Candour at last! In a remarkably transparent appraisal of its business model and operating environment, hotel meta-search engine Trivago has revealed 79% of its mostly click-based revenue comes from just two customers, online travel agents owned by either Priceline Group (45% share) or Expedia (34%).
Now Trivago, and TripAdvisor (see story), are paying the price for putting all their eggs in a single basket with Priceline and Expedia cutting back on their their meta-search spend. This is having an immediate impact on the meta-search bottom line, forcing Trivago in particular to reassess its business model.
“Towards the end of the third quarter 2017, we have seen increased testing activity on our marketplace by several large advertisers (and) a decline in the concentration of revenue generated by our largest advertisers during the first weeks of the fourth quarter of 2017.,” said Trivago.
“These developments have had a negative impact on our revenues and profitability.
“We assume that these impacts will make it challenging for us to grow in the first six months of 2018 and expect to return to a positive growth trajectory in the second half of 2018.
“Although we see challenges going forward, we believe this presents a longer-term opportunity to diversify our advertiser base and improve competition on our marketplace.”
By that it means becoming more performance based and taking a cut (commission) on actual sales (rather than click) generated on its sites.
“Obviously Priceline has been the most vocal about pulling back,” said Lloyd Walmsley, Director Deustche Bank Securities at the recent Phocuswright conference.
“They’ve spent a lot of money on Trivago over the last two years (effectively) funding a competitor in search channels and I think it makes eminent sense to kind of try to reset that auction.
“I think it makes sense to be building a brand. Google is going to move further and further into the travel vertical and that poses obvious risks if you don’t have a strong brand.”
But the decline in meta-search advertising by the OTAs may be cyclical, he said.
“After a few quarters it wouldn’t surprise to see the OTAs come back aggressively into meta. Ultimately they want to grow and scale and that requires growing traffic. They can come in with a reset auction and come out better after taking a pause.”
No doubt Trivago and TripAdvisor will also attempt to increase advertising from hoteliers, however Rachael Rothman, a senior analyst from Susquehanna Financial Group, doesn’t believe hotels will step in and fill that gap.
“Historically that’s not a customer that they’ve wanted. I view it as somebody that’s pretty brand agnostic and very price sensitive,” she said.
“What you could see though are the bigger brands stepping in through something like an Instagram or Facebook saying something like ‘Hey Rachel I see you’re celebrating your 10 year wedding anniversary at at the Ritz Carlton Naples June 13. How about you go next year to the Ritz Carlton Dana Point. If you book today we’ll give you 20% off.’
“They already know that I’m a loyal Ritz Carlton customer, they can see that I’m taking photos and interacting and putting that messaging out there and they can go direct to the cutsomer with a targeted offer they know they are likely to accept. That says dollars well spent.”
Trivago’s share price has more than halved over the past three months while TripAdvisor stock is down 30% over the same period.