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Trivago's incoming CEO Axel Hefer signaled Thursday that the company would change its auctions to appeal more to advertisers. Most promising is how it will now let and other advertisers bid for different types of customers for essentially the first time.

Trivago’s incoming CEO Axel Hefer is wasting no time in putting his imprint on the company, outlining changes to relationships with advertisers. It was announced last month that chief financial officer Hefer would replace co-founder and CEO Rolf Schrömgens starting in 2020.

At an investor conference Thursday, Hefer revealed a strategy for the lodging price-comparison search company that detailed changes to Trivago’s auctions for advertisers.

“The key learning of 2019 is really our shift to a much more collaborative approach with our large advertisers,” said Hefer during a question-and-answer session with analysts at a Morgan Stanley investor conference. “We’re going from a rule-based to a more collaborative approach.”

Expedia Group-backed Trivago said earlier this month it had replaced a so-called “relevancy assessment” it introduced in 2016 that had upset Booking Holdings so much that it reduced its ad spending with the company. In July, Trivago had hinted it would kill the controversial feature.

At issue is what happens when a consumer clicks an offer and Trivago hands the customer off to the advertiser, such as, to book a place to stay. Trivago penalized firms in how they presented ads on their sites and apps if they didn’t comply with the search company’s preferences for how that should happen. In short, didn’t like being bossed around.

Hefer said the controversial feature had been “a bit more confrontational.” The new approach aims to “take the friction out of the handover point” in a more collaborative way.

Fixing its relationship with Booking Holdings is critical as Trivago scrambles to boost its profitability. In the third quarter, Trivago’s net income dropped to about $333,280 from around $11.2 million a year earlier.

Tactical Changes to Its Ad Auctions

Hefer detailed other changes to its ad auctions.

He said one of the most promising fixes is how Trivago now lets, Expedia, Ctrip, Airbnb, and other advertisers fine-tune their bids for how they display their ads in its search listings by how far in advance a consumer is booking a trip and how long the consumer’s stay will be.

“You’ve got companies that are very competitive on the same-day stays, for example,” said Hefner, perhaps referring to brands like Airbnb-owned Hotel Tonight. “That’s what they optimize their product for, that’s what the brand stands for.”

“You’ve got other companies that are actually very good in longer stays, stays with the larger party, vacation stays, et cetera,” Hefer said, perhaps referring to short-term rental brands like Sonder, which he mentioned elsewhere during the discussion. “So, by not allowing any modifier, you force everybody in a way to compete head-to-head on average, and that’s not optimal.”

The change has caused hiccups, and Trivago won’t make any more tweaks this year to allow advertisers time to digest what’s happened.

“What’s interesting to see that it took some advertisers — I mean it took advertisers significantly a different amount of time to train their algorithms to the new environment,” Hefer said. “And I think that’s just something you need to accept. And of course, we are supporting where we can, but these things just take some time.”

“I mean it sounds like a small change, but it’s actually a very significant change because we needed to rebuild the whole back end to be able to cope with multiple dimensions,” Hefer said. “So now we have a system that is very flexible, and we can add more [auction bid] modifers, relatively speaking, easily.”

Strategic View

Expedia-backed Trivago is hoping that Booking doesn’t want to harm it as a strategic move of reducing the number of travelers who book through it.

Hefer argued that as long as it offers a more cost-effective way to acquire certain types of customers than other alternatives, and other players will eventually react rationally and use it as a way to grow share. Hefer’s view is that, within two years or so, will respond to market dynamics as Ctrip, Airbnb, and Expedia try to take share by using Trivago more once again as a competitive tool.

“I would expect players like Airbnb to gain share by broadening their offering,” Hefer said.

As for Google, Hefer said he didn’t see any “radical shifts” in its threat to Trivago. He said that Google’s price-comparison service Google Hotel Ads is one that Trivago participates in and is “one of the main channels that are growing” and “where we still have potential to catch up.”

Hefer also said he didn’t feel Trivago is under increased pressure from Google.

“They have their own meta product, Google Hotel Ads, and it has improved quite a bit, I would say,” Hefer said. “We do believe that our product is better, both technically and also in terms of coverage. But clearly, they are our biggest competitor and partner at the same time. … And you need to consider both profitability metrics and also strategic considerations. But I don’t see a significant change there in the relationship.”

Trivago sees a long-term opportunity in helping travelers pick between hotel and alternative accommodation. In the past year, it has doubled the number of rental listings it offers to 2.3 million units, though that still a minority of global inventory and many consumers haven’t yet started booking alternative lodgings through Trivago.

Trivago is best-known for its TV ads featuring a somewhat irritating spokesperson, which is swapped out to be culturally relevant in different countries.

Since the start of the year, it has been testing new ad spot concepts for so-called linear (traditional broadcast) TV and for streaming video services. The new ads represent “a more focused” marketing approach than talking about the brand as a place to find low prices and broad selection, though the company didn’t elaborate.

“What we see so far is quite encouraging,” said Matthias Tillmann, senior vice president and head of corporate finance and the company’s incoming chief financial officer. “Now, obviously, the next step would be to adopt that to more countries next year.”

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Tags: booking holdings, expedia, trivago

Photo credit: In July 2019, Trivago moved into a new headquarters in Dusseldorf, Germany, whose main entrance hall is shown here. Trivago