This article is part one of a two-part series on Expedia.
For Expedia, 2016 is shaping up to be another big year for investments. The largest online travel agency in the U.S. kicked off its brand conference in December with a look at trends in 2015, such as the explosion of the sharing economy and recent fluctuations in international currencies. The OTA giant is expecting 2016 to be a banner year for an industry that continues to grow in leaps and bounds every 12 months, which is why it is leaning so heavily on future investments, as well as initiatives to recast itself as the ally of the hotel industry.
Expedia spent $750 million in technology investments TTM ending Sept. 30, 2015, as well as $3.2 billion in sales and marketing and $7.4 billion in transactions. "Investments have resulted in terrific growth for our partners and our brands," said Dara Khosrowshahi, president and CEO of Expedia. "We invest very heavily behind brands we acquire to make them bigger than when we bought them."
Case in point: Trivago was acquired by Expedia three years ago when it was being accessed by an average of 14 million users. Today, the site is host to 120 million unique users in 50 different countries. Other Expedia acquisitions include Wot If, a travel booking site targeting Australia; Orbitz, which was acquired for $1.6 billion; and a proposed deal with Homeaway, signaling Expedia's entrance into the sharing economy.
Aside from the standard brand update chatter (Expedia is doing more than fine with constant injections of capital to explore new technology and strategic opportunities to grow the brand), much was said on the topic of competition between hotels and OTAs. Khosrowshahi said he views Expedia as, ultimately, a marketing vehicle for hotels, explaining that the company relies on the hotel industry to have strength for Expedia to record a good return. Furthermore, he claims hotel distribution costs have in fact gone down as Expedia continues to expand.
"If you look at distribution costs we charge hotels, they have come down," Khosrowshahi said. "As we gained scale, we gave some of those benefits of scale back to hoteliers."
Khosrowshahi said it is the company's mission to clear the air on commission costs for hotels and create a more transparent relationship between Expedia and hotels in the future, a sentiment echoed later by Rob Greyber, president of Egencia, Expedia’s business travel division.
"The more friction we can remove from our business with hotels, the better," Greyber said. "We didn't see it coming but the more we grow our volume, the more hotels feel they are paying on commission. Even if the percentages go down it looks like a bigger share of costs is going toward commissions."
Greyber said that this situation is not in and of itself bad as long as hotels are garnering more bookings and making more money, but agreed that it is unfair when hotels are forced to pay franchise fees on top of these commissions.
"No one should have to pay twice on the whole of the business," Greyber said. "We're looking at ways for hotels to grow their direct channels. We need hotels to win across all channels, not just with Expedia. If we don't solve that misunderstanding regarding commissions, then we don't have a future. We want hotels to be our partners; it's not sustainable without them."
Khosrowshahi said the company has been investing in the benefits of its growth in scale with hoteliers in the form of lower direct costs. "The direct costs we charge hotels have gone down, and we've invested heavily in tools to increase data that hoteliers get from us.”