Source: The trouble with TripAdvisor is …. that … it's … too … damn …. powerful. Even more powerful than it was a few weeks ago. One day it launches a new meta-search engine and the next – bam – the business of the world's largest online travel company, Expedia, goes through the floor.Click HERE
Just like Google, TripAdvisor can make or break a company. The power of its (unsubstantiated) reviews is notorious. Has been for years. Now it has double the force. TripAdvisor is coming at you from both directions – if its reviews don't impact you in some way, its search engine will.
The recent second quarter results from TripAdvisor and Expedia, which once owned TripAdvisor and spun off its demon child in 2011, sum up the situation beautifully.
TripAdvisor made a lot more money in the second quarter than it did the year before – net profit was up 26% to USD67 million – while Expedia's result was down 32% to USD71.5 million.
Expedia CEO Dara whatshisname cited TripAdvisor's replacement of its product pop-ups with a real honest to goodness search engine as the major factor.
No two ways about it, Expedia got slammed, in the process demonstrating how vulnerable, and perhaps unsustainable, it is.
Like all online travel agents, Expedia is utterly dependent on marketing – especially through online channels such as Google and TripAdvisor – to drive traffic and customers.
Feed the beast, spend more on advertising.
This approach has already brought a few online travel agents undone.
Check-in.com.au is a great example here in Australia.
A mid-size operator, it collapsed under the weight of excessive marketing spend – read Google AdWords – a diktat from delusional management who could see no other way forward for a struggling business.
Feed the beast. It gets hungry.
But there's no long-term future in that.
Yet marketing budgets keep on growing.
For example, at Expedia marketing as a proportion of revenue reached a staggering 48.7% in Q2 compared with 42.4% the previous year.
In late 2008 Expedia's marketing as a percentage of revenue was 34.6%.
That's an increase of 40% (as a pecentage of revenue) in just five years.
At some point it has to stop. Or something will give.
Are the first cracks appearing?
But what about TripAdvisor – where does it go from here?
Onwards and upwards you would think.
Its millions upon millions of reviews give it an enormous free presence on Google while it now more than 50 million members.
And membership spells loyalty – something that's many online travel businesses do not have.
Combine all that and you have a sustainable business model.