Expedia counting on ad revenues during economic crisis

Expedia finance boss Michael Adler has told a conference in the US that “online migration of travel advertising” will help Expedia offset the impact of the current global slowdown.

“There is a $5 billion advertising market relating to travel, and less than 10% of that is online,” he said.

Advertising and media accounts for nearly 10% of Expedia Inc’s revenue, delivers margins that are “significantly higher” than its transactional business and is growing faster than the rest of the business. The growth potential has been backed by “continued headcount investment”.

He added: “The advertising business is part of the travel eco-system, so yes there is some impact from the recession,” referring to previously reported statements about traffic growth slowdown to TripAdvisor and some pressure on rates. “But the online migration of travel advertising will help offset the downdraughts.”

Two-thirds of Expedia Inc’s ad revenues come from its TripAdvisor Network, Adler said, with the balance from advertising on its transactional sites. He identified big opportunities to grow the advertising and media side of the business internationally.

But he admitted “on the transactional sites, it might be cannibalistic for the transaction revenues, so it’s not all incremental.” He talked about need to find “an equilibrium” between the two revenue streams.

Hotels, he said, “are more willing than ever to give us attractive terms and inventory”, with both sides aware of Expedia Inc’s power as a promotional as well as a sales channel. He also revealed that Expedia is “experimenting with different types of compensation”, highlighting an innovative deal it has struck recently with “New Zealand’s largest hotel chain.”

“It’s  a variable compensation arrangement,” he said, “depending on where the traveller originates, and where they’re travelling to…If they are travelling within the country we get compensation at one level; if they are travelling outside the country it’s a different level.”

In Europe, it ramped up its hotel offer last year by buying venere.com, offering European suppliers an agency model route to market in addition to its merchant business. It now has 28,00 hotels in Europe, with venere.com inventory currently being integrated into hotels.com.

“But we have to make sure we actually selling the rooms we’re given,” he said. “We’re investing in and enhancing our search engine optimisation and search engine marketing to make sure there is a proper connection between the supply from the hotel side and the demand from the consumer side.”

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