The COVID-19 pandemic disrupted several industries, but travel fell particularly hard and fast. U.S. air passenger volume plummeted by more than 90% in March 2020, and in April 2020, U.S. hotel occupancy dove to 25%.
Pandemic concerns continue curating some plans, especially for international and corporate trips. But for the travel industry, the new normal is about more than simply watching air passenger volumes increase, and hotels’ occupancy rates pick up as visitors return to cities and beaches.
People who could only travel domestically for two years opt for long-awaited trips abroad. Attracting foreign travelers—and meeting their expectations— should be on the mind of travel providers across categories.
When we think of online travel providers, the first name that comes to mind is Tripadvisor. Tripadvisor operates the world’s largest travel guidance platform and is on a mission to help people around the world plan, book, and experience the perfect trip.
As strategy enthusiasts, we need to learn the business model of Tripadvisor and how does Tripadvisor work and make money.
What is Tripadvisor? How does Tripadvisor work?
Tripadvisor, founded by Stephen Kaufer, Langley Steinert, Nick Shanny, and Thomas Palka in February 2000, is an American online travel company that operates a website and mobile app with user-generated content and a comparison-shopping website.
Tripadvisor operates the world’s largest travel guidance platform, connecting a global audience of prospective travelers with travel partners through rich content, price comparison tools, and online reservation and related services for destinations, accommodations, travel activities and experiences, and restaurants.
Tripadvisor has built a portfolio of travel guidance brands and businesses, connecting travelers to destinations, accommodations, travel activities and experiences, and restaurants in over 40 markets.
Tripadvisor owns and operates a portfolio of online travel brands and businesses, operating under various websites, including the following: www.bokun.io, www.cruisecritic.com, www.flipkey.com, www.thefork.com, www.helloreco.com, www.holidaylettings.co.uk, www.housetrip.com, www.jetsetter.com, www.niumba.com, www.seatguru.com, www.singleplatform.com, www.vacationhomerentals.com, and www.viator.com.
As of December 31, 2021, Tripadvisor featured more than 1 billion reviews and opinions on nearly 8 million hotels and other accommodations, restaurants, experiences, airlines, and cruises. Tripadvisor does not own any of the businesses listed on its site.
Tripadvisor has set specific guidelines to be listed on its website as accommodations, restaurants, experiences, airlines, and cruises but allows them to list free of charge.
How does Tripadvisor’s algorithm work in terms of displaying search results? Tripadvisor’s internal search function presents results relevant to your text query. To give you the most helpful information, search algorithms look at many factors and signals, including the words of your question, reviews, bubble rating, number of page views, and your location.
Partners can enter into direct commercial relationships with Tripadvisor to be bookable online. To understand more about the commercials, let’s see how the business model of Tripadvisor works and how it makes money.
How does Tripadvisor make money? What is the business model of Tripadvisor?
The business model of Tripadvisor is based on matching consumer travel demand with travel partners offering accommodations, restaurants, and other travel-related experiences.
Consumers come to the Tripadvisor platform directly via its website, mobile app, and through organic and paid search channels for those searching for information on accommodations, tours, activities, attractions, and general visitor information for particular locations and through sites included in its portfolio of brands.
Consumers: Tripadvisor offers consumers access to rich and expansive content, including more than 1 billion traveler reviews and other traveler-generated content such as photos, search and discovery capabilities across a variety of parameters such as location and price, and other informational content that helps drive consumer convenience as they plan and book their perfect trip.
Tripadvisor attracts nearly half a billion monthly unique visitors to its platform and commands the power to influence a significant amount of travel commerce.
Tripadvisor enables consumers to research destinations, experiences, and restaurants, read and contribute user-generated content (such as reviews and photos), and compare destinations and businesses based on quality, price, availability comparisons, and complete bookings.
Travel partners: Tripadvisor’s global reach empowers partners to be discovered, advertise, and sell their services to an international travel audience. These partners may include hotel chains, independent hoteliers, online travel agencies (OTAs), destination marketing organizations, and other travel-related and non-travel-related product and service providers.
