Back in April, Amazon (NASDAQ:AMZN) launched Destinations, a travel site which helped customers find and book hotels. The site also helped customers find "getaway destinations" for weekend trips located within driving distance of their homes. By August, Destinations had expanded beyond its initial markets to 35 cities.
For a while, it looked like Destinations could challenge travel sites like Priceline (NASDAQ:PCLN) and Expedia (NASDAQ:EXPE). But that dream came to an abrupt end when Amazon quietly shut down Destinations on Oct. 13. Amazon also stopped selling hotel reservations through its Amazon Local app.
An Amazon spokesperson told TechCrunch that the company had "learned a lot," but didn't discuss other reasons for the shutdown. Let's dig deeper to understand why Destinations failed to gain traction in the $960 billion tourism market, and what it means for the company's future.
Amazon's travel track record
Destinations isn't Amazon's first attempt to enter the online travel booking market. Three years ago, it started offering flash sales and discounts for hotel rooms through Amazon Local. Destinations was an attempt to formalize agreements between Amazon and hotels to offer more comprehensive listings on par with Priceline and Expedia. In return, hotels would gain more bookings with exposure to Amazon's 280 million shoppers. In addition to hotel deals, Amazon Destinations also included maps and user reviews of restaurants in the area.
Unfortunately, Priceline and Expedia simply had too much of a head start. Over the past decade, Priceline swallowed up rival travel sites like Booking.com, Agoda.com, and Kayak. It acquired TravelJigsaw to add car rentals to its travel packages, and bought OpenTable to add restaurant reservations. To counter Priceline, Expedia bought Travelocity and Orbitz earlier this year. After that massive market consolidation, Priceline and Expedia now control over 90% of the U.S. online travel market. This has made it tough for challengers, even those as big as Amazon, to gain any ground.
Brand loyalty is a double-edged sword
Another problem is brand loyalty. As the Internet matures, consumers become accustomed to using specific sites for certain purposes -- Alphabet's Google (NASDAQ:GOOG) (NASDAQ:GOOGL) for search, Facebook (NASDAQ:FB) for social networking, and Amazon for shopping.
Those borders make it tough to expand across different industries. That's why Google repeatedly failed to gain ground in social networking and e-commerce, which were reducing the time users spent within its ecosystem. Last year, Google chairman Eric Schmidt admitted that "more than twice" the number of shoppers started product searches on Amazon instead of Google. Facebook is trying to challenge Google's YouTube in video and Amazon in e-commerce, but those plans face similar challenges.
The failure of Amazon Destinations highlights the same problem -- customers generally start at Priceline or Expedia, not Amazon, when booking a trip.
Other potential challenges
Amazon probably also found it tough to negotiate with hotels. When the economy was weaker a few years ago, hotels and airlines eagerly partnered with discount travel sites to boost sales. But as the economy improved, hotels and airlines started pulling those listings and encouraging customers to directly book on first-party sites.
Earlier this year, the American Hotel & Lodging Association urged regulators to block the merger between Expedia and Orbitz, claiming that the merger would give Expedia a 75% market share in online bookings and unfairly boost its leverage against hotel operators. The merger, however, was nonetheless approved in September.
This uneasy relationship between hotel operators and travel sites likely caused problems for Destinations. Moreover, Amazon's reputation for undercutting third-party sellers with its own products might have exacerbated the problem.
The key takeaway
Amazon has a solid track record for disrupting big box retailers and tethering users to its ever-expanding Prime ecosystem, but there are limits to that growth. In online travel, the dominant players are simply too entrenched for Amazon to disrupt.
Competing directly against Priceline and Expedia in online travel would be akin to challenging Google in search or Facebook in social networking. Therefore, the only realistic choice for Amazon would be to carve out a niche in weekend getaways, which really wouldn't be a worthwhile investment.
Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon.com, Facebook, and Priceline Group. 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.