TripAdvisor Challenges OTAs through Instant Booking Functionality
TripAdvisor is currently one of the “Big Three” global players in online travel in terms of market capitalisation and web traffic, together with Priceline and Expedia. However, the company, in spite of its strong growth over the past five years in terms of both revenues and popularity with consumers, is less able to monetise its traffic than the other two big online travel players as it is currently not processing transactions on its sites, but provides links to external sites, and especially to its two largest customers, which are Expedia and Priceline themselves, earning advertising fees for this service.
The goal to finding a way to better monetise its traffic was behind the launch in 2014 of the Instant Booking functionality, based on a hybrid model that is between the OTA and media models. If this new functionality meets the favour of hotel companies and consumers, TripAdvisor will be able to increase its revenues and, at the same time, will become a direct competitor for OTAs.
Constantly changing business model
TripAdvisor has been constantly changing its business model over the past few years in order to keep ahead of online travel innovation as well as to better monetise the huge traffic of its world-leading travel site.
In 2012, the company started to implement metasearch functionalities, a process that was completed on both its desktop and mobile platforms by June 2013. This was an important move, taking the company model from being a travel review site closer to the shopping and booking of travel services.
In 2014, a new important step towards bookings and transaction capabilities was made through the launch of the Instant Booking functionality. Instant Booking allows the company on the one hand to formally keep its media model and not become an OTA, and on the other hand to actually finalise transactions on its site and earn a commission from them.
TripAdvisor Revenues: 2009-2014
Source: Company Annual Report
Embracing the transaction model
TripAdvisor claims that the Instant Booking functionality is intended to fulfil a consumer need – that is, to be able to complete the transaction on its sites, without being redirected to external sites, which is especially convenient when a smartphone is used.
While the element of offering a seamless experience to travellers is real, this new product also addresses the company goal to better monetise the huge traffic generated by its sites, amounting to 315 million unique visitors in 2014.
Instant Booking allows the company to earn commissions from hotel partners, like OTAs do. Standard commissions for hotels range from 12% to 15%, depending on visibility in search results. This commission is lower than the average OTA commissions, but is still substantial and in line with the lower OTA commissions. Hotel chains and OTAs joining the programme might be able to negotiate better agreements.
Attractive for hotels but not for the leading OTAs
For hotel companies the Instant Booking functionality is certainly attractive and a large adoption is to be expected. Advantages for hotels include a differentiation of distribution channels from OTAs and an increase in direct bookings as the hotel is the merchant of record powering the transaction finalised on TripAdvisor’s website. Direct bookings for hotels have the advantage of putting them in a better position to gain customers’ loyalty as well as to use customer data for marketing purposes, including personalised marketing. A further benefit for hotels is that the Instant Booking model makes it possible to compete against OTAs’ larger budgets, something quite hard for them through pay-per-click bids.
On the other hand, the Instant Booking functionality does not look attractive for the leading OTAs, and in particular for Expedia and Priceline, which have already announced they will not use this functionality. For OTAs Instant Booking is less interesting than metasearch, and, in general, than pay-per-click advertising, as, with the transaction being completed on the TripAdvisor site, it is TripAdvisor that is perceived as the booking channel by consumers and that gains their loyalty, with OTAs only having the function of powering the transaction, diminishing their role in the booking. This also means for OTAs, if they are not able to use their sites to convert visitors into customers, fewer opportunities for gathering the increasingly strategic data on customers and the need to share data with TripAdvisor, and possibly higher costs compared to the pay-per-click model.
Competition between TripAdvisor and OTAs about to heat up
Once the Instant Booking model is fully in place, including a significant number of participating hotels, competition between TripAdvisor and the leading OTAs is therefore expected to heat up. TripAdvisor will tend to convert a significant share of its traffic into direct bookings with hotels on which it earns a commission in order to increase its revenues and improve its image as a hotel booking channel with consumers. Expedia and Priceline, for their part, may increasingly turn to other sources of web traffic, such as their own metasearch engines Trivago and Kayak, other metasearch engines, search engines and social media, as well as promote their brands and offer more information and services to travellers in order to attract more direct traffic.
Another possible future development may concern Google, which could also find a hybrid model similar to Instant Booking interesting for its Google Hotel Ads programme and move towards finalising transactions on its sites as well.
These developments may lead to an increasingly blurred competitive environment in which technology companies such as TripAdvisor and Google move from a media to a transaction model, while OTAs move – through acquisitions and organic growth – towards a wider business model, including bookings, metasearches, B2B services to hotels and offering more travel information to consumers.