequent flyer miles for direct on-line bookings. It
has been estimated that the cost to the airline to book and issue a ticket
to $5.26 (Lewis, 1998). This potential cost saving is a major incentive
for airlines to try to reach their customers on-line. Additionally, travel
suppliers who market directly to their customers gain a knowledge base
of consumer behavior. This information ranges from buying profiles
and frequent flyers to purchases of related products, such as car rental
and hotel nights. This data can be valuable as a marketing tool.
These competitive advantages achieved via the Internet reach be-
yond the airline industry to all aspects of travel. The Web fills the inter-
travel products are projected to grow to $29 billion by the year 2003.
While nearly three-quarters of on-line households have researched
travel products on-line, only 20% of these become on-line purchasers.
However, with more US households coming on-line (an estimated 60
million by 2003), predications are that one-third of all on-line house-
holds will purchase travel products on-line.
In light of these dramatic environmental changes, major changes are
required by travel agencies if they want to remain competitive and if
they wish to compete in the electronic marketplace.
The company history is included in this case study to lay a foundation
of the types of technology used in the travel industry and the degree to
of the entrepreneurial characteristics and behaviors present in this firm.
Borgsmiller Travel (1982-1996)
Frederick Borgsmiller established Borgsmiller Travel in 1982 as a
full-service travel agency serving Southern Illinois. The service area,
Alexander, Pearson, and Crosby 51
munity college. There were two regional airports in the area, both with
commuter airlines that feed into St. Louis’s Lambert Field, an interna-
tional airport located about 100 miles away.
The Growth Years
Originally there was one office located in Murphysboro that em-
ployed one agent. In 1983 a second office was opened inside the South-
ern Illinois Airport. This office also employed one agent. In 1985, the
main office moved from Murphysboro to Carbondale and a satellite op-
area. The satellite office was a contact point for customers to ask ques-
tions and make reservations. They did not print tickets at this office.
That function was performed at the main office in Carbondale. The sat-
ellite office employed one agent while the main office employed 4
Technology Growth Years
As with most travel agencies, Borgsmiller Travel used a Computer-
affiliate of Delta Airlines. The functionality provided by a CRS was
fairly standard: it was used to book airline segments, hotel reservations
and car rentals. Competitive advantage was not gained by using a CRS.
However, it was a necessity for doing business. Pricing for this service
was generally provided on a sliding scale. A monthly fee was charged,
reduced. If a travel agency booked a large enough volume of segments
and tours, the agency did not have to pay for the service. Throughout its
history, Borgsmiller Travel met or exceeded these quotas.
Borgsmiller changed CRS providers in 1985, signing on with the
popular Sabre system that was developed by American Airlines based
than Datas II. The functionality provided by a CRS was fairly standard.
Companies providing this service competed on price, access to various
airlines registered with the service provider, and system reliability. In
these areas, the Sabre system outperformed the Datas II system.
52 JOURNAL OF INTERNET COMMERCE
A New Vision–MTA
In 1986, an office was opened at the Williamson County Airport that
employed two agents. That same year, the operation located in the
of potential customers was greatly reduced. The following year the sat-
ellite office in Murphysboro was also closed down, but an office was
opened in the nearby town of DuQuoin. DuQuoin State Bank ap-
proached Borgsmiller Travel as part of its effort to offer its customers a
DuQuoin State Bank.
In 1986, Borgsmiller also became a consolidator for Malaysia Air-
Borgsmiller Travel. The company started carving a niche for them-
selves by offering discounted student airfares to Malaysia. At this time,
there were approximately 800 Malaysian students attending the local
university. This change in focus, from strictly domestic airfares and
tours to the Pacific Rim, allowed Borgsmiller to establish a position in
brainchild of Dirk Borgsmiller, who bought out his father’s interest in
the travel agency in late 1988.
