Tripadvisor: Destination All-in-One
By: Geoffrey Xie
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Company Itinerary
TripAdvisor is the world’s largest global travel guidance company with the mission of helping people around the world plan, book, and experience the perfect trip. When founded in 2000, the company solely operated as a metasearch platform — an online aggregator of hotel room prices from multiple providers. Effectively, the company connects consumers and online travel agencies such as Expedia and Booking.com. TripAdvisor receives click-based advertising revenue whenever a booking is made through a travel partner. In 2022, TripAdvisor’s core hotel media platform accounts for 60 percent of revenue as the company continues to grow its “Experiences & Dining” segment after the acquisitions of Viator, a tour booking platform, and TheFork, a restaurant reservation platform.
Tripping Over Past Success
TripAdvisor continues to be the top travel site by traffic, surpassing Booking.com, Airbnb, Yelp, and Expedia. Although the platform was responsible for over $546- billion in travel expenditures in 2018, representing 10.3 percent of global tourism spend, the company has failed to make meaningful strides toward profitability and growth. Prior to the COVID-19 pandemic, revenue shrunk from $1.62 billion in 2018 to $1.56 billion in 2019. Furthermore, despite generating $198 million in net income in 2015, the company has struggled to increase profitability, only netting $125 million in 2019.
Trouble in Paradise
Since inception, TripAdvisor has amassed a wealth of user-generated content to build a unique global travel platform comprising over one billion reviews and 329 million traveler photos across 43 markets. This content empowers consumers to make informed decisions when planning their trip. Unfortunately, this value proposition has weakened over time.
In 2018, Google began rolling out a redesigned hotel search experience, allowing travelers to check hotel availability, compare prices, view photos, and read reviews directly from the search browser. Compared to TripAdvisor’s own platform, Google’s metasearch provides a near identical experience with one key advantage — the ability to place its metasearch platform on top of search results. The issue arises since Google represents a key source of traffic for TripAdvisor, representing 43.37 percent of TripAdvisor.com visitors in 2022. Because Google can increase visibility of its own travel products without cost, it is difficult for TripAdvisor to decrease advertising expenses with free traffic “shrinking all the time.” In fact, the company attributed a 12 percent decrease in quarterly revenue to “Google pushing its own hotel products in search results and siphoning off quality traffic that would otherwise find TripAdvisor via free links and generate high margin revenue in [their] hotel click-based auction.”
For TripAdvisor to have a fighting chance in the long-term, management must differentiate the company’s metasearch platform while increasing profitability. Moreover, the solution should be enticing enough that consumers’ first instincts will be to check TripAdvisor.com instead of reaching TripAdvisor through a search result.
Taken Under the Wing
In 2014, TripAdvisor completed the $200-million acquisition of tours and activities provider Viator to grow its “Experiences & Dining” segment. In 2022, Viator is the leading marketplace for travel experiences with over 300,000 options to choose from, ranging from simple tours to extreme adventures. The platform allows tour operators to post their experiences and collects a standard commission rate of 20 percent on the advertised price. Although TripAdvisor has done little to integrate this product, Viator accounts for 38 percent of Q3FY22 revenue, with management believing that Viator has exceptional growth prospects. Viator has also shown resilience post-pandemic as they achieved 179 percent of 2019 revenues compared to 88 percent of the core metasearch platform in Q3FY22. As stated by CFO Ernst Teunissen during the Q3FY22 earnings call, “Given Viator’s large supply of attractions, and the fact that 80 percent of the sector is still offline, there is tremendous upside,” showcasing the possible runway for growth.
In 2014, TripAdvisor also acquired LaFourchette for $140-million. Today renamed to TheFork, it is the leading restaurant booking platform in Europe and Australia with more than 20 million monthly visits and nearly 60,000 restaurants. TheFork allows restaurants to increase their occupancy rates and consolidate their reservation systems in return for a monthly subscription. On the other end, customers may compare restaurants and promotions in an area, then reserve a table. Similar to Viator, while management believes that TheFork is a significant source of revenue and presents future growth prospects, little has been done to integrate the product to create a more personalized customer journey.
Case Study: The Rise of Instagram Shops
Vertical integrations allow businesses to integrate products, strengthen their value proposition, and ultimately generate higher average revenue per user (ARPU), which is a key metric for online marketplaces like TripAdvisor.
In 2020, Meta (at the time known as Facebook) added the Shops feature to Instagram. Instead of clicking on advertisements and being redirected to an external website, users could now view a product and purchase it directly in the app. When released, analysts estimated that incremental revenue would be $30-billion due to transactional fees, greater advertising revenue, and increased deeper customer relationships—ultimately increasing ARPU. Similarly, TripAdvisor should seek to vertically integrate its current subsidiaries into its core product to drive value for customers through an all-in-one solution.
Solution: The Perfect Trip
Currently, TripAdvisor effectively operates three separate businesses. A metasearch platform, a travel experience marketplace, and a restaurant booking tool. Instead of building a flywheel where new products reinforce current products and promote curated experiences, each product is working for itself.
To position TripAdvisor for future success, management should combine Viator and TheFork with Tripadvisor’s core metasearch platform to create one unified product called TripAdvisor Direct. By doubling down on investments into Viator and TheFork, TripAdvisor may offer customers with a unique “all-in-one” travel solution that is built off of its existing AI recommendation infrastructure.
Direct Flight to Success
TripAdvisor Direct would be more than just a hotel metasearch platform; it would be an end-to-end trip planner. By taking advantage of Viator and TheFork’s success, TripAdvisor can begin to offer travelers curated activity and restaurant recommendations based on their destinations, interests, and previous history. For example, if a family of four were to visit Paris, they would first select the destination on TripAdvisor Direct and book a hotel on the same platform. Then, an AI-driven trip “Advisor” would ask questions to learn about the family’s demographic and purpose of the trip. Afterward, recommendations would be given, such as a two-hour tour of the Eiffel tower followed by a Michelin Star restaurant for dinner, with the option to instantly book the activities without leaving the website.
Why TripAdvisor?
TripAdvisor is uniquely positioned to integrate restaurant reservations, activity bookings, and hotels all in one platform. For example, Expedia does not allow users to book directly on the website, Airbnb does not offer customizability in their planned experiences, and neither competitor recommends bookings based on lodging.
On the other hand, TripAdvisor may utilize AI-generated recommendations using its archive of over 1 billion reviews, offering direct booking by integrating Viator and TheFork, and providing virtually limitless customization options with the click of a button.
Furthermore, TripAdvisor should also implement a unique strategy to bolster its value proposition to customers, driving top-line growth. Since TripAdvisor charges a 20 percent commission on the advertised price of Viator bookings, the company should decrease the percentage of its commission as a discount exclusively to TripAdvisor customers — providing an incentive to book directly. As a result of rate parity provisions, Viator operators must provide their lowest available rate offered anywhere, reinforcing that TripAdvisor Direct will be the lowest-cost booking platform.
The World is Your Oyster
Despite TripAdvisor’s contended business model, management has an incredible opportunity to overtake competitors. By combining legacy acquisitions to create an all-inclusive trip planner, TripAdvisor Direct serves to strengthen the platform's value proposition, increase top-line revenue, and finally ease shareholders that TripAdvisor’s position in the market will strengthen.
