screenshot included
tripavisor-srzle0zd.pdf -820-039 N O V E M B E R 2 0 , 2 0 1 9 Senior Lecturer Jeffrey F. Rayport, Spencer Rascoff (Visiting Executive), and Case Researcher Susie L. Ma (Case Research & Writing Group) prepared this case. It was reviewed and approved before publication by a company designate. Funding for the development of this case was provided by Harvard Business School and not by the company. Spencer Rascoff serves as a director on the board of TripAdvisor. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2019 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. J E F F R E Y F . R A Y P O R T S P E N C E R R A S C O F F S U S I E L . M A TripAdvisor: An Itinerary for Growth TripAdvisor CEO Steve Kaufer was in his Needham, Massachusetts, office in November 2019, reviewing notes for his upcoming quarterly earnings call with investors. Third-quarter revenues were down 7%, due in part to a 12% decrease in revenues from the company’s Hotels segment (see Exhibit 1 for 2019 revenues by segment).1 Even though the newer verticals, Experiences and Dining, were growing at 19% over the comparable period the previous year, they had been forecasted to grow even faster. For nearly 20 years, Kaufer had steered TripAdvisor to growth as well as profitability, but the pace of expansion had started to slow. In 2018, TripAdvisor’s revenues totaled $1.6 billion, up 4% from 2017, driven by Experiences and Dining, which included bookable travel activities and dining reservations (see Exhibit 2 for the company’s income statement and Exhibit 3 for revenues by segment). However, income from the Hotels segment, which generated a majority of the company’s revenue when users clicked on links to third-party travel sites, had been flat since 2015. When Kaufer co-founded TripAdvisor in 2000, he set out to create a platform for sharing travel information. But he had not imagined that it would grow into one of the most used and trusted travel websites in the world, with 830 million traveler reviews opining on 2.3 million accommodations, 5 million restaurants listings, and 1.1 million travel experiences.2 Every month, 460 million people visited TripAdvisor’s website or one of its 25 portfolio brands.3 TripAdvisor offered travelers the ability to research hotels, flights, and rental cars. Users could also discover and book travel experiences, vacation properties, and restaurants. TripAdvisor consistently ranked as one of the most popular travel brands on the Internet (see Exhibit 4 for a ranking of travel websites). It was a public company with a market cap of $5.6 billion in November 2019.4 TripAdvisor had 3,300 employees at year-end 2018.5 TripAdvisor made money from each user that clicked on links to online travel agents (OTAs), such as Expedia and Travelocity, and direct suppliers, such as Marriott, Hilton, and Hyatt Hotels. But shifting dynamics in the travel services space were presenting challenges to TripAdvisor’s business model. First, OTAs and hotel companies were competing more aggressively to pull prospective travelers directly to their sites, which meant bypassing intermediaries such as TripAdvisor. Second, user traffic from Google’s organic search results—on which TripAdvisor had relied for many years, using search engine optimization (SEO) to drive performance—was declining, because Google was pointing users directly to its growing suite of proprietary travel tools and products. Finally, TripAdvisor found itself competing with Google— its major supplier of traffic—for advertising dollars, For the exclusive use of G. Carrena, 2021. This document is authorized for use only by Graciano Carrena in Tripadvisor GMBA Spring 2021 taught by DAVID HALLIDAY, George Washington University from Apr 2021 to Oct 2021. 820-039 TripAdvisor: An Itinerary for Growth 2 because Google’s travel products, particularly its hotel finder, offered an alternate sales channel for OTAs and direct suppliers, who were TripAdvisor’s core customers (i.e., advertisers). In May 2019, Google became a more acute competitive threat when it consolidated its travel products into a one- stop shop, where users could research travel options, read reviews, engage in price comparisons, and book travel directly using Google, or click through from Google directly to an OTA or supplier site. In other words, Google was positioning its travel products suite as a substitute for other intermediaries, of which TripAdvisor was the industry’s market share leader. Taken together, these trends had hurt TripAdvisor’s growth. As Kaufer put it, “We’re in the middle getting squeezed from both sides.” Still, TripAdvisor estimated the global travel market to be worth $1.7 trillion, with online penetration at 50% and still climbing.6 Kaufer believed there was plenty of room for all players in the online travel market to grow. He wanted to reposition TripAdvisor by revitalizing its value proposition and products, leveraging