Expedia's moves to lower commissions, tack on a tactical bidding program for hotel displays, and make itself friendlier to hotels and consumers by offering a pay-at-the-hotel option are all designed to ramp up Expedia's business and to make Booking.com's so-called "competitive moat" a little less imposing.
You might call it the Booking.com-ization of Expedia.
Expedia’s recent launch of its hotel Accelerator program, which enables properties to bid to move higher in search results on Expedia hotel pages based on paying higher-than normal commissions, is the latest example over the past few years of big business model changes Expedia made to parallel initiatives that Booking.com pioneered years earlier.
Competitors routinely copy features or products that have worked for their rivals but these changes that Expedia has made in recent years are major alterations.
Booking.com’s Preferred Property Program has been around for more than a decade. It enables hotels to move up the sort order when they pay extra commission and, as with the Expedia Accelerator program, meet certain performance requirements. Unlike Expedia, Booking.com identifies participating properties with a Preferred Hotel Partner logo.
Lowering Commissions For Hotel Chains
It may seem counter-intuitive, but Expedia’s introduction of its Accelerator program, which entices hotels to pay higher commissions in times of occupancy challenges, is closely tied to another Expedia business model change that gets it more similar to Booking.com — a drive to lower the commissions that big hotel chains have to pay.
As we outlined in 2012, when describing How Booking.com Turned the Other OTAs Into Converts, Booking.com historically managed to scale its business, in part, by using an agency model with lower commissions than Expedia’s more-complex-to implement and higher-commission merchant model.
As we wrote, Priceline’s two acquisitions in 2005, Bookings B.V. and Active Hotels, “eschewed the merchant model in favor of a retail, or agency, model and replaced complexity with simplicity and efficiency for hotels.”
Expedia officials have acknowledged in recent weeks that the company has lowered hotel chains’commissions, which have traditionally been higher than Booking.com’s and were seen as an impediment to growth.
“… Our strategy with our chain partners is no different than our overall strategy which is to lower our base commissions, so that there is very little friction in working with us,” Expedia CEO Dara Khosrowshahi told analysts on February 11. “And then really any hotel, whether they are a chain or independent can compete in our marketplace for share and this is a big marketplace, the marketplace is only growing and if you got competitive pricing and you got great content and you treat our customers really well and you provide excellence availability along with margins you will do well in the market place.”
So Expedia believes it can grow faster by lowering commissions and thus making its distribution more attractive to hotel chains that are pushing direct bookings.
At the same time, lower commissions for chains could theoretically lead to a revenue gap, which might be reduced by enabling chains and independents to bid their way higher on search results pages through the Expedia Accelerator program.
Whether Expedia lowered its commissions solely to compete better with Booking.com and others or Expedia was pushed to do so by consolidation in the hotel industry and the emergence of TripAdvisor as a hotel-booking channel is open for debate.
Perhaps all of these factors went into the decision.
Lending credence to the theory that Expedia’s commission reductions weren’t solely voluntary, late last year Hilton Worldwide CEO Chris Nassetta went public and boasted of economic and other concessions the chain won from Expedia.
Or perhaps Expedia planned on lowering commissions all along.
Expedia Traveler Preference Program
In an earlier and related concession to the Booking.com way of doing things, in July 2012 Expedia introduced the Expedia Traveler Preference program, which gives travelers the choice of paying at the hotel or prepaying through Expedia. Until then, Expedia overwhelmingly used the more lucrative pre-paid model while Booking.com used the more-hotel-friendly pay at the hotel model.
In conjunction with giving consumers the option of paying at the hotel, Expedia in 2013 granted economic concessions to hotel partners because they have to pay higher credit card fees and customer service costs when guests pay at the hotel.
Expedia Is Still Very Different From Booking.com
We are not arguing that Expedia has become a clone of Booking.com or that there is anything wrong with Expedia putting in place certain programs that have spurred growth for Booking.com.
In fact, Bellevue, Washington-based Expedia and Amsterdam-headquartered Booking.com are two very different companies and it is not just based on geographies. For example, in addition to hotels, Expedia sells flights, vacation packages, cars, cruises and activities and is much more U.S.-focused than Booking.com, which eschews flights for its lodging business, and has a larger presence than Expedia in Europe and Asia Pacific.
As further evidence that Expedia doesn’t merely copy Booking.com, the Expedia Traveler Preference program gives consumers a choice of prepaying for a room or paying at the hotel while Booking.com usually offers only the latter choice.
The B2B Side of the Hotel Business
There are a couple of other areas where Expedia is making moves that parallel those of Booking.com, although Booking.com doesn’t have a monopoly on these areas of interest as there are plenty of other companies getting into these sectors.
In particular, in 2015 Booking.com launched its BookingSuite division, which offers hotels booking engine and digital marketing services, and Expedia’s majority-controlled Trivago unit is making similar, although not identical, moves.
Similarly, Expedia last week introduced Expedia PartnerCentral Conversations, a tool that enables hoteliers to communicate with guests — and vice versa — through the Expedia platform after a booking is complete. Expedia likewise has invested in mobile apps Checkmate and Alice to facilitate hotel-guest services and communications.
Booking.com introduced a messaging app for hotels on Android in February 2015 and on iOS six months later.
Booking.com, too, has been much stronger than Expedia in apartment and vacation rentals. Expedia last year acquired HomeAway for $3.9 billion as a way to make up lost ground against Booking.com, Airbnb, TripAdvisor and many others.
In fact, Expedia had acquired several vacation rental companies several years ago and Khosrowshahi says he regrets letting Expedia’s vacation rental businesses exit with TripAdvisor in 2011 when it got spun out from Expedia.
Two Themes Emerged
In the competition between Expedia and Booking.com, two themes have emerged over the past couple of years. Expedia has been acquiring everything in sight, including Wotif, Travelocity, Orbitz and HomeAway, while the Priceline Group argues that it performs twice the hotel bookings that Expedia does, and that Booking.com has “a competitive moat that is deep and wide.”
Both companies are playing the long game in the currently $1.4 trillion global travel industry. The online travel industry, after all, is merely a millennial and is only about 20 years old.
Expedia’s moves to lower commissions, tack on a tactical bidding program for hotel displays, and make itself friendlier to hotels and consumers by offering a pay-at-the-hotel option are all designed to ramp up Expedia’s business and to make Booking.com’s so-called “competitive moat” a little less imposing.
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