Booking.com Rethinks Digital Advertising in Favor of TV

Look for some dominoes to fall and perhaps a competitive realignment over the long term as Booking.com, the king of digital advertising in travel, rethinks some of its pay-per-click marketing, and goes very big on TV with a goal to attract more direct bookings.

No, it isn’t only hotels and airlines that have direct-booking strategies: The Priceline Group, which has Europe-based Booking.com as its major growth driver, intends to soon put Booking.com on TV in 30 countries, and that’s up from just 12 in 2016.

The company plans to increase spending on TV by 55 percent, CFO Daniel Finnegan said, adding that the larger spend on television will occur over the next few quarters and have an adverse impact return on investment in the short term.

The increased spend on TV advertising would come at the expense of some digital advertising. It would pressure margins, particularly in the seasonally slower next two quarters, Priceline Group CEO Glenn Fogel conceded during the company’s third quarter earnings call Monday.

He added, however, “it’s the right thing to do at this time.”

One reason for the tilt toward TV, Fogel said, is the company has been evaluating whether certain performance-based advertising channels, which include everything from Google AdWords to hotel listings on TripAdvisor or Trivago, really help or hurt in attaining a key goal — getting more direct traffic and one-to-one relationships with customers.

Fogel said the investments in TV advertising would build a foundation for the future.

Ripple Effects

The advertising strategy shift, and the willingness to downplay long-time relationships with certain third-party advertising sites, is one of the biggest changes Fogel has made since becoming CEO in January, and it marks his biggest effort to put his own stamp on company’s direction.

It’s no small thing that the Priceline Group plans on leaning more on TV, and would presumably rein in a percentage of its spend on digital advertising. Skift Research estimated in September that Priceline’s digital ad spend in 2017 was on pace to reach $4.3 billion, with the biggest chunk of that going to Google. Booking.com is widely seen to be the biggest travel advertiser on Google.

So Google could feel an adverse impact if the Priceline Group and its Booking.com subsidiary tamp down digital ad spend, although that alone wouldn’t have a material impact on the search-engine giant.

But metasearch channels such as Trivago, TripAdvisor and Google’s hotel-search feature could find themselves in harm’s way when the Priceline Group slows the growth of its digital ad spend.

Fogel told analysts and investors that as part of the company’s goal to build direct traffic and customer relationships, it is evaluating the impact of its spend on various performance-advertising channels over the short and long term. He noted that some of them use Priceline’s advertising spend to compete against the company.

So the Priceline Group is assessing whether these channels are producing an attractive return on investment, optimize its listings, and provide a satisfying user experience for Priceline’s customers.

Skift reported last month that Priceline has been pulling back on its spend on Expedia’s Trivago hotel-search site.Trivago saw an $8 million loss in the third quarter, and stated that there was no reason to expect a dramatic turnaround in 2018.

Analysts will be watching to see whether the Priceline Group’s digital ad pullback could adversely impact TripAdvisor, which counts Booking.com as a key partner both in comparison shopping and its book on TripAdvisor feature.

None of these moves are written in stone, however. Fogel said there has been a great improvement over the years in assessing the impact of digital advertising in a more timely way. So the company could allot spend or disengage in a fluid fashion as the metrics indicate would be prudent.

“We are getting more science than there used to be,” Fogel said.

An Ironic Twist

The irony of the Priceline Group’s strategy tweak and a recent one by Trivago should not be overlooked.

Priceline’s Booking.com grew up on and led the industry through its heavy digital advertising, and in recent years it has discovered TV as an effective tool to generate direct traffic and improve customer relationships.

On the other hand, Trivago, which spent 87 percent of its revenue on marketing — much of it on TV — last year said recently it would increase its digital marketing because it has been overspending on TV in light of its platform-transition troubles.

Third Quarter Numbers

In the third quarter, the Priceline Group’s net income jumped 240 percent to $1.7 billion; the percentage increase was so large because the company registered a $941 million impairment charge a year earlier tied to its $2.6 billion acquisition of OpenTable in 2014. Revenue rose 20.1 percent to $4.43 billion in the third quarter.

The company’s fourth quarter guidance called for room night growth to range from 8 percent to 13 percent; the reason it would be so low is because of a very difficult comp — room night growth a year earlier was 31 percent.

One analyst asked Priceline executives whether there is something wrong with online travel given the weaker than usual results for both Priceline and Expedia. For example, Expedia’s stock price tumbled after its own third quarter earnings release, and the Priceline Group’s stock fell 9.35 percent to $1,725 in after-hours trading a few hours after it released its third quarter results Monday.

Fogel said his company still has only a single-digit percentage market share in the global travel industry and that there is plenty of room to grow as customers shift from offline to online booking.

CFO Finnegan added that the company’s increase in TV advertising would adversely impact return on investment over the next few quarters, but he sees no structural problems ahead.

Prodding customers to visit Booking.com directly over the long term would have a positive impact on return on investment “once we get to the optimal level of spend,” Finnegan said.