Competition Is Shaking Up The Online Travel Space

January 5th, 2015 by Trefis Team
PCLN: Priceline Group logo
PCLN
Priceline Group

Current Market Size And Key Players

The online travel agencies (OTAs) had gross bookings exceeding $150 billion in 2013, representing 38% of the global online market and 13% of the global travel market. The online travel sales figure is estimated to be growing at 12% annually. OTAs have 15% of total hotel sales in the U.S. with around $19 billion of gross bookings and are expected to grow 5-6% over the next two years. OTAs customer segments span across business, leisure, and group. OLT websites play multiple roles, acting as marketing engines, booking engines, and search engines, as well as existing as an execution platform for customers. [1]

The global leaders in this space clude: Priceline (NASDAQ: PCLN) and Expedia (NASDAQ: EXPE), which individually  sell more than 22 million and 12 million hotel room nights per month, respectively. The world’s largest travel review platform, TripAdvisor (NASDAQ: TRIP) receives 315 million monthly unique visitors, on its website.

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With such prospects for growth, it is hardly surprising that the OTA market space is currently at its dynamic best! While the existing players are continuously expanding through strategic alliances and investments, there is a simultaneous influx of established names (known for their disruptive forces), into the online travel domain.

In this article, we discuss three companies who are gearing up to provide competition to the existing leaders in the coming months.

Amazon: The Online Retail Behemoth Wants A Piece Of The Travel Pie

Amazon (NASDAQ: AMZN) has decided to compete in the OTA space. Amazon’s travel platform is expected to go live on January 1, 2015 and it will initially focus on a curated selection of hotels within driving distance of New York City, Los Angeles, and Seattle.

Amazon’s competitive advantages are numerous, including:

  • Amazon’s network of global websites is frequented by a ready pool of individuals using the site to buy retail merchandise. Consequently, its advertisement expenditures for its travel related services, through platforms like Google AdWords should be minimal. Also, Amazon has the  advantage of cross selling its travel related products/services to its existing customer base.
  • Initially, Amazon would opt for a 15% commission to attract more hotels on its platform (as against the prevalent 20%-25% commission). [2]

Presently, Amazon is playing by Porter’s rulebook of acquiring competitive advantage through: 1. Cost Leadership and, 2. Product Differentiation. Not only is it opting for a lower commission, Amazon is also targeting independent hotels and resorts, which do not have a major presence in the traditional OTA platforms.

On the flip side, Amazon’s diversification across several services might be the reason for its fallout, as the major OTA players are focused on providing solely travel related services. Amazon had earlier tested the OTA waters, but with little success. The company forged alliances with Expedia in 2001 and Sidestep in  2006, but those ventures didn’t prove profitable. [2]

Alibaba: The Chinese e-Commerce Giant Is All Equipped To Emerge Into A Formidable OTA Competitor In China

Alibaba (NYSE: BABA) has recently announced its intention to separate its online travel business, Taobao, into an independent brand called Alitrip. Alibaba’s USPs (i.e., Unique Selling Points) are:

  • The recent $25 billion IPO gives Alibaba adequate resources to provide stiff competition to the Chinese OTA leaders such as: Ctrip (NASDAQ:CTRP), eLong, and Qunar.
  • Alibaba invested $457 million to acquire 15% of hotel technology firm, Beijing Shiji Information Technology Co. — one of the largest property management system and central reservation system operators in China.
  • Alitrip includes more than 10,000 vendors providing plane tickets, vacation packages, and services for hotel booking, visa applications, and tour guides.
  • Alitrip’s mobile app will play a pivotal role in gaining traction with the Chinese travelers. [3]

According to a report by PhoCusWright, the Asia Pacific market overcame Europe to become the global leader in regional travel in 2012. China is expected to account for one third of the Asia-Pacific travel market by 2015. Online gross bookings in China are estimated to more than double from $14 billion in 2012 to $30.3 billion by 2015. [4] The Chinese online travel market remains largely untapped at present. The Wall Street Journal claims that only 15% of Chinese travelers book online currently, which provides a large opportunity for future growth.

TripAdvisor: World’s Largest Travel Review Website’s Gradual Transition Into A Full Service OTA

  • Instant Booking Platform Might Prove To Be A Game Changer For TripAdvisor

Instant Booking allows users to book hotels on the TripAdvisor platform itself with the “Book with TripAdvisor” option, as against visiting the hotel or OTA website to complete the booking process, after searching for hotels through TripAdvisor (which is TripAdvisor’s current model).

The Instant Booking feature, which is presently available in beta format in the U.S., allows TripAdvisor’s partners, such as: hotel chains, independent hotels, bed and breakfasts (B&Bs), and OTAs to vie for top spots (through an auction bidding tool) [5] on TripAdvisor’s metasearch results.

TripAdvisor’s standard metasearch model follows a cost-per-click structure where partner hotels bid for each click made by users on the partners’ links. Instant Booking, on the other hand, requires partners to pay a commission for each completed transaction. Hence, willing partners bid via an auction, for the commission percentage they are ready to pay for completed transactions. The commission based model is similar to most of the OTAs’ pricing process of a fee per transaction, charged after the completion of stay [6] .

The new model, which will be gradually rolled out worldwide, is expected to aid TripAdvisor in two ways:

  • Smaller hotels/chains couldn’t compete with established OTAs to post advertisements on TripAdvisor, under the cost per click (CPC) model. These entities could be willing to participate in the commission based model, as payment is based on actual hotel stays as against for a mere click on the hotel’s website. Also, TripAdvisor’s auction model is more affordable for these smaller chains and independent properties. Hence, we expect TripAdvisor to gain more partners from different segments due to this pricing advantage.
  • This new model will expand TripAdvisor’s functionalities beyond a travel review website, as TripAdvisor starts offering services like other established OTAs.

In the long run, Instant Booking might help TripAdvisor to provide direct competition to established names such as Expedia and Priceline, and gain a portion of their market share.

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Notes:
  1. Online Travel Agencies: More Than a Distribution Channel, PhocusWright, November 2014 [↩]
  2. Exclusive: Amazon to Get Into Hotel Booking With Launch of Travel Site, Skift, November 2014 [↩] [↩]
  3. Alibaba Launching New Alitrip Travel Brand, Going Head To Head With Ctrip, Skift, October 2014 [↩]
  4. Deep dive into Asia Pacific online travel market, tnooz, December 2013 [↩]
  5. TripAdvisor raising the game for Business Listing with rates, availability, and booking service, tnooz, July 2013 [↩]
  6. What TripAdvisor’s instant booking means for hotels, tnooz, November 2014 [↩]