The Two Beasts

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Today Expedia took a $270m (less than 20%) investment in Decolar, one of the largest Latin American travel businesses (see Skift for more info) So, in recent times thats Trivago, Travelocity, Wotif and Orbitz all swallowed by Expeida.  On the other hand Priceline continues to make large acquisitions in vertical or related businesses.  It’s these businesses that really are leading the way in the travel world and its fascinating to observe the tactical manoeuvres by both around the globe.

I am struggling to see past these two businesses, the two largest in the global travel market yet between them, they take less than 15% share of the (reported) $1.3tr travel market.  Thats a good thing, the market fundamentally remains fragmented yet I might argue that in terms of hotel distribution and sales volumes (rather than holidays, ancillary and longer tail products) then actually they take more share than is suggested.

What does this mean for the rest of the travel industry?

Well, if you’re successful in whatever you do and it fits their strategy, there might be an exit for you!

More realistically this means there are more barriers to entry in mainstream products such as hotels.  Selling hotels is a volume game, the more volume (higher occupancy) one can produce the better.  Without volume one might struggle to achieve the best prices / availability.  It’s clear both Priceline and Expedia are focused in this area, it’s very attractive due to margins, fragmentation, scalable a growing market.  They’re not going away.

The solution for smaller competitors? use large third parties either altogether or to supplement your own portfolio, broadly this is good news for bed banks.  For medium sized businesses they might insider acquiring a bed bank, just as Webjet have with Sun Hotels.

It also means there are probably gaps in the long tail.  The mammoths of the industry won’t be looking at niche markets as they’re not scalable on a global basis nor provide the volume and return they’re looking for.

Both businesses may also become distracted by the ever increasing complexity of their businesses however, to date, I think the management of both businesses has been A grade in that they’re not distracted at all, maybe even more focused than ever and they seem to manage the markets well.

On top of all of that both businesses will be garnering more and more data, learning more and more about behaviour and gaining insight into trends and markets helping them to improve their offerings and conversion.  Just looking at their websites one can learn a lot, nothing there is by chance, all has been analysed and optimised for better performance.

One can also learn some good lessons from both Priceline and Expedia in brand development and internationalisation.  Expedia in particular are (I think anyway!) doing well in a complicated market regards flight + hotel product in multiple markets.  Selling one product, like hotels, is much easier than a combination (not least because of the regulatory requirements!).

I am looking forward already to the next earnings calls and I am eager to continue to watch both businesses moves.

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