TripAdvisor: Book the Perfect Trip
TripAdvisor is the largest travel site in the world, with a mission to help people plan and book the perfect trip. TripAdvisor accomplishes its goal by offering users a platform that aggregates user-generated reviews and opinions about accommodations, destinations, activities and restaurants worldwide and connecting users with providers of travel accommodations and travel services to book each aspect their trip.
TripAdvisor is the largest travel site in the world, with a mission to help people plan and book the perfect trip. TripAdvisor accomplishes its goal by offering users a platform that aggregates user-generated reviews and opinions about accommodations, destinations, activities and restaurants worldwide and connecting users with providers of travel accommodations and travel services to book each aspect their trip. At year end 2014, TripAdvisor was available in 28 languages across 45 localized sites, holding over 200 million reviews and opinions of 4.5 million places to stay, places to eat and things to do and attracting 315 million unique users a month.
TripAdvisor is a classic example of an indirect network effect business. There are 3 stakeholders in its network, the user, TripAdvisor – the platform/interface, and the advertiser (e.g. OTAs, hotels, and other service providers). As more users use TripAdvisor and add reviews online, more advertisers promote deals and convenient bookings on the site, which then attracts more users. Over the past 5 years this cycle has fueled market and financial growth for the firm, growing from 65 million unique monthly users in 2012 to 315 million unique monthly users in 2014 and from $637M annual revenue in 2011 to $1.2B annual revenue in 2014.
At 200 million reviews, TripAdvisor has successfully scaled up its business to exhibit indirect network effects. However, this did not happen overnight. Back in 2000, TripAdvisor founders realized a gap in the market for easily accessible un-biased travel information. Noticing this gap, they set out to create a platform that aggregated unbiased travel-related information from across the Internet. It first indexed blogs, combed guidebooks and newspaper articles to create a baseline of information, and also allowed users to enter their own reviews. Following, the company pursued a cost-per-click advertising model, allowing OTAs, hotels, and other service providers advertize relevant information on the site, which also allowed for convenient booking functionality. TripAdvisor derives a majority of its revenue from the sale of advertizing, primarily through click-based, and to a lesser extent display based. Other revenue sources include business subscriptions, transaction-based offerings and content licensing. The combination of user generated content and relevant advertizing proved to be great hit and ignited the ongoing network effect.
TripAdvisor is able to maintain its market leadership through its product-focused culture and once-a-week release cycle that continuously pushes out new high-value functionalities to its users. In 2014 it released Instant Booking and Just for You. The Instant Booking feature enables users to quickly and easily book a hotel on TripAdvisor through its hotel or online travel agent partners. Just for You makes the hotel research experience more personalized with hotel recommendations to TripAdvisor users based on their individual preferences and travel history on the site.
Overall, TripAdvisor displays a brilliant business model but it or plays in a very competitive travel marketplace, competing for content, users and advertisers. Major competitors include, Google, Bing Travel, Baidu, OTAs, Airbndn, Ctrip.com, Homeaway Inc. and Yelp. To maintain its market share the company plans to invest heavily in brand recognition and brand-direct efforts such as online search, TV and email.
Kathryn thanks for the great post. Indeed Tripadvisor has forever changed the way we travel. I think a really strong move Tripadvisor made was the ability to connect your Facebook profile. The fact that you can see reviews by your friends, or friends of friends, adds a layer of credibility to the reviews. Through this move Tripadvisor has actually been able to leverage Facebooks network effects to its advantage.
Thank you for the post. I would also add Expedia,Orbitz and Booking.com to the list of competitors, following the release of TripAdvisor’s Instant Booking feature. The combination of network effects resulting from the pending merger of Expedia and Orbitz can really threaten TripAdvisor’s offering. So far Expedia has been taking lower commissions from hotels as compared to Booking.com to gain market share, but the tendency to multi-home is high (hotels like to list/advertise as to many eyeballs as possible as long as it’s profitable) so the outcome for Expedia as well as TripAdvisor will be interesting to watch.
Great read. As you pointed out, TripAdvisor is a good example that shows how consumer-centric approach has created direct network effect via seamless user experience and trusted content. Although many deep-pocketed competitors such as Google, Bing Travel, Exepedia, etc. are trying to expand their presence in the online travel sector, TripAdvisor’s network effect in coupled with its brand power will make its business model sustainable.