Teletext Holidays’ Steve Endacott says rising Google click costs and the emergence of new sectors like the sharing economy are the driving force behind the formation of global online travel giants
The Phocuswright conference in Fort Lauderdale last month again provided a deep insight into the strategic thinking of the leaders of the major US travel players, via a variety of presentations and one-on-one interviews.
The US online sector saw massive consolidation last year, with the formation of a virtual duopoly between the Expedia and Priceline Group which now control 65% of the market, following the acquisition of Travelocity, Orbitz and HomeAway by Expedia.
The consolidation of Travelocity and Orbitz was driven by more traditional synergy motivations.
The ability of Expedia to roll out its back office across both brands, whilst maintaining separate consumer facing identities, provided the opportunity to cut costs and make Expedia’s annual $750 million investment in technology work harder across a increased market share.
However, the reasons for the acquisition of HomeAway touched upon motivations which were apparent during many of the other speakers’ interviews.
The strategic drive behind the acquisition of HomeAway may have been a desire to gain a foothold in the rapidly expanding private accommodation sector, spearheaded by Airbnb, in order to gain some of the ridiculous valuations currently given to ‘sharing economy’ firms.
Currently Airbnb is valued on the private equity market at more than the entire Expedia group at $25 billion, not to mention Uber’s current apparent worth. However, it was short term day-to-day financial motivation that was more interesting to me.
Expedia believes it can reduce HomeAway’s customer acquisition cost by co-mingling its product within its traditional hotel searches and thus give HomeAway access to its large volume of low-cost brand traffic.
This lower acquisition cost will in turn allow HomeAway to enter markets such as cities, where previously high Google bid costs combined with short durations stays made it uneconomic for them to operate.
Similarly, Expedia is investing heavily into the air sector, because flights have a high attachment rate to its strong accommodation product, allowing it to make money in this lower margin air sector while other players are struggling.
So it appears that high Google click costs are shaping its purchasing agenda, as it seeks to get more “bang for its Google bucks”.