TripAdvisor Business Model | How Does TripAdvisor Make Money?

TripAdvisor is a fascinating platform. The company started as a user-generated travel review website and expanded into adjacent industries over time. 

The company has grown rapidly in terms of users and reviews and has gained a foothold in the world of travel. 

The company has also developed into a travel meta-search engine and an online travel agency (OTA) over the last few years.

TripAdvisor has facilitated the sharing of stories and experiences by travelers. 

This has enabled it to establish itself as a significant player in the $1,3 trillion travel market, which is highly fragmented, with the largest players being hotel and airline companies, as well as offline travel agencies.

Booking.com, Expedia, and TripAdvisor are three of the most commonly used online travel agencies. 

All of them are demand aggregation systems. However, there are several key differences that you ought to be aware of as an innovator.

TripAdvisor business model is based on promoting other booking websites via click-based advertising. 

TripAdvisor displays the hotel’s rate from its partner websites when looking at a hotel on the site. 

TripAdvisor makes money from the total amount of hotel bookings if you visit a partner site and book one.

What is TripAdvisor?

TripAdvisor is a website that allows users to find travel information, write reviews, and book flights, hotel rooms, and restaurant reservations.

TripAdvisor earns money through affiliate advertising, subscription services, commissions, sponsored placements, listing fees, and reservations.

TripAdvisor Business Model

TripAdvisor was founded in 2000 and is based in Needham, Massachusetts. The website has become one of the most popular in the world. 

The company was acquired by Expedia for $210 million in 2004. It became a publicly traded firm on the NASDAQ in 2011 after being spun off from Expedia.

How Does TripAdvisor Work?

TripAdvisor is online travel information, review, and booking platform that allows users to find out about hotels and rental vehicles and leave reviews.

The content is organized into a variety of categories, including:

  • Hotels
  • Rentals for vacation
  • Restaurants Activities (often referred to as “Things to Do”)
  • Flights 
  • Cruises

TripAdvisor is well renowned for its discussion component, where travelers can discuss everything they encounter while traveling. 

Users can also ask questions about their desired destinations and receive direct responses from others on the forum. And plenty others.

TripAdvisor also awards the Travelers’ Choice Award to attractions, hotels, and restaurants. 

As user votes determine who wins these awards, they seal approval for businesses and influence their reputation.

TripAdvisor’s platform is available on the company’s website and mobile and tablet devices (available on Android and iOS).

How Does TripAdvisor Make Money?

TripAdvisor compiles reviews and ratings from millions of travelers about travel destinations, hotels, attractions, and restaurants. 

Furthermore, the site provides users with real-time pricing and availability for hotels and other experiences and the ability to book preferred hotels, cruises, vacation rentals, excursions, activities, attractions, and restaurants.

TripAdvisor Business Model

TripAdvisor earns money through affiliate advertising, subscription services, commissions, sponsored placements, listing fees, and reservations.

There are four main segments in which the company generates revenue: hotels, media/platforms, experiences, and dining. Here’s a breakdown of each.

Hotels, Media & Platform

TripAdvisor earns the majority of its revenue through click-based advertising. A media partner is rewarded each time a user clicks on a booking link (in this case, online travel agencies or OTAs, as well as direct hotel suppliers).

A range of factors determine how much you will pay (e.g., the cost per click or CPC rate), including search volume, location, and booking price.

Hotel, bed and breakfast, and other lodging establishment subscriptions are the second most important source of revenue for this business. 

Hotel owners can now use these services — Rate Spotlight, Market Spotlight, and Reputation Pro — to: Compare nightly rates to their competition across all types of rooms and lengths of stay;

A real-time rate adjustment is based on the data.

You can identify future demand by keeping track of airline occupancy rates or by checking the number of reviews, for instance. You will be notified in real-time of any review activity.

Thirdly, TripAdvisor earns money from its hotel rapid booking tool. The company launched instant booking in 2014 to enable consumers to book hotels directly through its platform.