Borgsmiller again changed CRS providers in 1988, this time going
(TWA), based in St. Louis. There were several reasons for Borgsmiller
to make this decision. Using the Sabre system had become too expen-
sive. Service reliability and responsiveness, from Borgsmiller’s per-
spective, was lacking. Finally, a majority of the tickets being booked
through Borgsmiller Travel were with TWA. This was, in part, due to
In late 1990, the DuQuoin operation was sold. While this was a prof-
itable operation, it no longer fit in with the company strategy. A similar
fate met the Williamson County Airport operation in early 1991. This
left Borgsmiller Travel with one office in Carbondale. This office em-
ployed four agents, including owner/manager Dirk Borgsmiller.
veloping the Malaysian market. He expanded the market focus from
gan selling packages and tours. The product offerings ran the gamut
Alexander, Pearson, and Crosby53
from city tours of popular Malaysian destinations to adventure tours to
During the fiscal year 2001, the decision was made to de-emphasize
during this transition time period, it was decided that handling walk-in
traffic was resource intensive, both in terms of agent time and printed
materials such as brochures, with little pay-off. Primarily due to the
niche market Borgsmiller Travel was beginning to carve, their perfor-
mance during this time, as measured by profit margins, was slightly
higher than the industry average.
Malaysia Travel Advisors (1996-2000)
In late 1996, the Malaysian side of the business was spun off from
spin-off decision was made to facilitate the new sales and marketing
strategies required to grow the Malaysian side of the business. Two
to MTA. Approximately 90% of his time was spent acting as a sales
agent for MTA while the other 10% was spent performing managerial
type tasks including new product development.
It was around this time that the Internet was becoming popular.
Borgsmiller felt it necessary to establish a presence on the Internet. By
using the Internet, Borgsmiller hoped to reach an international market
that would otherwise be very difficult, if not impossible, to reach. The
main purpose of this presence was for advertising. Site creation and
hosting tasks were outsourced to a company based in St. Louis.
In early 1997, Borgsmiller introduced desktop computing to his op-
eration. This greatly improved the reliability of his CRS. Additionally,
it gave the agency the ability to use e-mail as a business tool, and gave
his office access to the Internet. Prior to this, most customer contact oc-
curred via telephone, fax and traditional mail. Communication with
suppliers was conducted via telephone and fax. For example, a reserva-
tion request for a hotel in Kuala Lumpur would be faxed to the hotel.
When a faxed response was received, the customer was notified, via
mail or fax of the details of the reservation such as confirmation num-
ber, check-in and check-out times, and airport transfers. When desktop
computing was first introduced, it primarily affected customer contact.
Generally, suppliers in Malaysia did not have or had limited access to
54 JOURNAL OF INTERNET COMMERCE
In late 1997, Borgsmiller hired a consultant to design and develop a
database system that would facilitate the speed and efficiency with
which he could put together tours and packages. The idea was that each
customer could request and receive a customized package consisting of
any number of hotel and/or resort stays and ground and/or water trans-
fers as well as international airfare, if desired. Prior to this, most tours
airport in Kuala Lumpur, and a City Tour. The package price would be
set. If a customer did not need the transfers between the airport and the
used to calculate the price of each component of the tour. An additional
complication is that pricing in the tourism industry is based on seasons.
In March 1999, Borgsmiller became a distributor for YTL Enter-
prises. This move added several products to his growing product line.
Among the key resorts and attractions owned and operated by YTL are
Pangkor Laut Resort, Pangkor Laut Estates, Tanjong Jara Resort, and
the E&O Railroad.
After several false starts, the database was implemented in early
1999. Initially, the new reservation system was implemented to handle
reservations for only Pangkor Laut Resort. A process that could take as
utes. The reservation system provided flexibility in building a custom
tour, documents could be printed and faxed to customers, and manage-
as other products, such as dive packages and city tours.
