Expedia/Groupon Create A New Travel Marketplace -- Travelers Will Love It, Travel Sellers Will Have To Be Careful
Posted by Henry Harteveldt on June 1, 2011
On June 1, 2011 at All Things Digital’s D9 conference, Expedia, the world’s largest online travel company, announced it and Groupon would launch a new travel deals product, “Groupon GetawaysTM With Expedia” (forgive us if we shorten that mouthful to just Groupon Getaways). Both Groupon and Expedia already offer their own assortment of travel deals. Expedia’s TripAdvisor unit has its own “flash sale” offering, SniqueAway. Thanks to the clout of both Expedia and Groupon, Groupon Getaways will pose a significant challenge to Groupon competitor LivingSocial, which offers LivingSocial Escapes, as well as other “daily deal” and “flash sale” sites like Plum District and RueLaLa.
Several factors work in Groupon GetawaysTM with Expedia favor, including:
- An enormous customer database. Expedia and Groupon state they have more than 50 million combined subscribers – just in the US. That is a gigantic base to which the two companies can start selling (deals are expected to be published starting in late June, 2011).
- An extensive product offering. More than 135,000 hotels sell through Expedia; hotels accounted for 59% of Expedia Inc.'s Q1 2011 worldwide revenue. Hotels are the logical starting point for Groupon Getaways. Packages, airline tickets, and other travel services will be offered later, potentially creating the most comprehensive discount travel marketplace available.
- A global presence. Groupon Getaways will be offered first in the US and Canada, and then expanded. Expedia.com operates in more than 22 countries; its sister site, Hotels.com, operates in 60. Groupon offers deals in 44 countries. This program could have some pretty substantial global impact, once it’s rolled out.
- Traveler flexibility. Groupon’s deals allow the user to choose when they’d like to redeem their vouchers. A traveler, therefore, will be able to pre-purchase a Groupon Getaways deal and use it at a later date. For travelers, this provides both convenience and flexibility.
The current uneven economic environment and travelers’ constant thirst for value means this partnership will likely find a receptive audience. From Forrester’s North American Technographics® Travel Online Survey, Q1 2011 (US), we know that nearly half of all US online leisure travelers allow their budgets to dictate where they go on a vacation. We also know that 8% of leisure travelers have used “deal of the day” sites like Groupon in the 12 months preceding the study to research their leisure travel.
So...we have two grade-A companies partnering to launch a new discount travel marketplace which, in all probablility, will be well received by travelers. Will travel sellers like hotels, airlines, and other operators welcome Groupon Getaways with open arms? Probably not -- at least not among mainstream brands. Sure, there will be some interest, but Forrester expects travel sellers to be concerned about Groupon Getaways':
- High cost. Typically, a participating merchant in a Groupon deal collects about half the “face value” of the deal. On a $100 hotel offer, the hotel would collect $50 (Groupon and Expedia split the other $50). The hotel gets that $50 in advance, when the deal closes, which helps with cash flow. Groupon also bears the credit card fee expense – another benefit. But to make money, the hotel must work its up-sell and cross-sell magic, or hope that the guest just never shows up (what’s known as breakage). The hote also has the chance to re-market to that guest, if they capture the guest's contect information at check-in.
- Revenue management challenges. A key selling point of most Groupon deals is the lack of blackout dates. Though travel sellers may be able to restrict offers to certain dates or charge extra for high-demand periods, Forrester believes the potential lack of controls and large volume of sales will strain travel sellers' revenue management models and pose a credible risk of dilution.
- Off-strategy distribution and fulfillment requirements. To redeem their Groupon Getaways vouchers, travelers will have to call the seller to book. That’s exactly what travel sellers don’t want. Travel sellers want travelers to book online via the sellers' own websites (think Sheraton.com, Delta.com, etc.). Unless travel sellers can accommodate the Groupon Getaways voucher number in the same field where users enter promotional codes, Expedia and Groupon should expect push back on this -- hotels and airlines are very different from the local salons that regularly populate Groupon's daily deals. What's more, if Expedia decides to require redemption through its websites or call centers, expect travel sellers -- especially airlines -- to balk.
Forrester expects that this partnership will be good for both Expedia and Groupon, and will help generate incremental sales for both firms. This partnership will force competitors to take notice – this isn’t a good day at LivingSocial, or any of Expedia’s online travel agency competitors. Forrester won’t be surprised if we see any reactionary pair-ups occur in response. Travel sellers, though, need to be careful. Forrester’s analysis suggests that Groupon deals rarely produce profits for participating merchants – indeed, a key selling point to merchants about Groupon is its breakage rate. Travel sellers should do thorough analysis before agreeing to participate.
- Adam Silverman (15)
- Andy Hoar (17)
- Benjamin Ensor (39)
- Bill Doyle (6)
- Brendan Witcher (1)
- Carrie Johnson (23)
- Catherine Graeber (1)
- Ellen Carney (28)
- Julie Ask (140)
- Katyayan Gupta (3)
- Lily Varon (2)
- Martin Gill (54)
- Michael Yamnitsky (1)
- Michelle Beeson (9)
- Oliwia Berdak (10)
- Patti Freeman Evans (22)
- Peter Mueller (1)
- Peter Sheldon (41)
- Peter Wannemacher (27)
- Sucharita Mulpuru (61)
- Vikram Sehgal (1)
- Zia Daniell Wigder (76)