Online Travel Companies Shed Light on Future

And online distribution players need to adapt their business models to continue growing rather than entrench themselves in battles over market share.

For that reason, the 2012 PhoCusWright Conference was themed Pivot Points and each presenter was tasked with outlining how they will alter their business model moving forward.

 “The travel industry has been jolted by new threats, and there is an increasing call for strategic realignment,” said Philip Wolf, founder and chairman of PhoCusWright, who will step down after this year. “Staying the course or tweaking is not sufficient. Many of us are at a pivot point.”

Specifically, Wolf addressed the hotel-online travel agency relationship, saying it has been a tumultuous one from the get-go and continues to be so to this day. While Expedia has been berated for its margins for some time now, the onus will now shift to Booking.com as the Priceline.com darling grows its presence in the U.S., Wolf predicted.

Addressing 1,400 attendees at the Westin Kierland Resort & Spa in Scottsdale, Arizona, Wolf said big data is no longer a theory but a given for success. However, “the past is becoming an increasingly poor predictor of the future,” he said.

 “Technology advances have recently made searching, scoring and accurately measuring imminently doable,” Wolf said.

He presented a handful of PhoCusWright statistics:

• More than 70% of mobile bookings are last-minute
• U.S. m-commerce reached 8% of e-commerce
• 200 airlines have gone bankrupt “and counting”
• Mobile check-ins for North American airlines exceeded 11%

Priceline-Kayak deal

The hot-button issue was Priceline’s recent acquisition of Kayak. Wolf said the purchase was one of only 12 in 2012 that was consummated with more than 50% of stock as payment.

 “Kayak’s mobile assets alone are worth” the $1.8 billion price tag, Wolf said, adding that Kayak will thrive on the Priceline team’s intelligence and healthy balance sheet.

 “Maybe Kayak inside Priceline will be that elusive next growth monster,” he said.

Later, several online travel executives weighed in on the deal. Expedia Inc. CEO Dara Khosrowshahi said Kayak CEO Steve Hafner was “smiling a bit too much this week.”

TripAdvisor President and CEO Stephen Kaufer admitted he was “probably a bit surprised at the timing” of the purchase.

 “They had been in pre-(initial public offering) mode for a long time, so if they were interested, why not buy them then instead of later,” he said.

 “There’s a bit of a hedge about (the deal),” Kaufer said. “If (Priceline) owns a part of the travel demand, they’re a bit protected against some of Google’s moves in the future.”

Online travel updates

With regards to Google, Jeremy Wertheimer, the leader of the company’s travel division who created a permanent buzz with his entrance into the travel space this time two years ago, was on hand at PhoCusWright to provide an update on the company’s direction.

Wertheimer, a graduate of Massachusetts Institute of Technology and founder and creator of ITA Software, defended a sentiment that the company isn’t moving as fast in the travel space as it initially indicated it would.

 “There have been several dozen launches” in 2012, he said. “We went international (with Google Flight Search). If you really look at the product, there are a lot of new, small features. It’s a continual process of rolling out new features.”

 “There are a bunch of things going on,” he continued. “It’s growing nicely.”

Kaufer and Khosrowshahi also provided updates on TripAdvisor and Expedia, respectively.

Regarding TripAdvisor, Kaufer shed some light on how he runs the company, ensuring each of the 1,400 employees continues to bring an entrepreneurial spirit as if the company was still a start-up.

Asked about the ever-present fear of fake reviews, Kaufer said the validity of reviews will be “a constant question forevermore.”

 “Personally, I think the fraud rate is insignificant when it comes to rating hotels,” he said. “Fraud doesn’t become an issue because the reviews are so consistent.”

Kaufer said he constantly asks TripAdvisor users who book a trip based on the site’s reviews how accurate the reviews were once they return. “Right on the money” is the traditional response, he said.

 “That’s why they come back time and time again,” Kaufer said. “We’re really careful about making sure the body of content resembles what the hotels are actually like because it’s the trust that builds repeats visits.”

At Expedia, there are iterations under way that will give users more information on what is trending, Khosrowshahi said. For example, when a traveler is using Expedia to book a flight, statistics will be served up to show what percent of users booked that same flight option and what percent booked direct.

 “We’re going to take user data and feed it back to them,” Khosrowshahi said. “You will see some of those changes in the next few weeks.”

In 2013, Expedia will focus its efforts on “getting air and hotel packages right,” he said, adding that there is a lot of room to innovate in that space.

Khosrowshahi briefly addressed Expedia’s new Traveler Preference program, admitting publicly for the first time that it was partially a response to the success Booking.com is having with the commission, or agency, model.

 “When we look at the European marketplace, you have Booking.com that has taught consumers how to book online and that has been very much agency,” he said. “We were marketing a product that created friction. The Internet is friction-less … we thought we had to come out with a product that the local consumer liked.”

Khosrowshahi said Expedia has signed up 13,000 hotels for the Traveler Preference so far and 9,000 of them are branded. Early results show the hotels experiencing longer lengths of stay, he said, which helps Expedia’s case in signing up more hotels.

 “The beautiful thing about our business is that it’s data-driven and you can run experiments at any time,” he said.

Khosrowshahi was asked about recent grumblings from the hotel ownership community over the way commission structures are negotiated behind closed doors with brands and management companies leaving the owners out of the conversation. He said he is confident the brands have owners in their best interest when they are negotiating these deals.

 “We certainly want to have a relationship with the ownership community,” he said. “That said, the chains—they manage those hotels and they represent that ownership community and they do a good job of it. The margins with chains are lower ... I would say the proof is in the pudding.”