TripAdvisor Is Fighting to Keep Its Lead in Attractions: The Inside Story

History is written by the acquirers. And TripAdvisor has been telling an ever more upbeat story about its attractions business since 2014 when it bought tours and activities booking leader Viator for $200 million.

TripAdvisor says its absorption of Viator has gone well. The division grew with a “positive margin,” according to the company, in the past year.

In the third quarter of 2017, the non-hotel side revenue of TripAdvisor’s business — which includes bookings of restaurants, vacation rentals, and tours and activities — was up 26 percent to $126 million versus a year earlier. TripAdvisor doesn’t break out the financials of its tours and activities business, but company spokespeople said transactions sourced from TripAdvisor and Viator were double that of a year earlier.

Attractions are the fastest-growing part of that non-hotel revenue, the company said.

That’s welcome news for the Needham, Massachusetts-based TripAdvisor, where recent quarterly earnings reports raised questions about the growth prospects of its core business in hotels. Last week those questions partly led to a reorganization of its business units and their leadership.

CEO Steve Kaufer has repeatedly said he expects the attractions division will become the company’s “next multi-billion-dollar business.”

This week, as TripAdvisor Attractions holds an internal 2018 kick-off meeting, it has reasons to bullish about its attractions business. On Thursday, the company told us that it now has more than 80,000 bookable products. That total is more than twice as much inventory as its next-largest rivals, GetYourGuide and Klook, and more than six times Viator’s listings at the time of TripAdvisor’s acquisition.

But contrary to that narrative, some observers feel that TripAdvisor — unless it adjusts its strategy — could risk ceding its lead to rivals. And a look back at TripAdvisor Attractions suggests what can go spectacularly right — and potentially wrong — when a large online travel company acquires a smaller one.

Rivals making gains

Late last year, the two largest rival consumer booking companies received funding rounds that broke records for the sector.

Hong Kong-based Klook collected $60 million in a Series C round.

Berlin-based GetYourGuide received $75 million in a Series D round. The private company said it was “profitable” and had sped up its transaction growth to transact 6 million bookings last year.

Expedia has long been in the attractions business, and Ctrip and Hotelbeds have taken tentative steps into the sector, too.

TripAdvisor is still the leader and generates the most revenue for suppliers, according to tour operator software providers who made that judgment based on the booking volumes that pass through their systems.

Hotel-like Profits

Much is at stake. Viator charges typically 20 percent commissions, according to Skift Research.

TripAdvisor said in 2017 that its margins for attractions are increasing. It credited the gain to investing in technology, using search engine marketing, and acquiring more supply faster.

Michael J. Olson, a senior research analyst at investment bank Piper Jaffray, said in a recent report that, “Long-term, we believe there is no reason why this [attractions] segment can’t have a sustainable margin profile similar to (or better than) hotel segment.”

Until recently, investors thought hotels were the most profitable product for online travel companies. But attractions margins can be substantial, although the transaction sizes are smaller.

What Could Go Wrong? Mobile

TripAdvisor’s lead in attractions may not be sustainable. If GetYourGuide, Klook, Withlocals, Veltra/CD, or any another player builds a mobile offering more intuitive than TripAdvisor’s/Viator’s, that might put the company at a disadvantage.

Attractions is a product that ultimately lends itself to relatively last-minute purchases while a customer is in a destination and using a mobile device.

TripAdvisor doesn’t say that its consumers make the majority of their attraction purchases while in-destination or while on its mobile channels so it’s possible that they don’t yet.

Klook said that last year 70 percent of its bookings came through the mobile Web and its mobile app.

GetYourGuide said that mobile transactions represented 40 percent of the 6 million tickets it sold in 2017. It forecasts a majority of its bookings will take place on mobile this year.

If true, these companies may be gaining on TripAdvisor. As consumers become used to booking attractions online, many may jump right to mobile-first bookings — giving companies with the best mobile offering an edge.

New Boss

Dermot Halpin is president of TripAdvisor’s global attractions and vacation rentals divisions. He told Skift the company’s mobile effort is solid.

The company’s “focus on the app was a key contributor” to enabling TripAdvisor to grow transactions faster in the past year, he said.

TripAdvisor’s mobile Web and app offering is as not as good as it should, said one critic, who declined to be identified and whose company has developed apps for tour operators. The “things to do” section is a mix of content that is “not as well-categorized or searchable as the company’s hotel content is,” the critic claimed.

The attractions content is also “not displayed as intuitively as, say, Airbnb presents its Experiences product on its mobile app,” the critic said.

