Travel website TripAdvisor takes on Expedia, Priceline

  • Article by: THE ECONOMIST
  • Updated: August 10, 2014 - 2:00 PM

TripAdvisor’s “instant booking” could lead to competition with Expedia and Priceline.

“Breakfast is nasty, the rooms are nasty.”

So complained a reviewer of an Oregon guesthouse earlier this year. There is nothing unusual in that: All hotels must deal with the odd disgruntled guest. This critique, though, appeared on TripAdvisor, a travel-review website.

When the correspondent went on to document drunken housekeepers and licentious receptionists, the owners sued him. It was more than a point of pride. What customers say on TripAdvisor can make or break hotels. Nearly 260 million people visit the site each month to read some of the 125 million reviews.

The firm makes money by displaying prices from online travel agents (OTAs) alongside its reviews, and then charging those agents each time a customer clicks through.

It is such a good example of a network effect that it is the subject of a Harvard Business School case study.

The more users post reviews, the more useful the site is to those about to book a vacation. This makes it more important to hotels and travel agents, who offer better deals.

This results in more traffic — and more reviews — closing the virtuous circle.

Last year, TripAdvisor reported revenue of $944.7 million. Because users post reviews free of charge, in 2012, Jeffrey Bussgang, a Harvard Business School lecturer, calculated that its gross margin was an astounding 98 percent.

For these reasons, some think Trip­Advisor may be able to take on the “big two” OTAs — Expedia (from which TripAdvisor was spun off in 2011) and Priceline, which last week bought up to 10 percent of Ctrip, a large travel website in China.

These firms sell flights and hotel rooms directly rather than pass booking requests on to others, as TripAdvisor does. But, says Blake Harper of Wunderlich Securities, a stockbroker, the two ways of doing business are converging.

Sites owned by the big two, such as Hotels.com and Booking.com, now encourage user reviews. At the same time, Trip­Advisor has launched Instant Booking, which lets smartphone users complete their bookings without leaving the TripAdvisor site (although the transaction itself will still be with an OTA or a hotel).

Instant Booking serves another purpose. Half of TripAdvisor’s traffic comes through mobile devices. Being able to book in a single place will make its app slicker.

Moreover, smartphones are creating firms that cater to travelers when they arrive at their destination — and TripAdvisor is getting into that business. In May it paid a reported $140 million for La Fourchette, an online restaurant-booking service.

On July 24 TripAdvisor said it was paying $200 million for Viator, a firm that sells guided tours and other touristy activities.

TripAdvisor’s boss, Stephen Kaufer, denies he wants to take on the big two.

“We are a media site,” he said. “I want Expedia and Priceline to thrive because they are my clients.”

But soon, vacationers will be able to book their entire trips without leaving the Trip­Advisor app.

Rivals beware.

Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.

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