The Move to e-Commerce
In 1999, Borgsmiller hired a part-time technical person to facilitate
the agency’s growing dependence on technology. This person designed
duct e-business. By early 2000, the Internet presence had grown to
mer of 2000. In the summer of 2000, the part-time technical person
Alexander, Pearson, and Crosby55
allow her to develop other technical skills. Later in the summer Borgs-
wanted the IT function brought in-house because he was dissatisfied
with the service level and cost of the company he had outsourced to. He
able him to remain better informed on technology advances and give
him a more accurate idea of the workload involved in adopting new
growing e-commerce business.
Four more sites were posted by the end of the year. By the end of
2000 MTA was conducting transaction processing from its web sites.
than calling a toll-free number to contact the travel agency, airline re-
quests as well as requests for tours, packages, hotels and resorts could
be submitted through the web site. Pertinent information is collected
and forwarded to an agent via e-mail. The agent then checks on avail-
ability and pricing and replies to the customer with an itinerary via
e-mail. In the fall of 2000 Borgsmiller added a secured server so that
payments could be transacted over the Internet. Hosting of the sites and
secured server were still outsourced, but long range plans call for mov-
ing these services in-house.
In October 2000, the consultant working for Borgsmiller was hired
full-time in the capacity of Operations Manager. This decision was
mentalized. For example, one agent was handling only YTL Hotels and
Properties while another was handling Adventure and Stopover tours
and packages and a third was handling Malaysia Air reservations and
ticketing. One agent was left to tend the Borgsmiller Travel side of the
business. Borgsmiller felt that a coordinative presence within the office
was required to facilitate a smooth running operation. At this point in
time, Borgsmiller spent less than 10% of his time in the role of sales
agent. Over 90% of his time was spent on managerial matters such as
contract negotiation, developing relationships with suppliers, product
development and various sales and marketing tasks.
By late 2000, MTA had nine employees, one-third of which sup-
ported technology adoption within the organization. His senior agent
was handling the marketing and sales functions thus freeing up Borgs-
miller’s time to focus on developing supplier relationships, creating
new products, and environmental scanning.
56 JOURNAL OF INTERNET COMMERCE
The Personal Touch
Borgsmiller has said,
ternational flights operate on a daily basis. Connections are not al-
ways easy to figure out. For this reason, we cannot have a 100%
hands-off operation. We anticipate spending at least 20% of our
time working with a reservation to be personal contact time.
In addition to the personal touch that Borgsmiller espouses, he has a
He can make recommendations based on over fifteen years of experi-
ence and over thirty trips to Malaysia.
His agents have made or will be scheduled to make familiarization
trips in early 2001 to the various resorts they are responsible for selling.
Borgsmiller feels that product knowledge is one of his biggest competi-
In a bricks-and-mortar travel agency, customers either come into an
to place an order. The agent then uses the CRS to verify availability of
both the product and dates requested and to confirm the price. This in-
formation is then conveyed to the customer so a purchase decision can
be made. A customer may be ready to purchase or may be price shop-
tact the travel agency, closing a sale can be time consuming on the
agent’s part. The agent could invest a great deal of time with a potential
customer and not close the sale.
In a clicks-and-bricks travel agency, a customer can browse product
selections and pricing on the Internet. When the customer is ready to
purchase a reservation request can be submitted. By having a rich con-
tent available on-line, many, if not all, of a customer’s questions can be
answered without the personal interaction of an agent. Additionally,
when a customer does submit a reservation request, they are considered
a “qualified” customer. That is the customer knows what (s)he wants to
Alexander, Pearson, and Crosby57
purchase, what the price is, and the terms and conditions of the pur-
Malaysia Travel Advisors has reached the click-and-bricks process
through a series of iteration. In 1996 when its first web site was posted,
tour descriptions and some general pricing were available on-line.
