Tripadvisor is trying to squeeze more revenue and profits out of its newly restructured tours and activities business. There's a danger, though, that well-funded rivals might undercut Tripadvisor's efforts.
Tripadvisor Experiences is raising commission rates and introducing a single minimum commission rate depending on the type of tour operator and location, the company said in an email on Thursday to tours and activities operators that created confusion for its opaqueness.
The communication (see the email embedded below) to operators states that Tripadvisor Experiences will “adjust the retail price of your product(s) to align with our new commission rates in your destination” although the business unit claimed that the new policy won’t impact the compensation operators receive for bookings.
“By doing so, we hope to create a more balanced marketplace with a single minimum commission rate for all operators of your in type in your area,” the email said. “A balanced marketplace will allow travelers to focus on the quality and uniqueness of your experience.”
Tourpreneur, a podcast about the tour business, which published parts of the email, said it “left many of their tours and activities partners scratching their heads in confusion.”
It stated that operators are concerned that customers may be angry if they book a higher rate on Tripadvisor or sister brand Viator and find out that the tour operator website had lower rates.
Laurel Greatrix, a Tripadvisor spokeswoman, said the new policy “brings consistency to our rates and balances the marketplace.”
The changes are under way, Greatrix said, and the company is in the process of communicating it to operators around the world.
We’re unsure whether it is part of the new policy but Skift saw several instances, such as admission to the 9/11 Memorial & Museum in New York City and a Big Bus Hop-On Hop-Off tour in San Francisco — where Tripadvisor’s rates were higher than those on the operators’ websites. On the other hand, we saw several attractions where Tripadvisor’s rates were lower than the operators’.
HomeAway co-founder Carl Shepherd told Skift Tripadvisor’s new policy “could represent the fact that they have not struck to standardized pricing in the past, and have realized how cumbersome this has become as they need to provide greater visibility for investors.”
He said given that Tripadvisor’s market cap has plummeted to around $4 billion the company could be keen on showing investors that it is raising prices for experiences.
Tripadvisor could be trying to raise prices by charging more for an attraction in Aspen, Colorado, for example, than for another in a less popular destination, Shepherd said.
Shepherd called the timing of the new policy “at best ill-timed” given the fears over coronavirus “with no bottom in sight.”
“What is missing, to me, is acknowledgement that for the vast majority of activity suppliers, the commission directly affects what their kid eats for dinner that night, and therefore raising commissions may be seen by the smaller suppliers to Tripadvisor as predatory,” Shepherd said.
Makes Sense for Tripadvisor
Jared Alster, co-founder and chief strategy officer at marketing agency Wildebeest, said Tripadvisor’s use of the term “balanced marketplace” in its email to partners is “code for raising commissions.”
For experiences operators, “even though my net payments aren’t decreasing on a per-transaction basis, I wonder if consumers might go elsewhere to book if prices increase, thus decreasing overall booking volumes in total.”
The move makes sense from Tripadvisor’s perspective, Alster said. “They’re sitting on reams of search and booking data, and can implement dynamic pricing models to wring more revenue per user by product type and location. Question is, why didn’t they do this earlier.”
Tripadvisor’s moves come a week after restructuring its experiences business. In the third quarter, Tripadvisor’s Experiences & Dining segment saw earnings fall 46 percent to $15 million on revenue of $141 million, a 19 percent jump.
Several operators and competitors, including Airbnb and GetYourGuide, didn’t respond to requests for comment.
Shepherd said that with the coronavirus, there will be acquisition opportunities emerging for investors with a long-term view. But he argues that experiences may not be the best bet.
“I’m not personally thinking that a company with a focus on activities is the place to take full advantage of whatever buying opportunity emerges,” Shepherd said.
Photo credit: An Athens, Greece bus tour on July 15, 2018. Tripadvisor is raising prices on its tours and activities. Falco Emert / flickr.com