One of Expedia's answers to Booking.com is the Expedia Traveler Preference Program, giving consumers the choice to prepay for a hotel (merchant model) or pay at the hotel (an agency model like Booking.com's). Booking.com's sole use of the agency model gives it a speed advantage as the merchant model is more complicated when signing on and retaining hotels.
Expedia Inc. CEO Dara Khosrowshahi talked last week about how his company was making progress in its European hotel business, but acknowledged “we can do better.”
“As you know,” Khosrowshahi said last week during Expedia’s third quarter earnings call, “Booking.com is quite strong in Europe. So we’ve got an uphill climb, but the direction, at least, is positive for us.”
An equity research report from Evercore claims that Booking.com’s conversions of lookers to bookers is two to three times the industry average, and it attributes much of its success over online travel agency rivals such as Expedia to “a structural advantage.”
In sum, the Evercore report says Booking.com’s paid-search efforts are destination-based while its rivals’ organizations are origination-based.
“Booking.com optimizes marketing spend for UK-based hotels on a U.K. P&L, regardless of where those marketing dollars get spent globally (i.e., Indonesia or the United States). This subtle distinction allows them to more seamlessly scale conversion improvement across a broader footprint, align incentives across marketing and sales personnel for better timing of attack, and cold-start new territories, such as here in the U.S.,” the report says.
Sales and Marketing Team Conflicts
The report claims that the origination-based approach used by competitors leads to myriad conflicts between sales and marketing teams.
“Specifically, as destinations get added, marketing teams become less connected to the sales efforts within the growing number of destinations,” Evercore says. “In our UK example, if a U.S. marketing department finds that UK-based keywords are not performing as well as French ones, budgeting could be reallocated without consideration to UK-based sales efforts that may be under way.
“As a result, the UK sales team may find it harder to sign new hotels, despite its promotional activity, given that US-originating traffic is suffering on the basis of P&L optimization locally.”
Evercore states that the basis of its theory about Booking.com’s structural advantages comes from William Beckler, who until recently was head of marketing and analytics at Travelocity, and is the founder of startup AllThe Rooms.com.
Dominating a Destination
Beckler tells Skift that the Priceline/Booking.com advantage isn’t merely based on a destination-based approach, but “there is a complete alignment about mastering destinations,” and not just short-term ROI.
All of Booking.com’s underlying decisions, from organizational structure down to its use of Perl scripting language, revolve around dominating a destination, Beckler says.
“The goal is not to optimize today, but to win a destination,” Beckler says. “That is the thing no one can copy.”
Beckler adds: Booking.com’s “decisions are more fundamental than what to do day-to-day. They made choices in how every department is structured, incentivised, and managed. Without tearing down department walls, getting rid of distracting verticals, rewiring the tech, and restarting the marketing teams, including how they are staffed, then you can’t copy Booking.com. It’s not just a matter of deciding to win a destination today. It’s in the DNA.”
Asked to assess the weight that Booking.com’s destination-based approach may factor into any structure structural advantage, one online travel agency veteran doubts Evercore’s premise that it is “the fundamental search engine marketing advantage for Booking.com.”
A superior global search engine marketing technology and the scale Booking.com can achieve are primary drivers, the OTA veteran argues.
“That being said, if it’s true that marketing spend is controlled on a destination basis, then that would represent a radically different organizational structure that could have profound additional advantages,” the OTA veteran said.
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