TripAdvisor to compete with its ad clients

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TripAdvisor appEmbracing a seemingly counterintuitive growth strategy, TripAdvisor, the largest travel review site, has recently been ramping up to compete with the very online travel agencies (OTAs) that provide a key source of its revenue.

Tweaking its strategy to account for the expected surge in mobile bookings, the company is broadening the number of hotels bookable through its Instant Booking feature, while at the same time acquiring destination-listing websites.

Late last month, TripAdvisor said its Instant Booking feature, which went live in June, would add hotel inventory from GDS operator Travelport, giving users booking access to Travelport’s listings for 580,000 hotels worldwide, including 480,000 non-branded properties.

Additionally, TripAdvisor last month agreed to pay $200 million to acquire Viator, an online service that offers customers access to more than 20,000 tours and attractions in 1,500 destinations worldwide.

Founded in 1995, Viator hosts more than 10 million monthly visitors on its site and offers more than 600,000 user reviews and travel photos. The company employs a staff of more than 250 at offices in San Francisco, Sydney, London and Las Vegas.

The announcements reflect a bifurcated strategy of sorts for TripAdvisor: Derive more revenue per visitor from the contingent of people visiting TripAdvisor specifically to book hotel rooms and, at the same time, own more listing services that cater to the TripAdvisor visitors who are looking to book travel products other than hotels.

Owning Viator, whose acquisition is slated to close by the end of September, complements TripAdvisor’s decision this spring to buy European online restaurant reservation provider Lafourchette for an undisclosed price. Lafourchette provides online reservations at more than 12,000 restaurants in Europe.

“Adding restaurant recommendations and reservations, as well as tour and activity shopping and booking, makes perfect sense,” said Douglas Quinby, PhoCusWright’s vice president of research. “And the local tours and activities market is still really old school when it comes to online booking. Viator is probably the furthest along in terms of facilitating online booking and last-minute, same-day mobile booking, which is really where the opportunity lies for in-destination services.”

Meanwhile, TripAdvisor’s new agreement with Travelport adds weight to its Instant Booking service, which enables TripAdvisor’s mobile users to book hotels through other suppliers without leaving TripAdvisor’s mobile site. That feature was launched in June with inventory from Choice Hotels International, hotel-booking site GetaRoom.com and TripAdvisor’s discount hotel-booking online travel agency, Tingo.

“The key here is that shoppers get a simpler and less confusing booking path,” said Jake Fuller, senior vice president of research at FBR Capital Markets. “The idea is that a better user experience should yield higher conversion rates and ultimately more revenue to TripAdvisor per click.”

Either way, the key to this two-part strategy is the surge in the use of smartphones and tablet computers as primary travel-booking tools. By next year, mobile devices will account for 27% of U.S. online bookings, up from just 10% in 2013, PhoCusWright predicted in a report released last month. The report also forecasted that mobile will account for 20% of online bookings in both Asia-Pacific and Europe next year.

Granted, Fuller said that taking on the OTAs, which account for the lion’s share of TripAdvisor’s revenue, is a risk for TripAdvisor, which was founded in 2000 and whose website attracts almost 280 million unique visitors per month. Click-based advertising paid for by OTAs and other travel companies accounted for 73% of TripAdvisor’s Q2 revenue, which jumped 31% from a year earlier, to $323 million.

That said, TripAdvisor’s effort to broaden its sources of business through more direct bookings of hotels and other travel products is clearly an effort to diversify its revenue sources and reduce its dependence on OTAs such as Priceline and Expedia as travel spending continues to grow.

TripAdvisor’s financial results sputtered after it was spun off by Expedia in late 2011, in part because the amount Expedia was paying TripAdvisor per click dropped once the companies were no longer affiliated. Trip-
Advisor has since looked to increase revenue via display-based advertising and subscription services.

With global online travel spending jumping more than 9% last year — triple the growth rate of overall travel spending — TripAdvisor’s strategy reflects the continued blurring of lines between third-party, online travel distributors, including OTAs, metasearch companies and destinations-listing services.

This consolidation is typified by the decision by Priceline, the No. 1 OTA globally, to acquire both metasearch leader Kayak and restaurant reservations service Open Table. Those moves were followed by Expedia’s acquiring a majority stake of Germany-based metasearch site Trivago.

All those deals were announced within the past 15 months.

Quinby said, “TripAdvisor is being very strategic in its steps to address the fundamental transformation that mobile is driving across the travel planning process.”

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