When asked about this, Halpin said: “Mobile is amongst our top priorities. The TripAdvisor app has been downloaded 440 million times, and an ever-increasing number of these users are planning and booking while they’re in-destination and on-the-go.”

“We’ve made this experience quick and seamless, and we’re constantly finding ways to better match travelers with the right products at the right moment during their trip and trip planning.”

When asked about the threat of rivals, Halpin said: “The significant, sustained growth we’ve seen in the last year clearly demonstrates we’re on the right path.”

“The combination of our demand and supply puts us in a unique position,” Halpin said. “We’re quickly growing and optimizing both of these assets.”

TripAdvisor branded sites and apps attract 455 million unique visitors a month on average, according to the company, although it’s unclear how many of them see the attractions content.

Fateful Decision

Halpin took over responsibility for the attractions unit in late 2016. But as early as 2014, the company chose a strategy that had promise — and risk.

They decided to apply the company’s vacation rental business playbook to its attractions business.

The playbook called for looking for what the two segments had in common. Then managers would apply the generic tactics used by one to the other — an approach that has worked in many industries.

An alternative approach might have been to look for what is unique about the attractions customer and product and work backward from that to a plan.

On the supplier side, the playbook called for mimicking a lot of the rental bookings management experience — meaning, the choices and drop-down menus that a supplier would see.

That differs from Klook, for instance. It noted that tour operators are often away from their desks. So Klook built a separate mobile app for merchants that streamlines their bookings management.

On the consumer side, TripAdvisor moved Viator from curated listings — which Airbnb and, to a lesser extent, Klook still offer — to a so-called open marketplace, meaning that listings receive less vetting.

That risked leaving shoppers with less of a sense of what made TripAdvisor’s selection special. Airbnb, after all, emphasizes small group offerings and Klook hammers home a “best price” guarantee.

The thrill of business is that no one knows for sure what will work. The pain is that making the tough calls can hurt.

Internal Pushback

Many Viator workers resisted the rentals playbook.

They did so partly out of pride, it seems, along the lines of: “By what right does someone working on a different product tell me how to do a job I’ve been doing well for years?”

At Glassdoor, a website where workers review companies anonymously, reviewers gave Halpin only a 23 percent approval rating, based on 93 reviews by anonymous full-time Viator employees.

In comparison, the average CEO approval rating on Glassdoor is 68 percent and 63 percent of TripAdvisor’s overall review base approved of CEO Steve Kaufer.

Departures

Some employees left — mostly by a year ago.

A source said that Viator’s product and marketing teams now only contain a small percentage of the same employees as 18 months ago. Within the past year or so, Viator’s CEO, four vice presidents, and several people working on products and engineering left — out of a Viator team of about 70 at the time of the acquisition.

When asked if the many departures suggested something was wrong with the company, Halpin said no.

“As in any case, when you buy a company that is 20 years old, and you say, ‘Let’s go this new direction,’ people make their choices,” he said. “We’ve also seen promotions and exciting career growth for many of our people.”

The Multi-Brand Question

Why did TripAdvisor keep Viator as a separate brand?

At industry conferences, Kaufer has often spoken of his vision of TripAdvisor moving from being a reviews platform to a company that sells products to travelers at all stages of a trip, with rentals and attractions being two of those products.

Assuming the goal is to make TripAdvisor a one-stop shop for consumers looking for “the perfect trip,” why keep Viator?

One reason: The vacation rental playbook called for that. The rentals division had kept several brands, such as FlipKey and Holiday Lettings, alongside TripAdvisor Rentals.

The company may also have fixated on increasingly difficult quarterly earnings targets. Perhaps it decided it couldn’t afford to drop any of its sub-brands at the risk of losing some short-term revenue — even if that move might pay dividends in long-term efficiency, clarity, and growth.

The company’s supporters might argue that maintaining multiple brands in attractions or rentals has been only a minor drain on resources, with only a small amount of duplicative marketing efforts and product development.

They might also say it is not obvious that any given supplier who is accustomed to working with the Viator brand for a decade or two would necessarily agree to switch to the TripAdvisor brand if forced to make a decision. By this logic, it would be safer to let suppliers who trust the Viator brand continue to use it.

When asked what TripAdvisor is going to do with the Viator brand, Halpin said, “We’re investing in it, that’s what we’re going to do.”

Mobile Indecision

The debate about brands may seem abstract. But the debate took on practical importance when TripAdvisor considered sunsetting the Viator mobile app.