A percentage of the booking price is given to the firm as compensation for suggesting customers. Hilton, Marriott, and Booking.com are a few of our partners.

Finally, TripAdvisor partners can promote their businesses and products through sponsored placements in the form of display advertisements. 

These advertisements are contextually relevant, which means they appear when a user searches for a hotel to stay at or a car to rent.

The majority of display advertising is sold on a cost-per-thousand-impressions, or CPM basis. 

Again, the CPM rate is determined by the attractiveness of the search phrase, vertical, and average price paid, among other factors.

Experiences & Dining

TripAdvisor works with restaurants, tour guides, and other businesses to generate revenue from experiences and eating.

You can find information and services at Experiences for customers who wish to book activities or attractions. 

You can book these through TripAdvisor’s platform or Viator, which TripAdvisor acquired for $200 million in 2014.

TripAdvisor partners with independent tour operators and travel activity/experience providers (in this example, the supplier) to enable users to book activities. 

TripAdvisor receives a commission for booking activities through its online reservation system.

TripAdvisor Business Model

Affiliate commissions or third-party merchant commissions are other sources of revenue. 

TripAdvisor’s partners use the supplier inventory made available by TripAdvisor to promote what they offer on their website.

When a customer books an experience through the affiliate’s platform, the affiliate earns a commission from TripAdvisor.

The Dining page contains information that allows customers to learn more about restaurants and reserve them. 

TripAdvisor and TheFork (which owns sites such as thefork.com, lafourchette.com, eltenedor.com, restorando.com, and more) provide dining offers.

Dining section revenue is primarily derived from transaction fees (or per-sat diner fees) paid by restaurants. 

TheFork’s online reservation system simplifies and streamlines the process for these restaurants in return.

TripAdvisor derives money, to a lesser extent, through subscription-based advertising, in which restaurants pay for access to online reservation tools, marketing analytics data, and menu syndication services.

A restaurant can also advertise using cost-per-click (CPC), paying for each click that leads to their website. The CPC rates are determined by pre-determined contractual rates.

Advertising

TripAdvisor earns money from three types of advertising. The first type of advertising is typical to display advertising, in which the company is paid to display advertisements for hotels and other services on the site. 

The company runs click-based advertising, for which it receives compensation for every booking made on a hotel or attraction’s website after a user clicks through from its site.

The TripAdvisor PriceFinder offers independent hotels the opportunity to advertise with a CPC campaign. 

Your rates and availability can be displayed alongside those of Online Travel Agents (OTAs) directly on your property’s TripAdvisor listing in high-profile PriceFinder results. 

The traveler will be redirected directly to your property’s online booking page, “According to the company’s blog post,” so you can gain direct bookings faster and easier.

You must submit bids to be included in the PriceFinder results to take advantage of this pay-per-click option. Your bid and the prices you submit to TripAdvisor affect your position in the search results. 

PriceFinder will display your bids and prices most effectively if your bids are competitive. When a traveler clicks on your website, you will be charged the click fee you specified.”

A subscription-based advertising platform generates revenue by displaying information about business products and services. 

A TripAdvisor Premium for Restaurants, for example, includes features such as a Storyboard, the 3 most important reasons to eat there, and a favorites list.

A Premium subscription’s price depends on various parameters, such as the property’s location, size, and traffic.

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Other Sources

TripAdvisor’s other revenue is derived from its Rentals, Flights, Cruises, and Car sections. TripAdvisor’s Rentals section provides tourists with all the information and booking services they need.

TripAdvisor’s Rentals program earns money by giving property owners and managers the option to list their homes on numerous company websites, including flipkey.com, holidaylettings.co.uk, and housetrip.com. 

TripAdvisor Business Model

The firm then charges property owners for each listing uploaded.

TripAdvisor is reimbursed for its Flights, Cruises, and Car services based on a cost-per-click (CPC) model. When a user clicks through on an offer, a modest fee is charged.

Who is the Owner of TripAdvisor?

