Trivago said it is working with its largest advertisers, including Booking Holdings and Expedia Group, on changes that could eventually cause it to eliminate a controversial “relevancy assessment,” introduced in 2016, that wreaked havoc with Trivago’s financial performance.
In its second quarter financial results announcement, Trivago stated “we have recently been working with our largest advertisers on a large, multimarket test to help us better understand the end-to-end impact on our users’ experience of the aspect of our algorithm that adjusts CPC [cost per click] bids based on the relevance assessment.”
Relevancy assessment adjusts advertisers’ bids and placement in Trivago, based on the company’s assessment of the user experience on advertisers’ websites.
In a question-and-answer session with analysts Wednesday, Chief Financial Officer Axel Hefer said those tests include advertisers optimizing the user experience with multiple landing pages for different user classes when travelers click over from Trivago to the advertisers sites.
Hefer added that with this “joint optimization” Trivago would be testing whether it makes the “relevance assessment redundant going forward.”
Relevancy Assessment Woes
A couple of years ago, after Trivago debuted the relevance assessment, Booking Holdings dramatically — and temporarily — reduced its advertising spend in Trivago, and the hotel metasearch site’s profitability and financial performance tanked.
In 2016 when Trivago introduced the relevance assessment, it was trying to address a metasearch albatross. For example, when consumers navigate from a metasearch site to an online travel agency or hotel website advertiser, they often encounter a widely divergent and frequently very poor user experience, including bait-and-switch pricing and difficulties in finding the rate they discovered on the source metasearch website.
But major advertisers, such as Booking.com and Agoda, both Booking Holdings brands, vociferously objected to their bids or listings placements being downgraded in Trivago because of the relevance assessment — and they voted on the change by shifting their advertising spend elsewhere.
Trivago has labored to recover ever since, fine-tuning its own advertising spend on TV and search engines such as Google and Yahoo to emphasize advertising efficiency and profitability, laying off staff, and taking other measures. It appears from Trivago’s performance in the second quarter that the company is on the road back.
Trivago raised its adjusted EBITDA (earnings before interest, taxes, depreciatio,n and amortization) guidance for 2019 to a range of 60 million euros ($66.85 million) to 80 million euros ($89.13 million). The guidance previously had been 50 million euros to 75 million euros.
In the second quarter, Trivago notched net income of 5.7 million euros ($6.35 million) from a loss of 20.7 million euros ($23.06 million) a year earlier. Revenue fell 5 percent year over year to 223.4 million euros ($248.9 million).
Booking Increases Spend, Expedia Reduces It
Trivago officials said the mix of its advertisers has been improving, with slightly more diversification of advertising clients, and its auction climate has been stable. In Trivago, as in many metasearch sites such as Google Hotels or Kayak, advertisers make bids for placement of their listings and rates.
In the second quarter, Trivago’s largest advertiser, Booking Holdings, accounted for 39 percent of Trivago’s total revenue, up from 38 percent a year earlier while Expedia Group, which owns and controls Trivago, contributed 35 percent of Trivago’s revenue, down from 38 percent a year earlier.
New Features and Google
In addition to working with its largest advertisers to optimize landing pages, Trivago is testing other features “to allow niche players to be more competitive in their niche,” said Trivago CEO Rolf Schrömgens. These include two new ways, “time to travel” and “length of stay,” for advertisers to make more flexible bids, the company said.
In other news, Trivago hired James Carter, most recently engineering director at Google, as its new head of hotel search. Part of Carter’s responsibilities at Google was working on its Hotel Ads program, which is the bedrock of Google’s hotel business.
Hefer said Trivago will gradually increase its participation and visibility in Google Hotel Ads. Asked about the new Google Trips, which serves as a one-stop shop for flights, hotels, alternative accommodations, and vacation packages, Hefer said it’s a good product, but he doesn’t think it would impact Trivago’s financials in the short term.