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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 Expedia. Expedia is the world’s largest travel booking company and is on a mission to power global travel for everyone, everywhere.
As strategy enthusiasts, we need to learn the business model of Expedia and how does it make money. While analyzing the business model, we will also elaborate on the marketing strategy of Expedia.
Expedia Group is an online travel company founded in 2006 that believes travel is a force for good. Travel is an essential human experience that strengthens connections, broadens horizons, and bridges divides. To read more on history, you, of course, have Wikipedia. At The Strategy Story, we focus primarily on an organization’s business strategy.
Over 25 years ago, Expedia began operations and business model as one of the first online travel agencies (“OTAs”). It played a significant role in revolutionizing and democratizing travel by empowering customers to manage their travel plans.
Expedia leverages its supply portfolio, platform, and technology capabilities across an extensive portfolio of consumer brands. It provides solutions to its business partners to empower travelers to research, plan, book, and experience travel efficiently.
Expedia’s websites are primarily traveling fare aggregators and travel metasearch engines, including Expedia.com, Vrbo (previously HomeAway), Hotels.com, Hotwire.com, Orbitz, Travelocity, trivago, and CarRentals.com.
Expedia seeks to grow its business through a dynamic portfolio of travel brands that feature a broad multi-product supply portfolio — with approximately 3 million lodging properties available, including over 2 million online bookable alternative accommodations listings and about 875,000 hotels, over 500 airlines, packages, rental cars, cruises, insurance, as well as activities and experiences across most countries.
Travel suppliers distribute and market products via Expedia’s various channels. In addition, Expedia’s advertising and media businesses help other travel providers reach a large multi-platform audience of travelers around the globe.
During 2020, Expedia Group shifted to a platform operating model with more unified technology, product, data engineering, and data science teams building services and capabilities. The platform model enables Expedia to deliver more scalable services and operate more efficiently.
How does Expedia make money? What is the business model of Expedia?
Expedia’s strength lies in its brand portfolio and consistent product and service offerings enhancements, combined with its global scale and broad-based supply. With its significant global audience of travelers, Expedia provides value to supply partners wanting to grow their business through a better understanding of travel retailing and consumer demand and reaching consumers in markets beyond their reach.
Expedia’s deep product and supply footprint allows it to tailor offerings to target different types of consumers and travel needs, employ geographic segmentation in global markets, and leverage brand differentiation, among other benefits.
In 2021, Expedia shifted to more of a unified brand strategy with an increased focus on uniting its retail brands and teams under one centralized group. For example, in 2021, Expedia announced plans to unify and expand its existing loyalty programs into one global rewards platform spanning all products and international brands.
Expedia’s brand portfolio is organized into three segments: Retail, B2B, and trivago.
Retail: The retail segment provides a full range of travel and advertising services to its customers worldwide through recognized consumer brands. Expedia’s portfolio of retail brands includes:
- Brand Expedia: Brand Expedia is a leading full-service online travel brand with localized websites in many countries worldwide, offering a wide selection of travel products and services.
- Hotels.com: Hotels.com focuses on marketing lodging accommodations with a vast footprint of localized websites worldwide.
- Vrbo: Vrbo (previously HomeAway) operates an online marketplace for the alternative accommodations industry. The Vrbo portfolio includes the vacation rental website, Vrbo, which uses localized websites worldwide and other regional brands.
- Expedia’s other brands include Orbitz, Travelocity, ebookers, and Wotif Group. These brands enable further customer connections through targeted and unique marketing campaigns and access to various travel services and products.
The retail segment contributed 79% to Expedia’s revenue in 2021.
B2B: Expedia’s B2B segment encompasses its Expedia Business Services organization, which includes Expedia Partner Solutions. Expedia Partner Solutions partners with businesses in a broad spectrum of countries across a wide range of travel and non-travel verticals, including corporate travel management, airlines, travel agents, online retailers, and financial institutions, who market Expedia Group rates and availabilities to their travelers.
Before its sale in 2021 to American Express, the B2B segment also included Egencia, its full-service travel management company. The B2B segment contributed 17% to Expedia’s revenue in 2021.
Trivago: Expedia’s trivago segment generates advertising revenue primarily from sending referrals to online travel companies and travel service providers from its hotel metasearch websites. trivago is Expedia’s majority-owned hotel metasearch company, based in Dusseldorf, Germany.
The online platform gives travelers access to price comparisons from hundreds of booking websites for millions of hotels and other accommodations. The Trivago segment contributed 4% to Expedia’s revenue in 2021.
Marketing Strategy of Expedia
The marketing strategy of Expedia is intended to build and maintain the value of its various brands, drive traffic and, ultimately, bookings through its multiple brands and businesses, optimize ongoing traveler acquisition costs and strategically position its brands concerning one another.
Expedia’s long-term success and profitability depend on its continued ability to maintain and increase the overall number of traveler transactions flowing through its brand and shared global platforms cost-effectively, as well as to attract repeat customers and customers.
Expedia manages its marketing investments holistically across the brand portfolio in its Retail segment to optimize results and make decisions on a market-by-market and customer segment basis based on the relative growth opportunity, the expected returns, and the competitive environment.
Expedia’s marketing channels primarily include online advertising, including search engine marketing and optimization as well as metasearch, social media websites, brand advertising through online and offline channels, loyalty programs, mobile apps, and direct and personalized traveler communications on its websites as well as through direct e-mail communication with travelers.
Expedia’s marketing programs, strategy and initiatives include promotional offers such as coupons and seasonal or periodic special offers from travel suppliers. Expedia also uses affiliate marketing.
How does Expedia make money: revenue model
Expedia made $8.6 billion in 2021. Expedia primarily makes money from its travel products and services available on a stand-alone and package basis through the following business models: merchant, agency, and advertising.
Merchant Model: Under the merchant model, Expedia facilitates the booking of hotel rooms, alternative accommodations, airline seats, car rentals, and destination services from its travel suppliers. The majority of Expedia’s merchant transactions relate to lodging bookings. The merchant model contributed 64% to Expedia’s revenue in 2021.
Agency Model: Under the agency model, Expedia facilitates travel bookings and acts as the agent in the transaction, passing reservations booked by the traveler to the relevant travel provider. Expedia makes money through commissions or ticketing fees from the travel supplier and traveler. The agency model contributed 27% to Expedia’s revenue in 2021.
Advertising Model: Under the advertising model, Expedia offers travel, and non-travel advertisers access to a potential source of incremental traffic and transactions through its various media and advertising offerings across several of its websites. The advertising model contributed 27% to Expedia’s revenue in 2021.
Expedia Group has become one of the world’s largest online travel companies, yet its gross bookings ($72 billion) represent a single-digit percentage of total worldwide travel spending, highlighting the size of its market opportunity.