You can learn more about TripAdvisor’s ownership structure on its investor relations page, which can be accessed here. 

TripAdvisor’s parent company, Liberty TripAdvisor Holdings, Inc., continues to be its largest shareholder, with a total stake of 15% valued at the time of writing.

The Vanguard Group holds a 6.74 percent stake, followed by PAR Capital Management with a 6.91 percent stake and Eagle Capital Management with a 6.35 percent stake.

The company’s co-founder and CEO, Stephen Kaufer, remains its largest private shareholder with a 0.49 percent stake.

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What is the Funding and Valuation of TripAdvisor?

Crunchbase reports that TripAdvisor raised $3.3 million in two rounds of financing during its private firm existence. The company’s primary investors are TCV and OneLiberty Ventures.

TripAdvisor went public in 2011 with an initial public offering valuation of $3.3 billion. TripAdvisor’s firm has a market capitalization of $4.8 billion. 

Stocks peaked at $110 and have since fallen to $35 due to the Coronavirus outbreak and Google’s growing presence in the tourism sector.

What is the Revenue of TripAdvisor?

TripAdvisor’s revenue decreased 61% in 2020 to $604 million, compared with $1.6 billion in 2019. 

Steve Kaufer, president and CEO of Tripadvisor, said the company is optimistic about 2020 because of the potential of creating recurring revenue from its new membership program.

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Success Story of TripAdvisor

Stephen Kaufer (CEO) and Langley Steinert founded TripAdvisor in Needham, Massachusetts, in 2000.

Nach graduating from Harvard in the mid-1980s with a degree in Computer Science, Kaufer worked for 15 years in various engineering and managerial positions.

It was time for him to get together with his wife in 1998, something he hadn’t done for months. The Caribbean is their preferred location.

It turned out that searching the internet for appropriate hotels only produced disappointing results. 

“I went online to research three resorts recommended by the travel agency, and darn if I didn’t stumble upon a slew of sites discussing these resorts,” Kaufer recalled in a 2010 interview with Xconomy.

“However, they all said the same thing—the same boilerplate explanations accompanied by the identical photographs. 

It wasn’t until I discovered a posting on an AOL member’s home page, complete with candid images and an extremely candid description of one of the resorts, that I understood this location was not going to be what the brochure promised. 

We traveled someplace and had a fantastic time, but my wife observed, ‘Golly, there has to be a better way to conduct Internet travel research.’

That little remark created the concept for what would eventually become TripAdvisor. In February 2000, they incorporated the business.

TripAdvisor began as a search engine for searchable travel information for Expedia and AOL. These platforms might then license TripAdvisor’s data in exchange for a monthly subscription charge.

The concept failed to gain traction, which is unfortunate. Business operations ceased after 1.5 years due to a lack of funds. 

The 9/11 attacks essentially put an end to the travel sector, further aggravating matters.

Fortunately, the team had built TripAdvisor.com on the side to demonstrate to interested B2B customers what a vacation search engine might look like. 

After a while, the website had a life of its own, garnering an increasing number of visitors each week.

This prompted Kaufer and his colleagues to switch to a consumer-facing platform monetized through display advertising. 

Unfortunately, people did not click on these advertisements, reducing earnings.

The team made another pivot after a few weeks. The company switched to a cost-per-click (CPC) model, in which TripAdvisor was compensated every time a user clicked on a hotel listing. Everything started ‘clicking’ (no pun intended).

TripAdvisor was already producing $70,000 per month and breaking even three months after launching its CPC business.

Over the next few months and years, the team concentrated on growing the platform’s visibility. They initially recruited editors to search the web for material that could be included in the hotel listings.

Platform traffic was primarily directed to the reviews section rather than to the articles linked on the page. 

This led to the team focusing on reviews, which was a pivotal move that got the organization to new heights.

TripAdvisor announced in March 2004 that it would be acquired by Expedia (a subsidiary of IAC/InterActiveCorp). 

