Expedia strategy

You don't hear great stories about what Expedia is doing, as often as you do about Amazon and eBay. Yet Expedia is a heavyweight ecommerce and search website in its own right and important in the online shopping lives of consumers. Expedia has as much claim as anyone else to a place in the pantheon of Internet companies (assuming that word means what I think it does...).

Financially, Expedia has been doing fine. Not stellar search-portal performance but perfectly respectable:

But in terms of strategy, Expedia, as a representative of the online travel industry, has not been "mixing it up" to the same extent as the other beacons of the Internet world. I need not mention here the vast array of projects being tried by Google and Yahoo, and even MSN. Some good, some bad, but plenty of ideas that will shape the online world. Amazon has its A9, Alexa, web services, photo local search, search inside the book, and more. Ebay has a payment platform, a role in China, web services platform and a coming showdown with Google. In comparison, Expedia has been doing precious little of late.

True, the company has had its own internal problems to deal with, especially in the US, over owner Barry Diller's failed vision for a network of synergistic web properties. Luckily for Expedia, while it spend the past three years producing no innovation, annoying its suppliers and generally stagnating, its competitors have done little to take away Expedia's lead. Now, Expedia's strategy team should start addressing the dangers that Expedia will face in 2006 before it has to step out on the back foot. Namely:

Web services: Google Maps has become the poster child of the recent wave of Web 2.0 developments and provides a glimpse of the huge potential of API platforms online. This means two things. First, it is a threat. As Google Maps begins to provide local hotels for the world's major cities (something that Google Earth is already trying to do), with links to those hotels' websites, Expedia will lose a growing number of bookings. This is already out there - and in the spirit of web 2.0, it is being done by companies far smaller than Expedia. Check out Hotels-X as just one example:



Second, it is an opportunity. If Expedia could roll out an API platform of its own, it could at least fight it out with Google (and Yahoo and anyone else who will join the fray). At best, Expedia could increase its reach and range of services in ways impossible to a single company. Remember, the winner in such a race is not the strongest company but the one with the best network of developers, developers, developers ...

Local search: I have an ongoing fascination with the battle between Yell and Google in the UK. Why is Expedia a non-existent player in this space? Expedia cannot remain bound by its mandate from 5 years ago. Local search, local travel information, local hotel and tourist attraction details are all important to Expedia - but its share of users will be chipped away by focused local search providers. Expedia needs to work out how local search fits into its strategy.

Vertical search / dynamic aggregation: Last week, job aggregation site Indeed.com received $5 million in funding. Google has been working on various flavours of vertical search including travel for a while now. The until-now slow development of vertical search has lulled Expedia into a false sense of security but the question is when, not if, hugely capable players with web platform experience (Google, MSN, Yahoo ... and niche sites like Indeed), tackle the travel sector. This issue is ably covered by the Internet Stock Blog:

At some point the search engines will recognize queries as category specific requests. Type in "JFK to LAX 1/21/05 return 1/31/05", for example, and it's not unthinkable that Google will produce a list of flights. Type in "10 year fixed rate mortgage LA" and you won't need BankRate. Type in "Ford Taurus used $3000-4000" and it's not unthinkable that... well, you get the idea.

Achieving that quality of search result will be easier where the underlying markets are more concentrated, harder where they're more fragmented. Web services, for example, should allow the airlines and large hotel chains to provide structured data feeds optimized for their category to the search engines. Individual sellers of collectibles might be less accessible.

Savvy hotel and airline companies: These days, Expedia has less negotiating power than it used to when dealing with hotels and airlines, both of which are growing confidently in their own online strategies. Many airlines, such as Virgin and British Airways, sell cheaper tickets on their websites than you can find on Expedia. And all the best hotels are now fully online with very appealing websites. As Business Week says:

The company enraged hotel chains by going around them to hammer out special deals with owners of individual hotels. The result: Customers could often get some Hilton rooms cheaper at one of Diller's sites than at Hilton.com ... As Diller moved to consolidate his majority grip on Expedia in 2003, he continued to push hotels for deep discounts. But as the economy improved, hotel chains regained much of their lost leverage - and they pushed back hard. They agreed to give IAC access to rooms at more hotels, but only if the company stopped undercutting their prices. The chains insisted on smaller markups and limited IAC's allotment during peak seasons. They also drove traffic to their own sites by refusing to give IAC customers frequent-stay points. The upshot: Last year, Hilton steered 90% of its online customers to its own sites. That's up from 75% from 2003.

While Expedia has not done much worth noting in the past few years, its competitors (and particularly its competitors-elect) have failed to take advantage of this weakness. This inefficiency in the market will come to the fore in 2005-06. Right now, everyone but Expedia seems to be gearing up for the new battle over online travel.

Comments

[Jeb Gower]

Too little, too late? 18 months since this post and not much has changed. But it looks like Expedia might finally be reaching out to developers: expediaquickconnect.com.