Tripadvisor’s New Subscription Plan Geared to Address Major Flaw in Its Instant Booking Initiative

Tripadvisor hopes its new Tripadvisor Plus subscription program, which CEO Steve Kaufer said has parallels to Amazon Prime, will make it a transaction site again and address the shortcomings of its previous attempt to become one.

In 2017, after a multiyear effort, Tripadvisor reversed gears and moved away from its Instant Booking initiative, which had it trying to be a hotel-booking site instead to sending its customers off to other online travel agency and hotel sites to book their stays.

In Tripadvisor’s fourth quarter and full-year 2020 earnings call Friday, Kaufer told analysts that previously Tripadvisor did not offer an “additional compelling value proposition” to entice travelers to book on Tripadvisor, but the perks and benefits of Tripadvisor Plus, the new $99 per year membership plan, will do so.

In other words, travelers have plenty of options of where to book their hotels and activities so prior to the membership program, which would be fully rolled out in the United States during the first half of the year, there was no particular reasons to do it on Tripadvisor rather than somewhere else.

Kaufer said Tripadvisor Plus won’t generate the frequency of Amazon Prime, but it is similar in that it will provide immediate benefits in the form of discounts and room upgrades, for example.

In that regard, Kaufer said Tripadvisor Plus, which requires members to book on Tripadvisor to capture the savings, “looks like Instant Book but the whole message” is very different in terms of the value proposition.

So Tripadvisor sees itself as tilting toward being a transaction site again. It’s important to keep in mind that direct booking on Tripadvisor, where the company processes the transaction and leaves customer service to the hotel, never went away — it just was giving much less emphasis. In addition, Tripadvisor has a long track record of taking direct bookings in its tours and activities business.

‘People may think of Tripadvisor as a review site but we’ve been selling travel for quite some time,” Kaufer said.

New Business Model

Tripadvisor Plus is built around a new business model for the company. Participating hotels would have to pay Tripadvisor zero or reduced commissions for bookings, and they can offer the amount they previously would have paid to Tripadvisor in the form of discounts and perks offered to Tripadvisor members, Kaufer said.

Thus, he said, at the unit level, Tripadvisor has no cost to provide the good or service, benefits from the subscription fees, and perhaps generates repeat or incremental business in hotels and experiences.

Kaufer said the company plans to introduce its membership plan in English-speaking countries later in the year, and will expand the benefits beyond merely hotels and experiences into other travel products.

He claimed hotel partners would benefit by getting lower distribution costs than in other channels, and would get a higher profile on Tripadvisor in exchange for participating in Tripadvisor Plus. The membership plan is currently in beta so it’s only available to a small portion of U.S.users.

Kaufer called Tripadvisor Plus a “proverbial win, win, win” for Tripadvisor and partners. However, hotels, many of which want to attract direct bookings on their own websites, would have to decide whether they want to help train customers to book on Tripadvisor and give them discounts.

Kaufer said turning Tripadvisor into a transaction site would help address its historical issue of being a “leaky bucket.” That is, users might research their trips on Tripadvisor, but only book elsewhere much later — and then Tripadvisor doesn’t get credit from partners for these bookings.

Cutting Costs But Additional Bonuses

In other news, Chief Financial Officer Ernst Teunissen  said the company reduced its fixed and discretionary costs by $200 million, and that’s in addition to its savings because it spent way lower last year on performance marketing.

He said the company did have $12 million in increased expenses for bonuses in the fourth quarter. Tripadvisor officials opted out of certain bonuses early in the pandemic, but Teunissen said the board opted to reinstate them, although not at 100 percent.

Trpadvisor’s outlook includes a “modest first-half recovery, and a more robust second-half recovery driven by vaccine distribution progress driving increased consumer confidence…”

The company forecast that revenue and adjusted earnings in the first quarter would be in line with the previous quarter.

For the fourth quarter, Tripadvisor’s revenue fell 65 percent year-over-year to $116 million. Its net loss grew to $73 million compared with a $15 million profit in the fourth quarter of 2019.