Throughout 2017, managers held discussions on closing down in phases the Viator mobile app, sources said. But they worried about losing in the near-term the app-based revenue, which was continuing to grow.

The indecision cuts against the company motto that “speed wins.”

Since September 2016, Viator’s app hasn’t received a major update. It has never really delivered anything beyond what the mobile Web version could support, a sign of a lack of investment.

When asked about mobile, Halpin said on Thursday the company considered it a top priority. “The TripAdvisor app has exponentially more users. It has been downloaded 440 million times. And it’s true that this is where we focus the majority of our mobile work.”

The Viator app has been downloaded only three million times, though it has boasted favorable average reviews.

Halpin said, “We have a smaller audience in the Viator app, and we provide these travelers with an excellent experience, which we’ve seen reflected in its high ratings and growth in sessions.”

Halpin’s Defenders

TripAdvisor began as a media operation, not a service business. The company lacked practice at building close relations with suppliers.

Halpin has helped the company make great strides on this front at both the rentals and attractions businesses, his admirers said — noting his experience as having once been the president of Expedia’s European operation.

TripAdvisor has improved Viator’s outdated supply acquisition approach in the past few years, a former Viator employee conceded. The attractions business’ customer service also improved, as reflected in “record-high” net promoter scores, a standard type of survey, a company representative said at a recent industry event.

Since the acquisition, the combined unit increased supply by staffing up its Asia Pacific team from two to 15 and expanding its team for Southern Europe, Middle East and Africa from two to 11, an employee said.

A Data Lake

TripAdvisor defended its execution. The unit’s strong financial results are the result of savvy decisions, it said.

“We made a number of foundational changes to our business earlier this year to best position ourselves for the opportunity ahead, and our data systems were a key focus of these changes,” Halpin said.

The company credited its improvements in attractions revenue during the past couple of quarters to a savvier use of data that has driven increased marketing and operational efficiency.

In the past year, the company’s engineers built a data warehouse to store all of its non-hotel information in one place — a so-called “data lake” that is TripAdvisor’s counterpart to the “customer analytics” movement that has swept other industries.

By unifying all of its non-hotel data, TripAdvisor was able to buy traffic via search engine marketing more efficiently. It made smarter bids on keywords thanks to a better understanding of its data, he said.

Insiders said that, for search marketing purposes, the data aggregation was a massive success.

Insiders also said that the work is still underway, eating the time of more than a dozen engineers for more months than managers had expected.

Halpin said the work is foundational, a huge win in the past year, and will enable the company to become better at recognizing signals that suggest customer intent, such as whether a user is in a planning or booking mode.

His goal is to present content and deals that are more relevant, such as in the sort order of search results that any given consumer sees. This work will support the mobile ground game, too.

Other technology rebuilds are happening on the web front end, to improve how sort order is displayed, and across the supplier access system, and to enable it to support more languages than English, a source said.

What’s Next

TripAdvisor has weak spots rivals might exploit, sources said.

If rivals such as GetYourGuide and Klook can be more attentive to small operators — such as by making processes easier, keeping commissions low, and offering more human-based interactions than numbers-based ones — they might take share.

Halpin said that TripAdvisor has significantly reduced the time it takes for suppliers to add inventory and planned to be competitive on fees.

Still, in the near-term, the company may be tempted to look for ways to earn more money off of suppliers, too.

One possible path: In October, the company debuted a TripAdvisor Ads product that lets restaurants pay for the chance to have their listing appear in the most desirable spots in the company’s search results.

It seems logical that the company will eventually offer such a marketing-based product to attraction operators, too. Some suppliers would see that as a cost, others as a benefit.

Acquisitions Might Help

One way to enhance supplier relations might be to acquire one of the business-to-business software providers that are used by many tour operators as a way to improve the end-to-end technology experience.

A strategic investment or acquisition in one of these companies — FareHarbor appears to lead in size in the U.S. — might deepen the company’s relationship with suppliers and increase the fees it can charge.

TripAdvisor’s Game to Lose

When CEO Steve Kaufer spoke last year about the attractions business, he said: “We love what we see pretty much every way we look at it.”

Critics argue that TripAdvisor’s attractions business risks being overtaken by competitors if the company applies its vacation rental playbook to its attractions business without a bigger investment in mobile and a cohesive brand marketing message.

Defenders pointed to TripAdvisor’s much-touted skills of iterating products and of finding cost-effective ways to acquire and retain customers.

“We’re excited about and confident in our growth trajectory,” Halpin said.