Kaufer and the team received $210 million in cash as part of the arrangement. The acquisition was all the more impressive given that TripAdvisor had acquired only $4 million in outside funding to that point.

The company began expanding its global reach with the backing of a powerful investor. The organization followed a similar strategy to many other technology startups. 

TripAdvisor began by establishing localized websites in various areas around the world over several years.

TripAdvisor’s website had over 20 million monthly visitors by the end of 2006. This was followed by a frenzy of acquisitions designed to diversify the company’s product offerings (and therefore customer margins). TripAdvisor has acquired 30 other businesses so far.

It acquired the vacation rental listing and review website FlipKey in 2008, for example. FlipKey’s listings were available on TripAdvisor’s website just nine months following the acquisition.

The company also made a strategic move to diversify its revenue streams in the tourism industry. 

They were directly in competition with Skyscanner and Kayak after adding the feature for comparing flight prices in 2009.

TripAdvisor’s continuing growth prompted Expedia to split it out in 2011. Expedia believed that its stock price was not as high as it should be, in large part because investors regularly underestimated the company’s TripAdvisor asset, which was buried in the company’s financials.

TripAdvisor began trading on the NASDAQ stock exchange in December 2011 under the ticker code ‘TRIP.’ TripAdvisor’s stock price ($29) was even higher than Expedia’s ($27.72) at the IPO.

As a public firm, they could deal with larger corporations and other startups much more quickly. 

Users of both platforms can also customize vacation experiences with the introduction of a trip personalization function.

TripAdvisor later partnered with Hilton and Marriott Hotels and Deliveroo and Grubhub to offer meal delivery straight on its platform. Regrettably, not everything went according to plan.

Numerous concerns surfaced about guests threatening hotel and restaurant owners with negative reviews throughout the early years if they did not grant them discounts. 

These reviews could become so powerful that they endanger the hotel’s or restaurant’s existence by causing clients to avoid the establishment.

TripAdvisor, therefore, created a variety of features to help its hotel and restaurant partners succeed. These initiatives weren’t all successful, which is unfortunate.

According to a 2017 Milwaukee Journal Sentinel investigation, TripAdvisor deleted a woman’s rating in 2010 after claiming she was raped at a Mexican resort. 

A dozen travelers did not hesitate to share their experiences with the piece after reading it.

TripAdvisor removed the post owing to its significant use of G-rated language at the time. As a result of the incident, the firm issued a public apology for deleting the posts.

Additionally, they introduced a tag that would identify hotels with a history of health, discrimination, or safety violations. 

A human committee would scrutinize each hotel set to get such a label to guarantee that no venues were categorized incorrectly.

TripAdvisor’s growth was not adversely affected by any of these occurrences. An Oxford Economics study on global travel spending showed that TripAdvisor influences 10.3 percent of all travel spending globally (equivalent to $546 billion). The figure represents an increase from the 7% ($268 billion) reported a decade ago.

TripAdvisor’s hold on the travel industry became stronger, but it faced a new competitor. Consumers can now compare plane ticket prices directly in Google’s search engine through its Flights tool, which was introduced in 2011 for the first time.

Google plans to release additional products such as Google Trips in 2016. TripAdvisor and Yelp joined forces against Google, even though they generally compete for the same customers.

They argued that Google leverages its monopoly position to promote its products (like Google Maps and Flights) while burying competitors (such as TripAdvisor and Yelp in this case).

The US Department of Justice (DOJ) announced in December 2020 that it was preparing an antitrust investigation against Google. However, the search engine has so far largely escaped punishment.

TripAdvisor’s growth has slowed significantly in recent years due to this. A coronavirus outbreak also led to a significant decline in clientele. TripAdvisor had to lay off 25% (or 900 employees) of its employees as a result.

TripAdvisor receives 500 million visits a month today. There are almost 700 million reviews on the site, and 7,000 new ones are added every hour. The company’s site also features reviews for approximately 8 million venues.

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