Expedia’s use of big data, from efficient collection to wise exploitation for better customer satisfaction

Expedia’s recent acquisition of Orbitz announces the creation of a giant in the field of online travel and hotel purchases. However, taking a closer look shows that before becoming a revenue giant, the new company is first and foremost a data giant, not only in the collection, but also in the processing, leading to an ever faster and more accurate service to the customer.

The effort of collecting data and that of making money-generating use of it are two very distinct actions for companies planning to grow from it – or even make their business-model entirely on it. That is the case of Expedia. In March 2014, Andrew Warner, Expedia’s senior marketing director for Europe Middle-East & Asia (EMEA), was speaking at a technology conference in London, and opened his speech by asking the attendance: “What the f*ck is big data?”. Expedia has around 150 sites that operate in 70 countries worldwide, with around 50 million visitors a month and 200 mobile app downloads per minute – little to say Expedia collects daily massive amounts of data. In order to take advantage of this mine of information, it’s been spending since 2013 at least 500 million USD per year in research and development, as well as 2 billion USD in marketing. Where does this money go into? What is the impact on Expedia’s business, and what questions does it raise for the future of the company in an every day more connected, faster world market? Do the innovations these investments give to Expedia really address what customers want from Expedia in the end?

Collecting data has been at the core of the online travel agent in order to differentiate itself first to brick-and-mortar travel companies, then to its digital competitors, improving the quality of its offer to the customer and the speed to bring him to satisfaction with a tailor-made trip – whether hotel and/or flight. This gave insight to the company on the fact that if collected incorrectly, data that be more of a strategic handicap than anything else. First of all, data does not always reveal technical failures on an application: data showed only 20% of customers finalized a purchase while going all the way to the last checkout page. The explanation was a bug on the “purchase” button, something data would not explain alone. Secondly, Expedia found out raw data numbers don’t replace qualitative feedback – as seen in the previous point, it can even give an explanation to trends data reveal but can’t explain alone. Hence, Expedia started to make extensive use of data generated by feedback loops. The third lesson drawn from Expedia’s efforts to collect data is that it is much more efficient – and profitable – to only chase a few selected categories of information. Too many data requests to the customer can drive him away from the platform. That’s what happened with the “company information” optional box in the checkout page before finalizing the purchase. Not a lot of people were filling it, and taking it away drove 1 million USD profits in a month….

Expedia particularly focused its efforts in understanding and improving customer lifetime value. It is a tough task considering many customers who book through Expedia do not always have an account. “Our industry has some commodity aspects, which can make it tempting to focus more on transactions than customers; increasing lifetime value requires a long history of customers, not transactions,” explains Joe Megibow, general manager of Expedia. “We spent significant time building data sets, clusters and predictive models to determine which customers are most likely to buy. We can determine how much we are willing to spend to acquire a customer on the first transaction, and which types of transactions or campaigns have the highest probability of driving a second or third transaction. Customer lifetime value analysis also demonstrates that the cost to drive future transactions declines among loyal customers. We can spend more to acquire customers early on, but the overall cost for transactions declines as we come up with programs that build loyalty. (…) We built and trained a utility model, using real-time pricing data from hoteliers and historical customer data, to predict what would be most relevant to consumers. We’ve (…) seen multiple percentage point increases in conversions.”

The biggest move of Expedia in that field is certainly its acquisition of Orbitz, in an effort to boost its mobile-phone transaction revenues. Acknowledging the diversification of devices on which travel purchases are made – from tablets to smartphones through desktops, the alliance of the two giants is much more than the aggregation of both companies’ revenues – which amounts to 140 billion USD -, but rather to join forces in order to offer ever faster and more accurate results to the customer, as data gets more and more complicated every day. That is the essence of the challenge Expedia and its competitors face today: will they put up with the exponentially growing number of data available, are they going to make use of it, and are they going to respond to customer needs in the end? Is speed the main pain point for the customer? How are customer preferences relevant and person-dependent, knowing that what drove primarily customers away from brick-and-mortar travel agents to companies like Expedia was simply… cheaper prices.

 

 

SuitCase

 

Sources:

  • “Big data, big opportunity for Expedia and its customers”, Carlos Melendez, Infoworld, March 4th 2015;
  • “Expedia”, Big data insight Group, September 20th 2012;
  • “Expedia is investing billions in data to create personalized travel-graphs”, Derek Du Preez, Diginomica, March 24th, 2014;
  • “Expedia promote enterprise data strategy for growth, agility”, Nicole Laskowski;
  • “Expedia’s focus on customer intelligence turns clicks into dollars”, Nicole Laskowski;
  • “Expedia, Orbitz harness big data for next-generation mobile booking”, Chantal Tode, Mobile commerce daily, January 30th 2014;
  • “How Expedia is going fishing in the big data lake of travel”, Travel Industry news and conferences, July 3rd

 

 

 

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Student comments on Expedia’s use of big data, from efficient collection to wise exploitation for better customer satisfaction

  1. “The third lesson drawn from Expedia’s efforts to collect data is that it is much more efficient – and profitable – to only chase a few selected categories of information. Too many data requests to the customer can drive him away from the platform. That’s what happened with the “company information” optional box in the checkout page before finalizing the purchase. Not a lot of people were filling it, and taking it away drove 1 million USD profits in a month….”

    This is the part I find somewhat fascinating. Considering how much we have talked about how data can be used to find new opportunities such as how BandPage can figure out which data drives more people to buy more merchandise for certain bands, it is interesting to hear something that amounts to a bug fix. “If only we asked for less information, we would have gotten more money.” Nice to see how data can lead to streamlining, not just expanding.

  2. I agree, Expedia is doing some interesting things with data. With growth they’ve been able to do more. This post is going to go against the module…I think the network effects are important here. The network effects will likely grow, especially with Orbitz, but we know that customers will multi-home travel sites searching for a low price. The consumer-side is difficult to satisfy and some of the restrictions they pass on are way too rigid for some travelers. More and more, hotels will give better rates if you book directly AND you retain the flexibility to cancel up until 24 hours before the booking.

    Value creation for the hotels is very love-hate. Expedia creates value for hotels, especially smaller hotels, that have unsold rooms and want to increase occupancy to prevent low volume periods. However, hotels are powerless because Expedia takes the consumer’s money and pays the hotel 50-70% of the room rate — basically, they earn back the cost of the room. Expedia buys at an absurdly low rate. Why wouldn’t the hotel offer better rates direct?

    I think online travel agencies will have issues satisfying both sides and the quality issues sides experience here (along with multi-homing and the powerless issue) is tremendous. I don’t think they will die anytime soon, but I have concerns.

    Note: Scathing online reviews of Expedia back this up. I’m certainly biased against Expedia due to several bad experiences either at the hotel or during booking (couldn’t cancel once booked even though it was MONTHS in advance). I think, because you pay

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