Expedia vs.

Priceline
Creating value beyond the current state of online travel

Orlando Franco
COMDY MBA Class 2015
Barcelona, December 2014

The travel industry is increasingly stronger on the online arena, pushing

disintermediation further and stressing relations among players
Online

Overview
Global industry on a strong momentum towards online

Offline

and reinforcing consolidation of aggressive online travel agencies

Global travel accommodation market, RSP Value

USD Bn

Incumbent
hotels

Increasingly suffering from online travel agencies

growth, due to the very significant amount of
commissions they need to pay to them
To reduce these commissions they are increasing
their direct distribution through:

609

371
10
2000

413

450

507

46

101

184

2004

2009

2014

315
2024
Online
travel
agencies

Global travel retail market, RSP Value

USD Bn

595

436

463

466

41

104

184

2000

2004

2009

Source: Euromonitor

522

299
2014

499
2024

Loyalty programmes
Social media customer engagement
Metasearch channels
Google Hotel Ads services (Google Hotel Finder)
Review sites (such as TripAdvisor),
Innovation on distribution solutions, including
personalisation through big data analytics

Under increasing consolidation, with Expedia and

Priceline emerging as dominant players, each
recording gross bookings of USD 39 Bn in 2013,
surpassing traditional players such as Carlson
Wagonlit Travel, TUI Travel, American Express and
Thomas Cook in terms of gross sales

Other competitors are suffering poor performances

such as two big US players:
Orbitz is currently in stagnation and likely to
decrease sales
Travelocity by Sabre, had already a strong
decline in sales

Expedia and Priceline are both focused on expanding by acquisitions,

building a large platform base and an aggressive marketing investment
The two OTA giants
Expedia and Priceline built different competitive approaches

and both succeeded to capture the marketing

Top travel retail companies ranking 2008-2013

Marketing
focus

Operating
focus

Broad portfolio of solutions across services and segments to

increase travellers' visit likelihood
Large investment in multi-brand search engine marketing
across segments (from discount to luxury)
Focused on US, Western Europe and Australasia
Mixed capability development by R&D investment (12% of
sales) and acquisitions to enhance end-to-end experience
and multi-screen access
High interaction among solutions (travel and destination)

Rank
08

Rank
10

Rank
12

Rank
13

Market
share

Expedia

4.4

Priceline

11

4.3

Carlson
Wagonlit

3.9

TUI

2.7

American
Express

2.6

Operating expenses as % of revenues, 2011-13

Marketing
focus

Operating
focus

More focused portfolio to achieve greater brand focus

Revenues primarily from agencies and merchants
Large investment in search engine marketing (47% of sales)
Exploiting fragmented markets (Europe & Asia)

Providing high autonomy across brands (Priceline, Booking,

Kayak) to boost conversion rate
Building capabilities through acquisitions (e.g.: meta-search)
Building multi-screen online access capabilities

13.9

10.7

24.3

27.1

2011

2012

7.7

35.5

2013

Expedia and Priceline are both focused on expanding by acquisitions,

building a large platform base and an aggressive marketing investment
The two OTA giants

Elements of disadvantage
Critical interactions

Interaction between companies appears to push towards a winner-takes-all position

Improved
process for
customers
Large merchant
base

Broad
service
selection
Large customer
base

Improved
solutions for Multi-brand
merchants
marketing
spend

Volume

High
Opex

Customer and
merchants would
migrate to
Expedia for
better cross
High WTP
selling options

High ticket

Profit

Large R&D
budget

Priceline competitive spend is putting pressure on Expedia

model, but R&D investment and a broader solution keep
customers willingness to pay and merchants preference

Limited process
for customers
Focused
service
selection
Lower
ticket

Large merchant
base

Large customer
base

Low
Opex

Profit

Volume
Large
marketing
investment

Improved
solutions for
merchants

Narrow set of
capabilities

A narrow focus enabled quick growth in the short term, with

low levels of operational expenses, which can attract other
competitors and unveil Priceline limited offering weakness

Convenience and good perceived value is appealing to customers

and merchants but other strong players are already appearing
The other giants
Customers value convenience and platform intelligence

Merchants value convenience and access to cross-selling

Quality

Quality

Price

Cost

Convenience

Management
convenience

Reliability

Reliability

Coverage

Coverage

Bundling

Access to
cross-selling

Variety

Intelligence

Intelligence

Entry
barriers

A potential view of a new business model would captures more

from the travel industry economy
Conclusions
The online travel retail landscape is still far from a stable shape

Expedia

Expedia has been harvesting what they

developed over the last 10 years, however there
are two temptations that would damage the
value created so far:

Priceline

Entering a price war that would distract from building

capabilities and market development
Overstretching the offering might increase the operating
expenses, pushing further the cost competitive
disadvantage it already has

Enter a price war with Priceline would put

them in short term disadvantage, and destroy
value, since Priceline has better profitability
Overstretching the offering might increase the
operating expenses, pushing further the cost
competitive disadvantage it already has

Priceline can leverage its ability to focus, and start

developing partnerships (for example, other in-destination
providers, and moving beyond into wearables)

Expedia needs to fast-forward innovation into

digitalizing the booking and experience
management in a holistic way to differentiate
further versus Priceline and other competitors
Hotels are feeling the threat from online travel
agencies, as they grow in bargaining power, that
Incumbents
is why they are reinforcing their digital
capabilities to compete
A big advantage incumbents have, beyond
hotels, tour operators, restaurants and
attractions lies on the fact that they provide the
experience, and building memorable services
and lifting barriers to lock-in customers might
be the response for Expedia and Pricelines
threat

Priceline has been successful in catching up in relevance in

the industry by having a narrow focus, like Expedia, there
are temptations to avoid:

It is relatively easy to catch up in technology, so the

stronger business model will succeed sustainably

Other
giants

Google has always been flirting with the industry, from the
acquisitions of ITA, Frommers, Zagat and similar
companies, and has all the capabilities to build a
competitive and intelligent travel platform
AirBnB has removed many entry barriers for merchants,
and soon travel packages, and its model of sharing
economy is being replicated by many startups such as
Viator, Vayable and Touristlink that will increase the
number of merchants, but quality remains an issue
Amazon will launch in January 2015 a travel marketplace,
and merging travel with retail