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Rob Sudakow | July 24, 2019
Is Expedia doomed to disruption?
By Rob Sudakow
Travel and tourism accounted for around $ 8 trillion of the global economy in 2018 and 10% of the global workforce – a 6% increase from 2017 and no foreseeable signs of slowing down. The travel industry is directly linked to the growth in global consumption and as wealth and population continue to grow, the demand for travel products will continue to grow. With statistics like this, it’s no surprise that there is a rush to get into the market. The industry has a long history of failing to drive change and transform internally. “The travel and hospitality industry as a whole has received a lot of criticism for its failure to drive innovation from within,†– Lio Chen, Managing Director of Plug and Play Travel. But that may be about to change. Many major players have started to take notice and since 2008 the ‘travel tech’ industry has attracted over $ 19 billion in investment and with Amazon and Google both deciding to return to the industry, these numbers will only grow. While it has been slow, Travel Tech is probably poised to bring T&T into the modern era. Plug in and use has a vertical dedicated to travel startups, Airbnb is just the first in a series of tech companies to start disrupting the status quo. The market is ripe for disruption as personalization, AI, and blockchain are all embedded in what will be a new era of technological innovation.
The first real taste of disruption the industry had had was the introduction of Airbnb. There is no doubt that Airbnb has changed the way people travel, however, Airbnb was a low-end and / or new market disruptor introducing an underserved population to the ability to travel. Although they have had an impact on hotels, they have arguably been more important in the housing sector than in hotels. US occupation and ADR continue to grow even with the introduction of Airbnb. Before Airbnb, the last major disruptor to the industry was two decades ago, when Expedia entered the scene and OTAs changed everything. Before Expedia, hotels had to rely on GDS and to distribute rooms and rates and a traveler had few options other than a travel agent to help book rooms. Not only have OTAs completely changed the way you book, but they’ve also sent shockwaves to hotel bottom lines.
Before getting to where our industry is heading, it’s important to have a basic understanding of the emerging technology trends that will shape the direction technology is taking. AI, Blockchain, Big Data, Cyrpto, and the current hot topic of personalization in travel are probably the top contenders right now. While it’s impossible to know exactly how each of them will ultimately play out in the future of travel, it’s safe to assume these buzzwords aren’t going anywhere in the years to come.
Block chain: The travel and hospitality industry is sadly segmented. The blockchain will allow seamless payments and customer service among different travel providers with considerably better security.
Predictive analytics and machine learning: Intelligent IT will proactively help give travelers what they want through recommendations, proactive customer service, avoiding travel disruption, and more.
IA: Artificial intelligence. IBM’s Watson and Google’s artificial intelligence engine are revolutionizing the use of AI and making it affordable. With this AI, AI is poised to revolutionize the way travelers and industry workers interact, advancing the idea of ​​personalized travel.
Big Data: Ask any DORM and they’ll tell you there’s no shortage of data in the hospitality industry. Given the size of the travel and hospitality industry and the large amount of data processed by travel agencies, it is evident that big data analytics will continue to gain in importance in the industry.
One of the main sectors most exposed to disruption is distribution. It’s no secret that hotels don’t like the margins charged by OTAs and while the interfaces are good enough, there is a strong desire to move to a seamless world. In addition, we hope that the relentless news regarding security breaches provides a boost to security and payment methods that do not put our information at risk. Changes in the most likely distribution and commission patterns are clearly visible on the horizon. The mere fact that Amazon and Google are entering the market makes it clear that change is coming. The likelihood of these changes disrupting the status quo is all the more evident as you see emerging startups focusing on blockchain distribution. It could be a boom for hotels and airlines (although I won’t start changing budgets) and at the same time be a big blow to major OTAs. Google ultimately has control over search, and if hotels are able to work with startups that can market rooms with significantly lower commissions, it’s easy to see how OTAs can tackle the disruption ahead. There is a lot of speculation about the impact of Google and Amazon on distribution, but we need to keep track of how emerging startups will reinvent the way rooms are sold.
One of the very first disruptors in the travel distribution market was Expedia. The Expedia Group, originally founded in 1996 as Microsoft Expedia Travel Services in the United States, has grown into a company employing 22,000 people through its global brand network of more than 200 travel booking sites. . In 2018, Expedia accounted for 99.7 billion gross bookings, or 31% of bookings from major online travel agencies (OTAs) in 2018. This represents 11.2 billion in revenue for 2018 and a total of 352 million room nights . The company has over 2 billion monthly site views and over 144 million unique visitors per month.
In an industry often criticized for its inability to embrace technology and change, Expedia has stood out for its abilities to spur innovation. In 2016, at the Expedia Partners conference, the CFO announced a target of 100 billion gross bookings by 2020, a target he achieved for all intents and purposes in 2018. Along with the aggressive growth offered by Overstory, Expedia’s CFO discussed the future of the company and the travel industry. stating that Expedia’s growth will require careful attention to the ever-changing needs of customers and partners. “To navigate the change to come – technological change and new competition – there are three levers to chart a course: organic strategy – ask what we can do differently; acquisition; and partnerships, â€said Overstory. “We continue to invest aggressively, but we are changing the paradigm of what we think our partnership should be. … Expedia is your technology and innovation partner. As part of this, Okerstrom has dropped teasers of Expedia’s discussions in Silicon Valley with Google and Amazon. While 2016 may seem dated, this quote represents an emphasis on a business model focused on a disruptive strategy and it is for this reason that I chose to focus on Expedia.
Hospitality companies are eager to find a replacement for commission-based models, and blockchain will provide additional leverage for many businesses to fend off OTAs. The great thing about Expedia is that at its heart, Expedia is as much a technology company as it is an OTA. The company has always been efficient in leveraging its technology and there is no reason to believe that will change. I have no idea where Expedia plans to go, but it’s obvious that Expedia is poised to disrupt the market. The CFO hinted at intentions to lead Expedia Group to a bigger role as a tech company that will require a skid to a different profit model in the future. As competition increases in the OTA world, the profitability of commissions is bound to decrease. The recent OTA battles with Hilton and Marriott to extract inventory due to the commission structure will continue as startups increase competition. A smart disruption strategy theory suggests that Expedia will continue to develop more services for its partners and a more personalized experience for consumers.
Expedia has the ability to become more modular over time by leveraging its technology to lock in hotel inventory and marketing dollars for access. The company has already moved to a loosely structured revenue management system, locking hotels that want to use their vast market data into contracts with increased uptime and overnight sales quotas to access the system. The company has also offered hotels in major markets to take out marketing agreements that reduce commissions and thereby relieve pressure on revenue managers to reduce costs. As companies are forced to fight for lower margins due to both low-end market disruptions and new market disruptions, Expedia Group has already started to evolve its model in anticipation of changes in the market. industry. I expect Expedia to provide more and more service to its partners while continuing to increase personalization for its clients. Incumbents such as Priceline, while offering lower margins, have functionality issues, and while the company has maintained an advantage by buying more booking sites, their technology and marketing lag far behind Expedia. The company’s CFO Okerstrom goes so far as to hint at conversations with Google and Amazon, which will be an interesting game for market dominance. Vertical travel technologies such as Plug and Play would continue to accelerate Expedia Groups’ position as an industry leader.
OTAs are doomed to disruption, but evidence suggests that Expedia will make headway in the travel industry for the foreseeable future. If OTAs are able to evolve their profitability structure and keep advancing their technology, chances are they won’t go anywhere, but the world of travel and tourism distribution is heading for change. major in the not-so-distant future. For more information on where the technology is going, it’s worth checking out Plug and Plays Vertical Travel.
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