TripAdvisor’s long-rumored restructuring poses big questions for operators.
“Effective immediately, Viator and TripAdvisor Experiences will operate as separate organizations.”
This statement is from a letter sent Jan. 23, 2020 to all TripAdvisor employees following an announcement that the company planned to restructure key segments of their business, and lay off approximately 200 employees.
The letter also reports that Dermot Halpin, TripAdvisor’s president of experiences and vacation rentals, is leaving the company, and that CEO and Co-Founder Stephen Kaufer will run the Experiences team for 90 days in the interim. Ben Drew, vice president of development and strategy, rentals and vacation for TripAdvisor, will become president of Viator.
Changes at the online travel agency were expected following TripAdvisor’s challenging third quarter. Citing strong headwinds including pressure from Google, total revenue decreased 7% to $428 million; net income was $50 million, a 28% decrease year-over-year. The day after the Q3 earnings call, TripAdvisor stock plummeted by 20%.
While in Q3 TripAdvisor’s Hotels, Media & Platform segment revenue comprised a larger chunk of TripAdvisor’s business at $238 million, Experiences & Dining has consistently been the fastest growing segment, up 19% to $141 million. However, Experiences profitability suffered in 2019 versus 2018 as the company made investments to drive that growth.
At the core of this decision was the drive to “right-size” the Experiences group, according to TripAdvisor.
“We are prudently reducing and re-allocating expenses in certain parts of our business to preserve strong profitability, while also enabling us to continue to invest in strategic growth areas,” says a TripAdvisor spokesperson, which includes “right-sizing our Experiences & Dining segment to grow more efficiently following a period of considerable investment, reducing other targeted costs across the company” and rethinking advertising strategy.
In November, Kaufer said the company’s deep investment in Experiences & Dining was a key reason for the category’s meteoric growth over the past four to five years, but that investment priorities were now changing.
“What we’re really talking about is shifting some of that investment from the building of supply … to leveraging the demand that we already have,” he said in an earnings call, adding the Experiences team would work on converting the hundreds of millions of travelers seeking things to do by finding the right product for the right individual.
Dermot Halpin, TripAdvisor’s (now former) president of experiences and vacation rentals, said during an interview at Arival Orlando 2019, much of the Experiences investment over the past years has been in technology, such as recreating the payments infrastructure, instant translation of products to expand audience, and the acquisition of reservations technology provider Bokun.
Heavily Funded Startups Squeeze Traditional OTAs
Kaufer said Google’s shifting SEO was a chief reason for TripAdvisor’s missed Q3 targets. But increased competition from privately held OTAs also factor into the equation.
Both Klook, founded in 2014, and GetYourGuide, founded in 2009, are now big players in the experiences distribution scene, and given their monster fundraising over the past year, they have the advantage of investing in growth without the quarterly reporting pressure faced by public companies.
Are Klook and GetYourGuide chipping sales away from TripAdvisor and other larger OTAs?
At least one European tour operator, who asked not to be named, thinks so. “I feel their position in the market is getting weaker,” said the operator. “Viator/TripAdvisor is still our biggest account, but TripAdvisor lost quite some market share last year … Meanwhile GetYourGuide and Klook had exponential growth.”
What’s The Operator Impact?
The planned split between Viator and TripAdvisor raises significant questions for operators of tours, activities, attractions and experiences who rely on these platforms for bookings. What will happen to existing products that are listed on both platforms? Are Experiences only going to be bookable on Viator? How will operators’ TripAdvisor listings be affected?
These questions are yet to be answered.
TripAdvisor isn’t the only OTA that has seen structural shake-ups in the past year. In December, Booking.com representatives sent letters to some tour operators and attraction partners stating they were, at least temporarily, not adding more Experiences to product sets—and restructuring their team. Expedia also weathered a significant reorganization in 2019, which ultimately ended in the resignation of CEO Mark Okerstrom and Chief Financial Officer Alan Pickerill (a replacement CEO has not been named) and included a reorganization within Expedia Local Expert.
As for potential operator impact? It could vary.
As Google squeezes OTAs and operators alike, the pay-per-click cost will continue to increase, predicts Peter Syme, founder of 1000 Mile Journeys and strategic advisor for tours and activities.
“The medium-to-longer term trend for us all is that we are going to have to pay more to acquire a customer, be that from an OTA or a direct customer,” says Syme. He advises operators to weather such distribution changes by building a direct business, if possible, nurturing your customer relationships, and supplementing with OTAs to diversify channels.
One thing is certain: It will be evermore important to keep an eye on TripAdvisor and Viator’s evolution in the coming months—and their fourth quarter earnings, which will be released in February 2020.
Stay tuned on Arival.Travel as we continue to cover this important news, the implications for your business, and what’s next for this big change in distribution.
Have thoughts or concerns on the split between Viator and TripAdvisor Experiences? Email Jenna Blumenfeld ([email protected]) to share what you think.