Everything eventually comes full circle, right?

Alternative accommodations is a large and complex opportunity for Booking Holdings, and it’s ironic that in one sense the company’s homesharing push is turning its business model back toward what it was during the first dozen years of its existence.

That’s because beginning last year and into the first six months of 2019, Booking Holdings reversed a seven-year trend that saw its merchant model sales declining as a percentage of total revenue. Under the merchant model, Booking.com is the merchant of record for the transaction and consumers must pay the company the full price of the stay at the time of the booking. Under the agency model, the property accepts payment at the time of the stay, and pays Booking.com a commission after the guest checks out.

Booking Holdings is ramping up its pre-pay alternative lodging business through its online payment system because many hosts, particularly owners with one or two properties, may not have the ability to accept credit cards, e-checks and a variety of other payment systems from WeChat Pay to Alipay. Serving as the merchant of record enables Booking to accelerate signing up new properties, and provide more flexible payment options to guests.

Since 2018, Booking Holdings’ pre-pay merchant model sales have been climbing, rising 40 percent in 2018, and 26.4 percent in the first half of 2019. (See chart below.)

From its initial public offering in 1999 and through 2010, merchant model sales dominated the business model of Booking Holdings, which debuted in the public markets as Priceline.com. During those years, the company’s Name Your Own Price hotel, airline ticket and rental car business used the pre-pay merchant model, but that changed in 2011 when Booking.com’s pay at the hotel agency model became ascendant.

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What Is Merchant Revenue and Why Is It Important?

Booking Holdings attracted about 86 percent of its revenue in the first half of 2019 from hotels and alternative accommodations services, and the business model for these includes both merchant and agency revenue.

Booking Holdings Merchant Model Revenue 2010 to 2019

YearMerchant RevenuePercentage GrowthPercentage of
Total Revenue
2010$1.69 billion16.8 percent54.8 percent
2011$2 billion18.5 percent46 percent
2012$2.1 billion5 percent40 percent
2013$$2.21 billion5.1 percent32.5 percent
2014$2.18 billion(-1.1) percent25.9 percent
2015$2.01 billion(-4.7) percent22.6 percent
2016$2.05 billion(-1.7) percent19 percent
2017$2.13 billion4.2 percent16.8 percent
2018$2.98 billion40 percent20.5 percent
First Half 2019$1.56 billion26.4 percent23.3 percent

Notes: Booking Holdings merchant model sales dipped below 50 percent for the first time in 2011, and declined as a percentage of total revenue until 2018. 

Source: Financial filings

Booking Holdings’ strategy is to have Booking.com, the parent company’s largest brand, increasingly use the merchant model to assist alternative accommodations’ owners who may not be able to handle credit card transactions — or PayPal, WeChat Pay, Alipay, Paytm and electronic checks — on their own. This enables Booking.com to offer travelers more flexible payment options, and to accelerate the growth of its roster of vacation rentals and apartments, the company stated in financial filings. Being the merchant of record also helps the company’s tours and activities business.

“We haven’t seen any changes, but I suspect the shift is driven by growth in individual homeowners,” said Eric Breon, Vacasa founder and CEO, referring to Booking Holdings push into pre-pay bookings. “As they build their supply of individual homes, many of those homeowners would otherwise be unable to process credit cards.”

Andrew McConnell, CEO of short-term rental platform Rented, said Booking Holdings’ leaning into the pre-pay model shows the company is adapting to the changes in its hotel and alternative accommodations mix, and is following what most of the major players already do in homesharing.

At the end of 2018, Booking.com stated that it offered 1.74 million homes and apartments on its website, a 46.5 percent jump. During the same period, Booking.com’s hotel portfolio rose 10.1 percent to 436,000.

“The economics for Booking are great, getting cash in hand sooner,” McConnell said. “It is a recognition that while there are many similarities between hotels and alternative accommodations, there are just as many differences.”

It’s a different story at rival Expedia Group. It has predominantly used the pre-pay model for many years, although it started ramping up a pay-at-the-hotel model seven years ago.

A Very Tough Business

It’s clear from Booking Holdings financial filings that alternative accommodations add tremendous complexity to its business. In a second quarter Securities and Exchange Commission filing, the company noted that despite incremental revenue from homesharing, its operating margin could be negatively affected from the merchant model because of increased costs for things such as personnel, payment processing, and fraud. It may also adversely impact its room night statistics because alternative accommodations generally have fewer rooms to book than do hotels.

“In addition,” the company stated, “as our alternative accommodation reservation business grows, we may incur increasing numbers of complaints related to non-existent properties or properties that are significantly different than as described in the listing, as well as claims of liability based on events occurring at such properties such as robbery, injury, death and other similar events.”

The pivot toward the pre-pay model could also increasingly place Booking Holdings in the crosshairs of regulators as many cities around the world seek to clamp down on alternative accommodations. In the past, when it predominantly used the pay-at-check-in agency model for alternative accommodations, Booking Holdings might have been able to argue that it wasn’t responsible for collecting taxes or getting licenses to operate because it was merely facilitating transactions for homeowners. But when Booking.com operates as the merchant of record for apartment rentals, that argument seemingly goes away.

Referring to increasing propensity for local authorities to impose regulatory prohibitions on short-term rentals and licensing requirements, Booking Holdings stated in a second quarter financial filing: ” This dynamic regulatory environment requires us to expend significant time and resources and could negatively impact the growth and/or size of our alternative accommodation reservation business.”

Booking Holdings increased use of the pre-pay model doesn’t mean this way of doing business will overtake the pay at the time of stay model that it uses for many hotel bookings, but its revenue will likely increasing skew in the merchant model direction.

BOOKING HOLDINGS CEO GLENN FOGEL and VACASA CEO ERIC BREON WILL SPEAK AT SKIFT GLOBAL FORUM IN NYC Sept. 18–19. GET TICKETS NOW.

Photo Credit: Hotel Looier in Amsterdam is categorized on Booking.com as a bed and breakfast. Booking.com is increasingly serving as the merchant of record when it sells alternative accommodation stays online. Hoteliers.com