Tripadvisor also enables media advertising opportunities by sending referrals to travel partners’ websites, facilitating bookings on behalf of travel partners, or serving as the merchant of record.
Marketing Strategy of Tripadvisor
Tripadvisor invests in amplifying its global brand and raising consumer awareness of its end-to-end product offerings.
Tripadvisor leverages several online and offline marketing channels to reach travelers and diners, including its websites and app, online search engines (primarily Google), social media, email, and media via public relations, partnerships, and content distribution.
The relative success of Tripadvisor’s marketing strategy is measurable on these channels. Tripadvisor allocates resources among the different marketing channels based on internal return on investment measures.
The marketing strategy of Tripadvisor positions the brand to effectively compete globally with both online and offline, established and emerging providers of travel, hospitality, lodging, experiences, and restaurant reservation and related services.
How does Tripadvisor make money: revenue model
Covid-19 drastically affected Tripadvisor as countries went into lockdown. Tripadvisor’s revenue fell from $1560 Mn in 2019 to $604 Mn in 2020. But Tripadvisor seems to recover in 2021 as it generated $902 Mn. In 2023 Tripadvisor generated a revenue of $1,788 million, reflecting year-over-year growth of 20%. The year’s net income was $10 million, or $0.08 diluted EPS. Tripadvisor makes money primarily through two segments: Hotels, Media & Platforms, and Experiences & Dining.
1. Hotels, Media & Platform
This stream made $549 Mn for Tripadvisor in 2021 and can be further subdivided into two segments.
1.1) Tripadvisor-branded Hotels Revenue: The most significant source of Hotels, Media & Platform segment revenue is generated from click-based advertising on Tripadvisor-branded websites, which is primarily comprised of contextually-relevant booking links to its travel partners’ websites, which are predominantly OTAs and hotels.
Click-based advertising is generally priced on a cost-per-click, or “CPC” basis. CPC rates are determined in a dynamic, competitive auction process, where the travel partner submits bids for rates and availability to be listed on Tripadvisor.
Tripadvisor also generates revenue from the cost-per-action or “CPA” business model. So whenever a traveler clicks on an advertising link of a partner and books a hotel, Tripadvisor earns a referral commission.
1.2) Tripadvisor-branded Display and Platform Revenue. Tripadvisor allows businesses to promote their brands through display-based advertising placements on its platform. The buyers of display-based advertising are predominantly direct suppliers of hotels, airlines, cruises, and destination marketing organizations.
Tripadvisor also sells display-based advertising to OTAs, other travel-related businesses, and advertisers from non-travel categories. Display-based advertising is sold predominantly on a cost-per-thousand impressions, or CPM, basis.
2. Experience & Dining
This stream made $307 Mn for Tripadvisor in 2021 and can be further subdivided into two segments.
2.1) Experience: Tripadvisor provides information and services that allow travelers to research and book tours, activities, and attractions (the “experience”) in popular travel destinations.
Tripadvisor works with local experience operators to provide travelers the ability to book tours, activities, and attractions in destinations worldwide on its platform for a commission. Other websites can also display and promote the experiences available on Tripadvisor to travelers. Tripadvisor earns a commission even if travelers book that experience on other websites.
2.2) Dining: Tripadvisor provides information and services for consumers to research and book restaurant reservations in popular travel destinations through its dedicated online restaurant reservations offering, TheFork, and on its Tripadvisor-branded websites and mobile apps.
Tripadvisor makes money in two ways through TheFork. Tripadvisor charges transaction fees for bookings done and paid through TheFork’s online reservation system. Tripadvisor also offers B2B services and generates subscription fees for subscription-based advertising to restaurants, access to certain online reservation management services, marketing analytic tools, and menu syndication services.
In addition, Tripadvisor also offers restaurant partners the opportunity to advertise and promote their business through restaurant media advertising placements on Tripadvisor websites and mobile apps, generally on a CPC rate basis.