booking-business-model

A Snapshot Of Booking Business Model

Booking Holdings is the company the controls six main brands that comprise Booking.com, priceline.com, KAYAK, agoda.com, Rentalcars.com, and OpenTable. Over 76% of the company revenues in 2017 came primarily via travel reservations commisions and travel insurance fees. Almost 17% came from merchant fees, and the remaining revenues came from advertising earned via KAYAK. As a distribution strategy, the company spent over $4.5 billion in performance-based and brand advertising. 

Booking Holding mission via six brands

Booking mission is “to help people experience the world.

The six brands comprise:

  • Booking.com: booking online accommodation reservations platform
  • priceline.com: a hotel, rental car, airline ticket and vacation package reservation service in the US
  • KAYAK: a meta-search service to search and compare travel itineraries and prices
  • agoda.com: an accommodation reservation service primarily focused on the Asia-Pacific region
  • Rentalcars.com: a worldwide rental car reservation service
  • OpenTable: a provider of restaurant reservation and information services to consumers

How does Booking make money?

booking-revenues-breakdown

The three primary sources of income are broken down in three main segments:

  • agency
  • merchant
  • Advertising and other revenues

Agency revenues

Those comprise revenues derived from travel-related transactions where Booking doesn’t facilitate payments for the travel services provided. It can be broken down in:

  • travel reservation commissions;
  • certain GDS reservation booking fees
  • certain travel insurance fees

Merchant revenues

Those are revenues derived from services where Booking does facilitate payments for the travel services provided.

Advertising and other revenues

Those comprise revenues from:

  • KAYAK for sending referrals to travel service providers and advertising placements
  • OpenTable for reservation fees, and subscription fees
  • priceline.com for advertising on its websites
  • Booking.com’s BookingSuite branded accommodation marketing and business analytics services

The Booking business strategy

Booking focuses on a few key strategies to accomplish its mission:

  • leverage on a large inventory of options and low prices
  • creating a frictionless user experience to book travel destinations
  • enable business partners to track their success via insight tools and platforms
  • keep investing in enhancing the consumer experience
  • partner up with travel service providers and restaurants
  • maintain multiple brands
  • investing a sustainable growth.

How does Booking acquire traffic to be monetized? The key is performance-based and brand advertising 

Traffic acquisition is the key ingredient for any digital business. Also, tech giants like Google and Facebook need to focus their efforts in keeping the traffic acquisition cost stable over time to be able to monetize their pages and sites at a margin which is high enough to generate a sustainable business model.

Booking Holding has managed so far to do that via two main channels:

  • performance advertising
  • brand advertising

Performance advertising has proved a sustainable way to acquire traffic and not that far from the traffic acquisition cost rate other companies like Google have to sustain:

what-is-google-tac
TAC stands for traffic acquisition cost, and that is the rate to which Google has to spend resources on the percentage of its revenues to acquire traffic. Indeed, the TAC Rate shows Google percentage of revenues spent toward acquiring traffic toward its pages, and it points out the traffic Google acquires from its network members. In 2017 Google recorded a TAC rate on Network Members of 71.9% while the Google Properties TAX Rate was 11.6%.

If we look at Booking Holding numbers, you can notice how the company spent in 2017 33.3% of its gross profit in performance advertising:

marketing-spending-booking

In 2017 Booking spent $4.1 billion in performance advertising channels generate a significant amount of traffic to Booking Holding websites. Those expenses primarily comprise

  • search engine keyword purchases (mostly Google)
  • referrals from meta-search and travel research websites
  • affiliate programs
  • other performance-based advertisements

Brand advertising spending was $392 million in 2017. Those expenses primarily consist of television advertising, online video advertising, and online display advertising.

Google is coming: Will Google threaten Booking business model?

Over the years Booking has been able to keep growing thanks to its expansion, acquisition of other brands and its ability to create a sticky platform for its users. At the same time, most of the traffic that goes toward its sites come from performance-based advertising and a good chunk of it is paid traffic via Google.

As Google enters more and more into travel related services (see Google Flights), it becomes harder for Booking to keep a competitive business model able to continue gaining traction. Therefore, Google does represent a threat for Booking sustaiability in its business model.

Reference for the data: Booking Holding Annual Report 2017

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Published by

Gennaro Cuofano

Creator of FourWeekMBA.com | Head of Business Development at WordLift.io | International MBA

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