While the work to convert these customer contacts into sales was less
time intensive, a good deal of agent interaction was still required to
reach the company via e-mail. The agent would then obtain the travel
nent information. The customer would then make the purchase deci-
In mid-2000, more detailed pricing and basic reservation systems
to an automated e-mail response to the client. This modification aided
the agents in responding to clients in a timely manner. Additionally, an
automated e-mail response was added to send a request to the supplier
for the services the customer desired. Again this facilitates with pro-
cessing a request in a timely manner.
a customer. If a tour package is purchased, personalized documents are
created. This is one area that Borgsmiller is not willing to completely
turn over to automation. Currently, documents are produced as part of
aren’t ready” to purchase a high-end travel product and not receive
some type of documentation. One major change, however, is the com-
pany’s ability to receive and process payments on-line. This required
obtaining a secure server. Prior to this, customers had to fax in a com-
pleted credit card authorization form. While the time to process a pay-
ment has not been reduced, the primary benefit of receiving on-line
payments is convenience to the customer, something Borgsmiller
Another process that changed at MTA is marketing. When the MTA
site was first posted in 1996, the primary goal was to achieve wide-
spread advertising for less than the cost of traditional advertising. The
products and services being offered by the company were available to
many more people. Since that time, marketing efforts have been di-
rected at search engine placement, creating links to other pertinent
product lines offered by the company, e-mail registration for customers
interested in receiving information on specials being offered, creating
58 JOURNAL OF INTERNET COMMERCE
an informational e-book on Malaysia, sending out bi-weekly and monthly
newsletters (depending on the product being marketed), and a site to
serve travel agents.
perative that pricing process be improved. Rather than relying on an
agent to look through a contract, finding a price, marking up the cost
and quoting to the customer, Borgsmiller wanted to streamline the pric-
ing process. Beginning in late 1999, the in-house reservation system
tate pricing of individual components as well as packages and tours. As
of early 2001, the database created for the in-house reservation system
is a separate system from the database created for web site pricing and
reservation requests. This means that work is being duplicated in enter-
One process that has been difficult to bring under control is the pro-
duction of standardized documents for products, such as airline tickets,
that are not handled by the in-house reservation system. The primary
difficulty here is that each agent keeps separate copies of certain docu-
ments on his or her desktop computer and uses these local copies to
uments. Standardization has been difficult to achieve because so many
different copies of documents exist and no one is sure which is the most
current. There is little time that can be invested in correcting this situa-
tion. Additionally, agents are reluctant to give up control of the docu-
Human resources are one of the greatest expenses in conducting
business. One might consider that as a firm moves toward e-commerce,
this would become a relatively smaller expense. However, because
Borgsmiller chose to bring IT expertise in-house, the opposite has hap-
pened. Human resources expenses increased significantly. An increase
in sales would increase expenses for certain items such as ticket stock
and invoices. This expense would be expected, and has been realized
since Borgsmiller made the move to e-commerce.
Another financial investment was desktop computing. In addition to
the cost of the computers themselves, costs were incurred for network-
ing and licensing of various software products. Additionally, when the
Alexander, Pearson, and Crosby59
tional software was required to facilitate brochure production efforts.
One key facilitator of technology adoption that appears consistently
in the literature is top management support. At the travel agency, not
only did the owner/manager support IT adoption, he was the driving
created, technology and the World Wide Web have become the center-
piece of the business strategy Borgsmiller employs. He perceived a gap
in the way a particular market was being served and knew that technol-
ogy could help him fill that gap successfully. Perceived benefit was a
The travel industry has employed some technology to the point
where it has become a necessity for doing business. Computerized res-
ervation systems are a case in point. However, leasing software/hard-
very different experience, and require a very different expertise, than
exploiting technology to gain competitive advantage. In that regard,
Borgsmiller did not have the requisite experience and expertise that
would motivate the heavy technology adoption he has led his company
Environmental scanning is also another key aspect of technology
adoption. Although very small businesses are arguably at a disadvan-
tage here because of the time required to perform this task, being in the
travel industry may have helped Borgsmiller overcome this obstacle.
