TripAdvisor Business Model: Are they losing it?
A Brief History
TripAdvisor was founded by Stephen Kaufer, Langley Steinert, Nick Shanny, and Thomas Palkain in February 2000. Kaufer came up with this idea after being frustrated by organising a family vacation. They started as a website where travellers can write and view reviews of travel destinations. Later they found opportunities to extend into other areas related to travel. They evolved to be a vertical search engine for travel industry.
TripAdvisor’s mission is to make everyone a better traveller and make every trip their best trip. They achieve their mission by providing.
- Rich user generated content with images
- Price comparison tools
- Meta search engine for travel industry
- Online reservations
As of March 2023, TripAdvisor serves about 463 million travellers each month with 859 million reviews and 8.6 million accommodations, restaurants, experiences, airlines and cruises. They are available in 49 markets and 28 languages.[Source]
Now let us deep dive into TripAdvisor’s business model using the Business Model Canvas (BMC) framework.
Business Model Canvas — TripAdvisor
As we know BMC consists of 9 components. The left-hand side focusses on the business side which are internal factors that are mostly under our control. The right-hand side focusses on the customer or the market which are external factors and not under our control.
Customer Segment
TripAdvisor is a two-sided platform. It has travellers on one side who are the demand side and hotels, restaurants, attractions etc. on the other side who are the supply side of the platform. The supply side can be further segmented into location, rating, amenities available, price, category etc. which can serve as filters for the travellers when the search the application.
The demand side can be further segmented based on their demographic, geographic, behavioural and more. The better the segmentation, the easier it is to target them for marketing campaigns. This also helps in higher rate of conversion. Destination targeting and dynamic targeting are some common ways used by TripAdvisor for better conversion.
Value Proposition
TripAdvisor being a two-sided platform, they provide value for both sides. For travel service providers from the supply side and for travellers from the demand side.
Value Propositions for Travellers
These are the benefits offered to cater the needs of a traveler.
- Plan a best possible trip.
a. Travel guides like things to do in Goa.
b. Research on flights, hotels and restaurants. - Price comparison across many travel websites.
- Minimise risk by reading reviews with photos for each destination.
- Contribute to the travel community.
- In-location planning and booking with the help of mobile app.
- Minimise anxiety by booking and confirming tours online.
Value Propositions for Travel Service Providers
These are the benefits offered to travel service providers to onboard them as partners in the platform.
- Opportunity to increase visibility to millions of travellers and thereby increase revenue.
- Get reviews and learn customer expectations.
- Maintain customer relationship and manage reputation by responding to reviews.
- Get good ratings and improve bookings.
- Reach global travellers through single platform.
- Advertise, list special deals and drive traffic to their own website.
- Use TripAdvisor as a booking channel.
- Get business insights.
TripAdvisor also has affiliate programs with travel agents, who can access the TripAdvisor inventory and tools.
Key Partners
Content Creators
These are the travellers who write reviews and upload images of the places they visited. This is the core of TripAdvisor’s value proposition which generates the network effect between travellers and travel service providers.
Travel Service Providers
They are the key is catering to the needs of travellers. With over 8.6m listings, including hotels, restaurants, vacation rentals and attractions, TripAdvisor, provides one of the largest collections across 49 countries, for travellers to plan their trip effectively.
Hotels and OTAs for instant booking
There are many hotel chains and Online Travel Agencies (OTAs) who accept booking via TripAdvisor platform. Instant booking is a key aspect of TripAdvisor business model.
Travel Agency Affiliates
These agencies affiliate with TripAdvisor to get access to their content and generate revenue by increasing traffic to advertisers (like hotels) on TripAdvisor.
Food Delivery Platforms
Food delivery platforms like Takeaway and Deliveroo, list their details on TripAdvisor for travellers to order online.
Search Engines
Search engines like Google and Bing generate organic traffic which is key for TripAdvisor’s advertising business model.
Marketing Partners
They provide expert tips and tools to promote other businesses in TripAdvisor’s platform.
Other than these, TripAdvisor also partners with various media outlets for promotions and partnered with Sydney airport to show destination specific content in their displays to the travellers.
Key Activities
Like all other platform business models, TripAdvisor’s key activity is to enhance the direct and indirect network effects.
Direct network effects are the ones between content creators and other users. Indirect network effects are the ones between users and travel service providers. Since network effect is at the center of TripAdvisor business model, they focus on below activities.
Add more valuable content and discovery
- Add more reviews
a. helps other travellers while planning their trip
b. helps travel service providers to increase their revenue when they receive positive feedback. - Add more bookable properties from different locations to the platform which will give the users more variety.
Use technology to enhance customer experience
- Improve mobile app with the in-location benefits when the user looks for travel content during their trip.
- Use AI to get more insights on reviews.
- Use AI to capture fake reviews and inappropriate photos.
- Improve web and mobile app, with data, trends and feedback
Enhance value propositions
- Develop, partner with, or acquire platforms that can enhance the network effect.
a. These can enhance the relationship with user, increase the customer lifetime value and loyalty.
b. Thereby enhancing the value for the supply side - Create niche specialisations targeting specific (niche) customer segment.
- Personalise the promotions for subscribers to generate demand.
- Do frequent experiments to improve and optimise conversion rates.
Continuous analysis
- Observe new entrants in the industry as well as adjacent industries.
- Observe moves of direct competitors.
- Maintain top ranking in organic search and get good return on paid adds.
Key Resources
Below are the key resources which support the key activity to enhance direct and indirect network effect.
