There's no denying TripAdvisor (NASDAQ:TRIP) is the king when it comes to online travel reviews. Across its brands, the company averages 350 million unique monthly visitors and has over 385 million reviews and counting, covering 6.6 million accommodations, restaurants, and attractions. A few years ago, the company started adding the ability to instantly book hotels and other travel on its platform. It has slowly expanded the availability of instant booking and just completed rolling it out in all of its markets. As it transitions to instant booking, TripAdvisor is now competing in an entirely different market than it was before.
Let's take a closer look at the company's instant booking initiative and how it's stacking up against the competition.
From ads to instant booking
TripAdvisor originally operated as a travel metasearch platform, and made most of its money from online advertising. The company will diversify its revenue streams with the instant booking feature, which allows users to make reservations directly through its site instead of being sent to online travel agencies like Priceline (NASDAQ:PCLN) or its former parent Expedia (NASDAQ:EXPE).
The transition makes sense from a business perspective. As a travel metasearch platform, TripAdvisor was limited to making most of its money from advertising. It was heavily exposed to a limited number of customers -- Expedia and Priceline accounted for 46% of TripAdvisor's 2015 revenue. Instant booking provides the company with additional sources of revenue and helps reduce its reliance on a few customers.
The transition hasn't been cheap for TripAdvisor. Selling and marketing expenses have crept up, hitting $202 million in the second quarter, over half of the company's $391 million in revenue. One of the main challenges the company faces as it implements instant booking will be breaking customers' travel-shopping habits. For years, customers would research their travel on TripAdvisor and then head to Priceline, Expedia, or another online travel agency to book everything. TripAdvisor also needs to bring on a lot of partners to be able to provide the same supply of hotels, car rentals, and attractions that you can book on competitors' sites.
A partner and a competitor
One of the main things TripAdvisor needed to do to make instant booking successful was ensure there was a large supply of hotels and attractions available for customers. In addition to partnering with major hotel chains, TripAdvisor partnered with Priceline to increase the number of properties users can book online. This was a big win for TripAdvisor because Priceline's Booking.com has over one million accommodations available in 96,000 destinations across 225 countries and territories. Without this partnership, it would've taken a lot of time and resources to build the same scale.
Despite their long-term partnership, TripAdvisor will compete directly with Priceline with its instant booking feature. For now, the agreement provides something both companies want -- a steady stream of bookings for Priceline, and a large portfolio of bookable properties for TripAdvisor. It makes sense for now, but as more and more people book on TripAdvisor, the two companies might want to diminish or change their partnership as competition grows between them.
Can TripAdvisor compete in a crowded market?
The company has a competitive advantage given its 350 million unique monthly visitors and 385 million travel reviews, but Priceline and Expedia also have tens of millions of unique monthly visitors and travel reviews on their sites. Priceline has over 104 million verified traveler reviews, and Expedia has 94 million unique monthly visitors.
There aren't too many companies in the travel-booking space that can compete with the scale of TripAdvisor's monthly visitors and user-generated reviews, but Alphabet's Google (NASDAQ:GOOG) (NASDAQ:GOOGL) just launched a new app that could steer visitors away from TripAdvisor. Google Trips is an online travel app that helps travelers organize and plan trips, and integrates with Gmail and Google Maps to keep track of travel confirmations. The app also provides recommendations for your trip based on historic visits by other travelers. With access to data on over a billion users and the financial strength to pursue almost any opportunity it wants to, Google could pose a big threat to TripAdvisor and the other online travel businesses.
It's no surprise that there are many players vying for a slice of the $1.3 trillion travel and accommodations market. TripAdvisor's new instant booking feature and the Priceline partnership should be a boon for business, but Google's increased interest in the space remains a looming threat investors should be mindful of.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Ben Estep owns shares of TripAdvisor. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Priceline Group, and TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.