The travel industry has been one of the industries highly impacted by
the introduction of the Internet for public consumption. An additional
benefit for Borgsmiller is his entrepreneurial background. Entrepre-
neurs are characterized as constantly scanning the environment for new
opportunities. So, he was quick to pick up on the opportunities that the
Internet presented. He was able to carve a niche market, using the
Internet as the vehicle by which he would reach his target market.
egy, structure and processes of a very small business and to see how the
60 JOURNAL OF INTERNET COMMERCE
transition differed for a very small business. When a firm moves from
competing in a geographically local market space to competing on
global level we can expect certain changes within the firm. For exam-
ple, we could expect a firm that competes locally to have a broad array
of products with a high degree of expertise on some products and basic
level of expertise on others. However, when the market space becomes
global we would expect a firm to become more focused in its product
offerings. One reason for this is the difficulty of being an expert in all
aspects of an industry. Other experts will be operating in the same
global market space targeting the same customer base. We could also
reasonably expect more of a prospecting attitude to dominate the strat-
egy. After all, the world is the potential customer base.
These are the strategic moves we see happening with the travel
agency. MTA was carving out a niche market prior to its move to
niche marketing to Malaysia. In addition to his sales volume doubling
since he has made the transition, his margins have increased by a factor
of two-and-one-half. In his estimate, this equates to a profit increase of
about 350%. One reason Borgsmiller gives is the large customer base
ing alone did not yield the expected results for him. The on-line pres-
ence makes it easier for customers to contact his company when they
are ready and at their convenience.
I don’t think anybody has the answers how to drive people to your
sites. You talk about web site positioning. You talk about partner-
ing. You talk about strategic alliances. It all boils down to what is
in process flows. Both supplier and customer interactions become less hu-
man resource intensive as they are automated. On the down side, a firm
competing in cyberspace becomes exposed. Pricing is available for cus-
tomers, suppliers and competitors to examine and compare. Some pro-
cesses may also be exposed. Thus competitive advantage gained by a
process improvement may be more short-lived in cyberspace than in the
able to receive a qualified customer. So, completing a sale, even of a
complex sales-intensive product like travel to Malaysia, is less time in-
tensive and requires less in the way of human resources. That is not to
Alexander, Pearson, and Crosby61
say that off-line sales effort is not required. On the contrary, Borgs-
miller sees the off-line sales effort as being just as, if not more, impor-
tant. People still want to know that there is someone at the other end to
help with problems or answer questions.
One process change that surprised Borgsmiller was web site mainte-
nance. Like many that are new to the World Wide Web, Borgsmiller
board available to the whole world. You post the site and the customers
come. However, customer expectation is such that they expect new
fresh content. If a site has not been updated in several months, a cus-
provide good service or has gone out of business. Along a similar line,
sites were up and running, he expected much less lag time than using
traditional marketing methods. This was not the case.
Because of the growth the company experienced after the transition
to e-commerce, firm governance changed dramatically. Travel agents
became more specialized. Borgsmiller chose to bring IT expertise
in-house so that his needs could be met in a timely and cost effective
successful completion of sales transaction. Borgsmiller had to spend
ter, larger firms would be expected to have an easier time transitioning
to e-commerce. Larger firms would already have a more departmental-
For small firms considering moving to e-commerce, Borgsmiller
feels that the owner needs to know the abilities and limitations of the
Internet and technology. Does it apply to my industry? Does it sell my
business and knows his/her industry.
One final thought Borgsmiller had on transitioning his company to
I looked at this as being a small silent thing. It’s come to encom-
62 JOURNAL OF INTERNET COMMERCE
1. VSBs or micro-businesses are generally defined as businesses with 10 or less
employees (Fink, 1998).
Fink, D., Guidelines for the Successful Adoption of Information Technology in Small
and Medium Enterprises, International Journal of Information Management, 1998.
18(4): p. 243-253.
Lewis, I., J. Semeijn, and A. Talalalyevsky, The Impact of Information Technology on
Travel Agents, Transportation Journal, 1998. 37(4): p. 20-25.
Alexander, Pearson, and Crosby63
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