The golden age of major online travel agency marketing spend through TripAdvisor and other metasearch engines has lost some of its shine as they increasingly divert more of their resources elsewhere, particularly toward brand advertising.
For example, the collective marketing spending of Booking Holdings and Expedia Group through TripAdvisor reached a four-year low in 2018, and their contribution to TripAdvisor as a percentage of its total revenue hit rock bottom since it became a public company in late 2011.
In fact, in 2018, as reported in TripAdvisor’s year-end financial filing, Booking Holdings and Expedia Group’s contribution to TripAdvisor’s total revenue fell to 37 percent, or $597.5 million, compared with 43 percent, or $669.1 million, in 2017.
We detail the trajectory of Booking Holdings and Expedia Group’s marketing spend in TripAdvisor in the chart below. That collective marketing spend peaked in 2015 when TripAdvisor and Booking Holdings announced an instant booking partnership, and has trended downward ever since for a variety of reasons. Chief among them are that the major online travel agencies have seen a reduction of their marketing efficiency in performance, or search engine, advertising and have put new emphasis into brand marketing, including TV, as a way to attract direct bookings.
Expedia-Booking Holdings Spending in TripAdvisor 2012-2018
|Year||% of TripAdvisor Revenue||Expedia/Booking Spending||% Change|
|2018||37%||$597.5 million||– (10.7%)|
|2016||46%||$680.8 million||– (0.80%)|
Source: TripAdvisor’s Securities and Exchange Commission filings
While TripAdvisor has had to adjust to the hardball dynamic of reduced marketing spend from the two largest U.S.-headquartered online travel agencies, the picture is not all doom and gloom.
For years, TripAdvisor, and other metasearch sites such as Trivago and Kayak, have been criticized for an over-dependency on marketing spend from just two major online travel agencies, and their subsidiaries.
In the interim, TripAdvisor has managed to diversify its revenue streams away from hotels and toward tours and activities, and restaurants. Last year, TripAdvisor’s non-hotel segment, which includes experiences, restaurants, and alternative accommodations, accounted for 28 percent, or $458 million, of TripAdvisor’s $1.61 billion in total revenue. That’s up from 23 percent of TripAdvisor’s total revenue in 2017.
While TripAdvisor’s non-hotel revenue grew at a 27 percent clip last year, the company’s hotel revenue declined 3 percent to $1.16 billion. The main driver of the hotel revenue decline was the fading loyalty of the two big online travel agency partners.
Asked to comment on the decline in revenue from the two major online travel agencies, TripAdvisor spokesman Brian Hoyt said “online travel partners made changes to their online marketing efficiency targets in late 2017, which stabilized at these levels throughout 2018, impacting our Hotel segment. Continued diversification of our revenue strengthens us as a business as Experiences and Restaurants become a more meaningful part of our mix, and as we prioritize investments within these high growth areas.”
Commenting on the major online travel agencies’ relative de-emphasis of metasearch, Skift Senior Research Analyst Seth Borko said Booking and Expedia “have been clear about their intentions to prioritize their brand advertising strategies over performance marketing.”
In 2008, Expedia and Booking generated about $19 of travel sales for every $1 they spent on digital marketing, Borko said. However, that efficiency has declined in the interim about 15 percent to $16 in bookings for every marketing dollar spent, Borko said.
“We believe that declining efficiency of performance ad spending coupled with increased competition for consumer attention from hotel and airline direct booking campaigns have caused the online travel agencies to reconsider their approach to brand advertising,” he added. “Online travel executives hope that brand ads can improve consumer reach at an earlier stage of the purchase funnel, build brand awareness, and drive greater direct web traffic.”
To be sure, said Dan Wasiolek, senior equity analyst at Morningstar, TripAdvisor remains too important a marketing vehicle for major online travel agencies to abandon — especially as TripAdvisor users convert at a higher level because of the site’s improved user experience and its own TV advertising campaigns.
In that regard, Wasiolek views 2018 as a “reset year” for the two online travel agencies in determining how they want to participate in TripAdvisor as opposed to questioning their marketing efforts there outright.
Lee Horowitz, vice president, internet equity research at Evercore, said it’s positive that TripAdvisor is growing its non-hotel business, where no single advertiser holds sway.
“That said, for the Hotel business, TripAdvisor will remain beholden to the whims of the OTAs (online travel agencies) as the hoteliers seemingly simply don’t have the sophistication nor the motivation to enter the metasearch space more aggressively,” Horowitz said. “With both the OTAs and hoteliers focusing on organic direct traffic, the bear case for metasearch remains firmly intact.”
TripAdvisor, of course, wasn’t the only metasearch platform to experience woes in its online travel agency marketing spend. Booking Holdings has been squabbling with Trivago, which is majority-owned by Expedia, for the last two years.
In 2018, Booking Holdings’ spending in Trivago amounted to 39 percent of its total revenue, and that was down from 44 percent the previous year.
It should be noted that this diminution of online travel agency spending in metasearch players isn’t necessarily a permanent phenomenon. These are tactical moves that are always subject to change.