Priceline 2014 Annual Report Download - page 6

Our priceline.com brand offers merchant Name Your Own Price
®
opaque travel services, which are recorded in revenue on a "gross"
basis and have associated cost of revenue. All of our other services are recorded in revenue on a "net" basis and have no associated cost of
revenue. Therefore, revenue increases and decreases are impacted by changes in the mix of our revenues between Name Your Own Price
®
travel
services and other services. Gross profit reflects the commission or net margin earned for our retail, Name Your Own Price
®
and semi-opaque
travel services and our advertising and other services. Consequently, gross profit is an important measure to evaluate growth in our business
because, in contrast to our revenues, it is not affected by the different methods of recording revenue and cost of revenue between our Name Your
Own Price
®
travel services and our other services.
For the year ended December 31, 2014 , we had gross profit of approximately $7.6 billion comprised of "agency" gross profit,
"merchant" gross profit, and "other" gross profit. Agency gross profit is derived from travel related transactions where we are not the merchant
of record and where the prices of the travel services reserved through our websites are determined by third parties. Agency gross profit, which
represented the substantial majority of our total gross profit in 2014 , consists primarily of: (1) travel commissions earned from reservations at
Booking.com, priceline.com and rentalcars.com; (2) GDS reservation booking fees related to certain of the agency services listed above; and (3)
processing fees. Merchant gross profit is derived from transactions where we are the merchant of record and therefore charge the consumer's
credit card for the travel services provided, and consists of: (1) transaction gross profit representing the amount charged to a consumer, less the
amount charged to us by travel service providers in connection with (a) the accommodation reservations provided through our merchant
accommodation reservation service at agoda.com and priceline.com and (b) the reservations provided through our merchant rental car service at
rentalcars.com and Express Deals
®
service at priceline.com; (2) transaction gross profit representing revenue charged to a consumer less the cost
of revenue amount charged to us by travel service providers in connection with the reservations provided through our Name Your Own Price
®
and vacation package reservation services; (3) processing fees charged in connection with our priceline.com merchant reservation services; and
(4) ancillary fees, including GDS reservation booking fees related to certain of the services listed above. Advertising and other revenues are
derived primarily from (1) revenues earned by KAYAK for sending referrals to OTAs and travel service providers; (2) advertising placements
on KAYAK's websites and mobile apps; (3) reservation revenues earned by OpenTable (a fee for each restaurant guest seated through
OpenTable's online reservation service); and (4) subscription fees earned by OpenTable for reservation management services. Revenues from
KAYAK are net of intercompany revenues earned from other Priceline Group brands. See Note 2 to our Consolidated Financial Statements for
more information.
The Priceline Group Strategy
The online travel category has continued to experience significant worldwide growth as consumer purchasing shifts from traditional off-
line channels to interactive online channels, including mobile channels. We are the leader in the worldwide online accommodation reservation
market based on room nights booked. Our strategy is to continue to participate broadly in online travel growth by expanding our service
offerings and markets. In particular, we aim to be the world leader in online travel and travel related services by (a) providing consumers with
the best experience through relentless execution and constant innovation, (b) partnering with travel service providers and restaurants to our
mutual benefit, (c) operating entrepreneurial, independent brands that share best practices, and (d) investing in profitable and sustainable growth.
2
• Transaction gross profit and customer processing fees from our accommodation, rental car, airline ticket and vacation package
reservation services;
• Advertising revenues primarily earned by KAYAK from sending referrals to OTAs and travel service providers, as well as from
advertising placements on KAYAK's websites and mobile apps;
• Beginning on July 24, 2014, revenues recognized by OpenTable, which consist of reservation revenues (a fee for each restaurant
guest seated through OpenTable's online reservation service), subscription fees for reservation management services and other
revenues; and
• Global distribution system ("GDS") reservation booking fees related to our Name Your Own Price
®
hotel, rental car and airline
ticket reservation services and our price-disclosed airline ticket and rental car reservation services.
• Providing the best consumer experience . We believe that offering consumers an outstanding online experience is essential for
our future success. To accomplish this, we focus on providing consumers with a variety of intuitive, easy-to-use online travel and
restaurant reservation and search services, a continually increasing number, location and variety of accommodations available
through our services, informative and useful content, such as pictures, accommodation details and reviews, and excellent customer
service. For example, Booking.com increasingly provides reservation services for accommodations other than hotels. Further, we
endeavor to provide excellent customer service in a variety of ways, including through our call centers and websites, so that our
customers can be confident that booking reservations through us will lead to a positive experience. We are