Priceline 2015 Annual Report Download - page 5

The Priceline Group Business Model
We derive substantially all of our gross profit from the following sources:
• Commissions earned from facilitating reservations of accommodations, rental cars, cruises and other travel services;
• Transaction gross profit and customer processing fees from our accommodation, rental car, airline ticket and vacation package reservation services;
• Beginning on May 21, 2013, advertising revenues primarily earned by KAYAK from sending referrals to OTCs 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 (reservation fees paid by restaurants for
diners seated through OpenTable's online reservation service), subscription fees for restaurant reservation management services and other revenues;
and
• Damage excess waiver fees, travel insurance fees and global distribution system ("GDS") reservation booking fees, in each case related to certain of
our travel services.
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 all of our 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 reservation
services and our other services.
For the year ended December 31, 2015 , we had gross profit of approximately $8.6 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 therefore do not charge the
customer's credit card, and where the prices of the travel services are determined by third parties. Agency gross profit, which represented the substantial majority of
our total gross profit in 2015 , consists primarily of: (1) travel commissions; (2) GDS reservation booking fees related to certain travel services; (3) travel insurance
fees; and (4) customer processing fees. Merchant gross profit is derived from services 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; (2) customer processing fees; and (3) ancillary fees, including damage excess waiver and travel insurance fees and GDS reservation
booking fees related to certain travel services. Advertising and other revenues are derived primarily from (1) revenues earned by KAYAK for (a) sending referrals
to OTCs and travel service providers and (b) advertising placements on KAYAK's websites and mobile apps; and (2) revenues earned by OpenTable for (a)
reservation fees paid by restaurants for diners seated through OpenTable's online reservation service and (b) subscription fees earned by OpenTable for restaurant
reservation management services. Revenues from KAYAK are net of intercompany revenues earned by KAYAK from other Priceline Group brands. See Note 2 to
our Consolidated Financial Statements for more information.
The Priceline Group Strategy
We aim to achieve our mission to help people experience the world through global leadership in online travel and restaurant reservation and related
services. We focus on relentless innovation and a commitment to serve both consumers and travel service provider and restaurant partners with unmatched service
and best-in-class digital technology. As the online travel and dining categories continue to grow as consumer purchasing shifts from traditional off-line channels to
interactive online channels, including mobile channels, our strategy is to continue to participate broadly in this online growth by expanding our service offerings
and markets. In particular, we aim to be the world leader in online travel and restaurant reservation and related services by (a) providing consumers with the best
experience, (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.
•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, such as vacation rentals. Booking.com included over 850,000 properties on its website as of February
15, 2016, which included
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