Is the Metasearch Model in Big Trouble?

Is it a temporary reset or the metasearch new reality?

Metasearch critics have long warned that comparison-shopping businesses from Trivago to TripAdvisor have been overly dependent on a couple of big online travel agency advertising partners. And two of the biggest, Booking Holdings and Expedia, have been stepping back a bit.

After all, hotel-metasearch site Trivago has been reeling over the last year as the Booking Holdings contribution to Trivago’s total revenue fell to 38 percent in the second quarter from 49 percent a year earlier.

In 2017, TripAdvisor generated 43 percent of its revenue from Expedia, Booking, and their respective subsidiaries, and that was a drop-off from 2014-2016 when they accounted for a combined 46 percent of TripAdvisor’s total annual revenue.

“I agree with the basic premise that having only two companies (plus Airbnb) is bad for metasearch as it puts too much power in only two companies,” said Kayak co-founder and Lola chief technology officer Paul English, referring to the market-making power of Expedia and Booking in metasearch bidding auctions.

The way the metasearch model works is Expedia and Hotels.com, as well as Booking.com and Agoda, for example, provide revenue to metasearch businesses such as Trivago, TripAdvisor and Google when they list their hotels and flights on these comparison-shopping sites, and pay advertising fees or commissions when consumers click over to the online travel agencies’ sites or make bookings.

TripAdvisor (43 percent) was much less dependent on the two big online agency groups for their revenue contribution in the second quarter than was Trivago (76 percent). One reason is that TripAdvisor is a much more diverse business, including hotels, tours and activities, restaurants, vacation rentals and flights, than is lodging-only Trivago.

Swing Factor

Several financial analysts, including Michael Olson of PiperJaffray and Justin Patterson of Raymond James, highlighted the importance of online travel agency marketing decisions when they pointed to the level of future online travel agency advertising in TripAdvisor’s platforms as being a looming issue clouding the company’s future performance.

Patterson of Raymond James wrote in a research note that TripAdvisor’s revenue per hotel shopper numbers are gradually improving and mobile monetization is making gains, but “OTA (online travel agency) spending remains the biggest swing factor.”

Meanwhile, Olson of PiperJaffray likewise argued that the pace of TripAdvisor’s revenue growth is uncertain because of “reduced spend on TripAdvisor from advertising partners and a more rapid shift to lower monetizing mobile traffic, among other items. Given the uncertainties around this dynamic and the length of its potential impact on company fundamentals, we believe TripAdvisor’s hotel segment deserves a discounted multiple vs. the peer group.”

Feeling the Pressure

Most people Skift interviewed on the topic viewed current metasearch advertising dynamics as a temporary development, subject to eventual modifications, although it could leave some casualties in the short term.

Drew Patterson, the former CEO of metasearch site Room77 and currently the president of startup Properly, said online travel agencies such as Expedia and Booking may be tamping down on some areas of performance marketing to improve their own margins, but added that Booking wouldn’t have recently acquired HotelsCombined if it didn’t believe in metasearch.

Steve Hafner, co-founder and CEO of Booking Holdings’ Kayak called into question rival Trivago’s viability, but said the consumer value proposition will ensure the future of the metasearch sector.

“The future of metasearch isn’t dictated by advertiser ROI (return on investment) changes up or down,” Hafner said. “It’s driven by pricing differences among OTAs and suppliers for a ‘like’ travel option (flight, hotel, car etc). As long as savings can be had from shopping around, meta will prosper.”

Hafner argued that “Google is best-positioned in the space and TripAdvisor is a distant but natural number two, given their unique content and global breadth. I love our cards at Kayak, too, given our nimbleness and history of innovation. Trivago? Hmm.”

T.J. Clark, co-founder and CEO of vacation rental management company TurnKey Vacation Rentals, said the major online travel agencies may be seeing less value than they did in the past in metasearch, although Google is making gains in the sector.

“I would say the 5-year outlook in metasearch is pretty scary,” Clark said.

Regarding Google, it is interesting to note that even though Trivago has decided to slow its own marketing spend in a bid for profitability, officials acknowledged that Trivago is leaning into advertising through Google hotel metasearch, and it is making some gains there.

Brand Advertising Versus Search Advertising

One interesting issue in the metasearch reset is the tension between the online travel agencies’ brand advertising, which is mostly TV, and the consumer-direct bookings they’d like to generate there versus the cost-per-click advertising through Google and metasearch sites.

One source pointed to the divergent positions that Airbnb and the big online travel agencies find themselves in. Airbnb has a great brand reputation, and is building up its search-engine advertising while Expedia and Booking.com don’t have terribly great brand reputations, but have been putting more emphasis into TV advertising to improve their brands and to attract more direct bookings.

Which of these companies will be able to use these proclivities to the greatest advantage and how will they alter their strategies based on performance?

Dan Wasiolek, senior equity analyst Morningstar Research Associates, contends that the online travel agencies’ softening of advertising in metasearch companies is a temporary, tactical decision.

“I believe the pullback in performance channels is temporary, although several years from now Booking and even Expedia’s direct business may allow them to have a mix away from performance (advertising),” Wasiolek said.

He pointed out that TripAdvisor states that it is improving the quality of the leads it sends to hotel-metasearch advertising partners, and that “Booking and Expedia will continue to want shelf space on this channel like a cereal manufacturing wanting shelf space at Wal-Mart.”

Competition for TripAdvisor, in particular, “will remain fierce,” Wasiolek said, as it faces off against Google, as well as Booking and Expedia, both of which have the scale to generate a higher mix of direct traffic than they do now.

Martin Soler, a Paris-based hospitality consultant, predicted that the online travel agency spending cuts on metasearch advertising “will have a pretty large impact on the channels,” making it cheaper for hotels and smaller players to attract the same traffic they did previously at higher advertising prices.

“I don’t think there is an existential threat for any of the players but it will change the dynamics,” Soler said. “Dynamics which have been changing quite a lot over the last few years. But in the end price comparison is something that shoppers have always desired so I don’t think metasearch will go away.”

When Expedia and Booking cool down their bidding in some metasearch auctions, it could indeed create opportunities for other players in some markets.

One might think this would lead to a great metasearch opportunity for the large hotel chains, but they seem preoccupied with direct-booking campaigns instead.

Asked during the company’s second quarter earnings call last month whether getting more disciplined about paid search, whether through Google or metasearch sites and emphasizing profitability is the new normal in travel, Expedia Group CEO Mark Okerstrom highlighted the rapidly changing dynamics in travel marketing.

“Well, it’s hard to say in the travel industry whether anything is the new normal,” Okerstrom said. “It’s always dynamic. It’s always been dynamic. I think the one thing, of course, that has created opportunities for us is just our increased capabilities. I mean, we have in terms of just bidding more effectively, measuring incrementality with more precision.”

Okerstrom added that what will happen to the competitive environment and in metasearch bidding auctions, “it’s really hard for us to tell at this point.”

In other words, the big online travel agencies could upend their metasearch advertising practices at any moment.

That doesn’t provide much solace for players like Trivago, TripAdvisor, Kayak, Skyscanner and others — but that’s just the nature of the business.