When it comes to travel services, Expedia is one of the top names in the industry. They offer a value promise: to offer consumers a better price for hotels and travel than if a consumer spoke with a business on their own. In this manner, the Expedia business model is one of representation. They are like the ultimate affiliate service provider. For a commission, they sell travel products like hotel rooms that hotels, rental agencies, and airlines might not be able to sell on their own.
In the past, Expedia has forced consumers to pay at the point of sale for their services. Under a new program called the Expedia Traveler Preference Program, they have changed their overall business model to be more in line with Priceline and Booking.
What Are the Changes That Are Happening?
Expedia is allowing hotels especially the opportunity to give customers the chance to pay up front for a room that they need or if they want to pay when services are rendered instead. This new program within the Expedia business model essentially reverses the invoicing cycle in the affiliate relationship. Instead of Expedia invoicing the hotels for the rooms that are booked on the site, the hotels will be invoicing Expedia instead.
The benefit is to the consumer. If a hotel room was $159 per night plus any local taxes, then this is what the consumer will still pay. There aren’t any changes in the margins with the shift in the business model either. It is simply designed to help those people who want the choice to pay now or pay later. This means Expedia is following both the merchant model and the agency model of business today.
Why Does This Give Expedia an Advantage?
Innovation must always happen in the business world. Without evolution in services and products offered, consumers will go where there is more value and quality. For Expedia, as the second largest travel site on the internet, their foray into the agency model helps them be able to strengthen the overall foundation of their business.
Here’s how. Expedia makes money from bookings on car rentals, airline seats, destination services, and hotel rooms. What entering the agency model allows them to do is provide consumers with unique package deals that will help them shore up an entire trip’s itinerary in just a click or two. Giving consumers the options to pay now or later then helps them meet each specific need as it occurs.
Expedia is also considered a merchant of record, which means that they have some flexibility in the prices that they offer to consumers. This means the merchant model gives them the ability to negotiate with consumers will still benefiting from the static charges that are typical of the agency model. This dynamic helps to create single transaction packages, better deals, and better profitability.
Everyone wins with the Expedia business model as it is structured today. That’s why this structure cannot be ignored.
Revenues Don’t Come Just From Sales
Expedia has turned their highly ranked website into a money making machine thanks to the advertising opportunities that have been provided. Travel destination sites, such as a beach resort, can purchase specific advertising on Expedia that links visitors to the pages where they can purchase packages for that destination.
It isn’t just hotels and resorts that have used this advertising medium. Financial institutions and state-level chambers of commerce have also found success through Expedia advertising. The Plantation Hale Suites in Kauai, for example, saw year over year gross bookings increase by over 200% by utilizing Expedia’s advertising system.
Think about what this means for the Expedia business model: businesses are paying Expedia to feature their company or services and then they pay commissions to the site when rooms are booked or tickets are sold. For Expedia, their advertising options are targeted and cheaper than mass market or geo-targeted research, so companies spend less to get more. It really is an optimized service to generate as many revenues as possible.
What can be learned from the Expedia business model? There is one lesson to learn: maximize current resources. Look at what the business model is currently and see if there are ways to incorporate or evolve offerings to consumers so that revenue streams can be enhanced. This limits expansion costs, still helps the business innovate, and ultimately the consumers get the chance to save money too. When everybody wins, it is a lot easier to make money.
That’s the focus of the Expedia business model.
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