Last updated on June 16th, 2017 at 11:27 am
What you will find in this Case Study?
- About TripAdvisor
- Business Model
- Growth of TripAdvisor
- Scaling Traffic via SEO
- Future of TripAdvisor
Founded in 2000 by Stephen Kaufer and Langley Steinert, Boston-based TripAdvisor is a travel website that provides reviews and other information for consumers about travel destinations around the world. The company has now over 300 million unique visitors each month.
The company started with a very different business model in mind. In founding TripAdvisor, Kaufer wanted to take his hard core engineering skills and apply them to vertical search in travel. That is, build a massive database of travel information that provided a white label search engine for travel sites like Expedia and Travelocity. And the company started in 2000.
After a year and a half, he had no clients and no revenue and was running out of money. Then, 9/11 hit and the travel industry was decimated. Kaufer began to despair that his fledging start-up would go under. Fortunately, on the side, the company had built up TripAdvisor.com as a demo site to show the prospective clients what a vertical search engine could do. When TripAdvisor.com start to pick up traffic, the company decided to pursue an online advertising based business model with banner ads.
After a few weeks of watching no click throughs, Kaufer executed his second pivot: a cost per click model (now known as CPC). Every time a consumer clicked on a hotel to book a room, TripAdvisor would charge the hotel something. Suddenly, everything began to (literally) click. Three months into launching the new model, TripAdvisor was earning $70k per month and achieved breakeven. The company has grown profitably ever since.
From $4 million invested to $4 billion in value! With these adjustments, TripAdvisor grew rapidly and successfully. The company agreed to be acquired by Expedia/IAC in 2004 for $210 million in cash, a huge win for all, particularly given their amazing capital efficiency: they had only raised $4 million in venture capital. Under Expedia, TripAdvisor continued to flourish and grow – they would feature Expedia’s ads on their site and reap the revenue benefit when users clicked on those ads. Expedia grew to account for roughly one third of the company’s revenues. In December 2011, Expedia felt it wasn’t getting full economic credit for TripAdvisor buried within its financials and so spun TripAdvisor out as an independent company, where it now trades on the NASDAQ with over $4.8 billion market capitalization.
The world’s largest travel review company posted revenues to the tune of $1.246 billion in FY 2014, up by 32% year on year. All the three divisions posted strong top line growth – click-based advertising revenue grew by 25% year on year to $870 million, display-based advertising increased by 18% year on year to $140 million, and subscription & transaction revenue was up by 82% year on year to $236 million.
Scaling Traffic via SEO
With the rapid growth of user reviews, a number of complementary effects took over. Unsurprisingly, TripAdvisor relies heavily on Google to bring in traffic, and thanks to its remarkable SEO strategy, TripAdvisor manages to show up – front and center – on just about every travel-related search. This is no coincidence. The team at TripAdvisor has made a number of highly effective choices that have helped the destination site retain its top position in the industry.
First, Trip Advisor’s dedication to SEO has created a virtuous cycle in which its advantageous search rank helps the company to achieve higher share-of-mind for potential and repeat users. Then, as new users are welcomed into Trip Advisor’s vibrant community, they often feel obligated to give back to the community that has helped them plan such a wonderful trip in the first place. With more high quality and fresh content that appeals to the algorithms of major search engines, TripAdvisor will continue to cement its placement at the top of travel searches, thereby capturing more content-generating traffic.
In addition, TripAdvisor offers a number of tools for hotels to promote reviews directly on their websites, with each of those widgets and badges essentially serving as an inbound link to TripAdvisor, consequently boosting the page’s ranking on a search. In return, hotels, especially those reviewed favorably by TripAdvisor users, receive some of the most credible advertising money can buy. As the community expands and brand recognition for TripAdvisor overshadows that for individual hotels, hoteliers find that a TripAdvisor stamp of approval becomes almost a prerequisite for many travelers.
Ultimately, what’s particularly impressive is that despite characteristics of the fragmented online travel industry that are averse to winner-take-all dynamics, TripAdvisor has skewed many aspects of the industry to its favor. By snatching up competitor after competitor and absorbing their users, by creating a vibrant community as well as a truly differentiated product that’s difficult to imitate, TripAdvisor has closed the door behind itself to future competitors.
Future of TripAdvisor
TripAdvisor may have a magical business model, but consumer travel remains a very competitive market. Google’s $700M acquisition of Cambridge-based ITA and more recent acquisition of travel content leader, Frommer, is an indicator that others are in pursuit of TripAdvisor’s core business and juicy profit margins.
That said, whatever the future may bring, the lessons from TripAdvisor’s successful sixteen year journey to scale are enduring.
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