its brand recognition and user loyalty. To this end, in January 2018, he created a new team called Core Experience (CoreX) to coordinate TripAdvisor’s branding and to create a coherent product strategy across its business units. Could Kaufer and his executive team reposition TripAdvisor in time to overcome the Google threat and reinvigorate growth? The Travel Services Industry The modern travel services industry was born in 1841 when Englishman Thomas Cook arranged special train transport for 540 members of a temperance society (a group opposed to the consumption of alcohol) to a meeting, for which Cook received a commission—becoming the first travel agent.a,7 Since then, travel agents had provided an array of services, including arranging transportation and accommodations, coordinating tours, and offering expert advice on destinations. As commercial air travel became more accessible in the mid-20th century, travel agents played an important role for both consumers and airlines—helping travelers navigate complex flight combinations and acting as a sales channel for airlines.8 Of course, travelers also had the option of booking a flight or hotel room by contacting a supplier directly, usually by phone, allowing them to bypass agent fees. The rising popularity of international travel in the 1950s meant that travelers sought information to help navigate unfamiliar foreign destinations. This led to a proliferation of travel guidebooks, such as Fodor’s and Frommer’s, which contained enticing descriptions of sites to visit, what to do there, and where to stay.9 Publications such as the MICHELIN Guide and Zagat (later acquired by Google) became known for restaurant information. Towards the end of the 20th century, consumers could act as their own travel agents as the Internet made travel planning easier and more accessible. In 1995, the site Preview Travel launched, offering the ability to book airline flights and travel packages online, followed in 1996 by OTAs Expedia and Travelocity, which allowed users to browse and book a selection of flights, hotels, and rental cars.10 In 1998, Priceline began offering flights and then hotels and rental cars on a name-your-own-price basis, drawing consumers looking for discounts.11 In 2000, Sidestep became the first travel metasearch engine that aggregated hotel and flight information from multiple suppliers and OTAs on one site, giving consumers an opportunity to compare prices across Internet sites and then redirecting users to relevant sites to complete a booking.12 Airlines also began appealing directly to consumers, encouraging them to disintermediate travel agents and OTAs by direct-booking so-called “e-fares” or “web fares” on their a The travel firm Cook founded, called Thomas Cook, abruptly ceased operations and declared bankruptcy on September 23, 2019, leaving 600,000 travelers stranded around the world. For the exclusive use of G. Carrena, 2021. This document is authorized for use only by Graciano Carrena in Tripadvisor GMBA Spring 2021 taught by DAVID HALLIDAY, George Washington University from Apr 2021 to Oct 2021. TripAdvisor: An Itinerary for Growth 820-039 3 own sites.13 Hotels followed suit with their own “best rate guarantees” for direct bookings on their sites, increasing the incentive to bypass OTAs for better pricing and terms. Travelers became accustomed to using the Internet for travel research, which included reading user reviews. Amazon pioneered the placement of user or social reviews on its product listing pages in 1995. TripAdvisor adopted the practice for hotels in 2001, and it became a pioneer in user-generated content three years before the popular review site Yelp was founded.14 As Internet usage increased, the number of traditional travel agents in the U.S. declined from 124,000 in 2000 to 74,000 in 2014.15 Offline travel agents evolved and focused their offerings on more complex travel arrangements; their total number had rebounded to 81,000 by 2016.16 Company Background Frustrated by a lack of unbiased travel-related content online, Kaufer co-founded TripAdvisor in February 2000. He populated the site by aggregating information from guidebooks, newspaper articles, and blogs.17 The initial model was for a business-to-business (B2B) venture, which aimed to build a travel information database and white label it for OTAs. When that proved unsuccessful, Kaufer pivoted to a business-to-consumer (B2C) approach in 2001, enabling consumers to post their own reviews and learn from one another.18 (See Exhibit 5 for company timeline.) In 2002, TripAdvisor became profitable when it began charging partner OTAs and suppliers on a cost-per-click (CPC) basis, which meant that TripAdvisor was paid each time a user clicked through to a partner site. In April 2004, Kaufer sold the company to InterActiveCorp (IAC), which owned Expedia at the time, for $210 million, but under IAC ownership TripAdvisor continued to