A great article on the New York Times last week went through the 10 years at the helm of Expedia of Dara Khosrowshahi, the new CEO of Uber. Part of the article describe the competition strategy of Expedia.
In one of my previous life I invested in Hotels and I remind well how in meetings with the Commercial Managers, Expedia was often mentioned as a reason for the shrinking Hotel Margins.
Expedia charges hotels a 25% commission on the value of the booking. The fee is paid at the moment of the booking.
In the early 2010 a new competitor emerged in the market, booking.com
Booking.com had a completely different business model:
The commissions was decided directly by the Hotels, with a minimum fee of 12.0% (vs. Expedia fee of 25%);
The customer paid at the moment of the check-out and not at the moment of the booking process as with Expedia.
In Europe booking.com was faster in gaining market share and becoming the favourite booking partner for Hotels.
Interesting Expedia didn’t enter in a price war with Booking.com and keep its fee at 25% neither decide to buy booking.com (the company was bought in 2014 by Priceline).
Expedia grew its Revenues from £3.0bn in 2010 to $8.8bn in 2016 and although some grow came from acquisition Expedia like for like growth rate was well above 10% every year.
So why Hotels didn’t drop Expedia and just use booking.com?
1 scale. In 2010 Expedia was the best-known company in the online travel market and Hotels have to be on the platform.
2 price. Hotels are rigid in their pricing strategy and were not able to offer cheaper rooms rate in booking.com. So, for the final customers the room price was often similar on both platform, not making a compelling case for the final customer to choose booking.com
Bookin.com didn’t have unlimited marketing resources so it remained less well known compared to Expedia at least until the last couple of years.
The strong growth of the online travel market allowed 2 different business models to prosper and Hotels were happy to be on both platforms.
Amazon. What will be happen to Expedia if Amazon would decide to enter in the travel market?
Considering Amazon business model, it is possible to expect a 0% commissions for the Hotels. It would be enough to make Expedia reduce its commissions?
I don’t think so unless the Hotels would be able to pass big part of the discount to the final customers.