- Engaging content: huge stock of recent and candid reviews, images, and description of hotels with amenities & facilities
- Number of travel service providers in multiple locations
- Captured user data and AI algorithms used for personalisation.
- Web and mobile app which provides great user experience.
- Global network of TripAdvisor owned platforms.
- Skilled staff, technology and infrastructure
- Intellectual property, subsidiaries, brands, registered trademarks, trade secrets domains etc
Customer Relationship
Trust is the key aspect of TripAdvisor’s business model. Without trust especially in the relationship with travellers, the entire value proposition will collapse. Key elements to maintain trust are:
- Review moderation process to ensure the reviews are authentic
- Review guidelines for customers
- Do’s and don’ts on reviews
- Free tools to collect more reviews.
- Review Express to get more review with less effort.
Channels
TripAdvisor generates demand by tapping mainly into below distribution channels.
- Search Engine Optimisation
- Search engine Marketing
- Social Media Marketing
- Brand Advertising
a. Television
b. Radio
c. Magazine
d. Assets displayed in hotel - Direct eMail communication to their users
- Blogs and Travel guides
TripAdvisor continues to rank 1st in the Travel and Tourism space.
It had an estimate of 146.2M visits in Feb 2023.
Of all the channels, organic search (SEO), represents majority of the traffic.
[Source: https://www.similarweb.com/website/tripadvisor.com/]
Facebook, YouTube and Reddit contribute more to the Social Media Marketing.
Other good chunk of traffic and distribution happens from their mobile app.
In 2022, TripAdvisor’s total advertising cost was $784 million which was primarily due to SEM and other paid online traffic acquisition costs and other offline marketing costs. [Source: Full year 2022 results]
Cost Structure
TripAdvisor’s total expense in 2022 is $1.39B. Their cost structure is broadly divided into:
- Selling and Marketing — $784m
a. About 52.5% of the revenue
b. Cost incurred due to online and offline ads, affiliate programs and public relations.
c. Cost incurred due to salaries, commissions to sales, marketing, and customer support employees. - Technology and Content — $222m
a. About 14.8% of the revenue
b. Cost incurred due to technology, content, salaries for designing and developing web and mobile app. - General and Administrative — $172m
a. About 11.5% of revenue - Cost of revenue — $116m
a. About 7.8% of revenue
b. Cost incurred due to credit card transactions and other fees. - Depreciation and Amortisation — $97m
a. About 6.5% of revenue
Apart from these, there are capitalised costs. As per the balance sheet, they are the cost associated with property and equipment, intangible assets and Goodwill. Other than this there are also acquisition costs.
[Source: Full year 2022 results]
Revenue
The three dominant revenue models for TripAdvisor are Agency model, Merchant model and Advertising model.
Advertising business model
- Click bases advertising (CPC) from the hotel pages to their website’s booking page
- Display based advertising (CPM) via banner ads
- Ads in TripAdvisor partner websites
Transaction revenue
- Direct booking of hotels through their TripAdvisor page
- Restaurant reservations through the restaurant websites (thefork.com)
- Attraction booking through Viator.com
- Cruise booking
Subscriptions
- Analytics and data services to business owners
- For hotels/businesses to make special offers through their business page.
As per the annual report 2022, their total revenue is $1.492B. Their core revenue is $966m which is segmented as
- Branded hotel revenue-$650m
- Branded display and platform revenue — $130m
- Experiences and dining revenue — $134m
- Other hotel revenues — $52m
There is no direct link between the annual report and categories listed above. But those are the revenue streams in general for TripAdvisor.
TripAdvisor’s future
Though they have various revenue models and cost structures, TripAdvisor’s business model holistically relies on providing trustworthy reviews to the travellers for planning their trip. It also helps the hotels to get more booking. Trust, choice and economic value add should be the core of their value proposition.
Though TripAdvisor has smaller marketing and advertising budget compared to Expedia and Booking.com, they are more popular due to the value they provide to the users.
We also saw that TripAdvisor’s traffic is dependent on organic and paid search. For paid search, they directly compete with Expedia and Booking.com to show up on top of the search but their CPC returns is very less compared to that of the sales commission their competition is receiving. Hence, they must rely more on direct and organic traffic.
On the organic side, now they have direct competition from Google who entered the travel meta search space with the acquisition of Cambridge based ITA software and travel content provider Frommer. As TripAdvisor’s organic traffic is solely dependent of Google search and Google directly competing with them on their core value proposition, it is a threat to them in the future.
Their direct traffic is mainly dependent on the quality content that they provide and the user experience in their app. TripAdvisor has faced issues related to fraudulent reviews. Also from the user perspective, there are too many reviews (which are not of good quality) to go through, to decide about the place. And there are too many images which are not relevant to the destination. Many users feel that there are not enough filters or are not happy with the way it works. Also, in the CPC model when it takes them to the partner website, there is no clarity and causes the users to lose trust.
As trust is the core of their business model, they must make use of technologies like AI, to flag fake reviews, create relevant filters, highlight reviews that has a story to it like what travel influencers write. Add vlogs from travel influencers to the platform which can be of more value to the travellers. Filter out reviews that are non-descriptive and images that are not relevant. They also need to clearly indicate while navigating to partner website. All this helps provide a great user experience and improve trust amongst users.
Finally on their strategy to enter the OTA space. Being a trust-based review site and a travel meta search engine are two strategies that aligned well. Aligning these with OTA business especially when it is already occupied by bigger players could be a daunting task.
All said, TripAdvisor has many complementary offerings like the in-location benefits such as restaurants and attractions. These offerings are aligning well with their core value proposition which will help them succeed.
