TripAdvisor 2014 Annual Report Download - page 43

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personal computers and tablets where we display advertising, our users could decide to access our products primarily through mobile
phone devices. We do display graphic advertising on smartphones; however, our mobile phone monetization strategies are still
developing, as mobile phone monetization is significantly less than desktop and tablet monetization. Mobile phone growth and
development remains a key strategy and we will continue to invest and innovate in this growing platform to help us maintain and grow
our user base, engagement and monetization over the long term. An example of our mobile development efforts is Instant Booking,
which we integrated into our smartphone sessions in 2014. This product feature allows travelers to complete a hotel reservation,
powered by our OTA and hotelier partners, while remaining on the TripAdvisor mobile app.
Continued Reliance on Click-Based Advertising Revenue. In recent years, the majority of our revenue growth resulted from
higher click-based advertising revenue due to increased traffic on our websites and an increase in the volume of clicks on our
advertisers’ placements. Although click-based advertising revenue growth has generally been driven by traffic volume, we remain
focused on the various other factors that could impact revenue growth, including, but not limited to, the growth in hotel shoppers, CPC
pricing fluctuations, the overall economy, the ability of advertisers to monetize our traffic, the quality and mix of traffic to our
websites, and the quality and mix of traffic from our advertising placements to advertisers, as well as advertisers’ evolving approach to
transaction attribution models and return on investment targets. We monitor and regularly respond to changes in these factors in order
to strategically improve our user experience, customer satisfaction and monetization in this dynamic environment. For example, in
order to improve user experience, we introduced metasearch functionality to our hotel shoppers in 2013 as discussed under
“Improving the Experience” in the “Our Strategy” section in Item 1 “Business.”
Risks Associated with Transaction-Based Revenue. We currently derive only a small percentage of our revenue from
transaction-based offerings; however, these types of offerings create additional risks and expenses. Transaction revenue is derived
from making online bookings available for, among other things, hotel rooms, vacation rentals and destination activities. During the
course of making these arrangements, we collect, use, transmit and store personal information and other consumer data. The
protection of this data is critically important to us. An increasing number of websites, including the website operated by our
subsidiary Viator, have reported compromises of their systems and the data stored within those systems. We rely on strong encryption,
authentication and network perimeter security to effectively secure confidential information; however, despite our security measures,
our brands’ information technologies and infrastructures may be vulnerable to cyber-attacks or security incidents due to system
configurations, employee error, malfeasance or other vulnerabilities. Advances in computer capabilities, new discoveries in the field
of cryptography or other developments may result in the breach or compromise of the technology used by us to protect transaction
data. In the future, we expect to expend additional resources to enhance our security measures, protect against security breaches
and/or to address problems caused by breaches. As we expand our transaction-based businesses, the challenges we face will become
more difficult and the measures we must take to protect against them will become more costly.
Segments
During the fourth quarter of 2014, management revised our reportable segments to reflect changes in the management reporting
structure of the organization, primarily due to recent business acquisitions, and the manner in which the chief operating decision
maker regularly assesses information and evaluates performance for operating decision-making purposes, including allocation of
resources. We believe this new segment structure better provides the CODM with information to assess performance and to make
resource allocation decisions. The chief operating decision maker for the Company is our Chief Executive Officer.
The revised reporting structure includes two reportable segments: Hotel and Other. Our Other segment consists of the
aggregation of three operating segments, which include our Vacation Rentals, Restaurants and Attractions businesses. All prior
periods have been reclassified to conform to the current reporting structure. These reclassifications had no effect on our consolidated
financial statements.
For further description of our segments see Item 1, Business.