Expedia 2012 Annual Report Download - page 55

We intend to continue leveraging these investments when launching additional points of sale in new countries,
introducing new website features, adding supplier products and services including new business model offerings,
as well as proprietary and user-generated content for travelers.
Our scale of operations enhances the value of technology innovations we introduce on behalf of our
travelers and suppliers. We believe that our size and scale affords the company the ability to negotiate
competitive rates with our supply partners, provide breadth of choice and travel deals to our traveling customers
through an increasingly larger supply portfolio and creates opportunities for new value added offers for our
customers such as our loyalty programs. The size of Expedia’s worldwide traveler base makes our sites an
increasingly appealing channel for travel suppliers to reach customers. In addition, the sheer size of our user base
and search query volume allows us to test new technology very quickly in order to determine which innovations
are most likely to improve the travel research and booking process, and then roll those features out to our
worldwide audience in order to drive improvements to conversion.
New Channel Penetration. Today, the vast majority of online travel bookings are generated through typical
desktop and laptop computers. However, technological innovations and developments are creating new
opportunities including travel bookings made through mobile devices. In the past few years, each of our brands
made significant progress creating new mobile websites and mobile/tablet applications that are receiving strong
reviews and solid download trends. In 2010, we bought a leading travel application company called Mobiata®
which is responsible for several top travel applications, such as FlightTrackTM, FlightTrack ProTM and
FlightBoardTM, and is now integrated into Brand Expedia. We believe mobile bookings present an opportunity
for incremental growth as they are typically completed within one day of the travel or stay which is a much
shorter booking window than we have historically experienced via more traditional online booking methods.
During the last year, customers’ behaviors and preferences on tablet devices began to show differences from
trends seen on smartphones. For example, the booking window on a smartphone typically is much shorter than
the emerging trend on the tablet device and historical average on a desktop or laptop. We have a stated goal of
booking 20% of our transactions through mobile devices before the end of 2014.
Virtually all of our leisure brands continue to conduct experiments with ‘daily deals’ and social media as
part of our efforts to drive business through new distribution channels. We believe daily deals may represent
incremental travel bookings as it typically represents an impulse purchase compared to historical travel
purchasing activity which tends to be a highly considered and deliberate transaction. In addition, we anticipate
the importance of social media channels to consumers and to our industry to increase over time. It is our intention
to grow our ‘social’ efforts alongside this trend.
Seasonality
We generally experience seasonal fluctuations in the demand for our travel products and services. For
example, traditional leisure travel bookings are generally the highest in the first three quarters as travelers plan
and book their spring, summer and holiday travel. The number of bookings typically decreases in the fourth
quarter. Because revenue in the merchant business is generally recognized when the travel takes place rather than
when it is booked, revenue typically lags bookings by several weeks or longer. The seasonal revenue impact is
exacerbated with respect to income by the more stable nature of our fixed costs. As a result, revenue and income
are typically the lowest in the first quarter and highest in the third quarter. The continued growth of our
international operations or a change in our product mix may influence the typical trend of the seasonality in the
future.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our
consolidated financial statements because they require that we use judgment and estimates in applying those
policies. We prepare our consolidated financial statements and accompanying notes in accordance with generally
accepted accounting principles in the United States (“GAAP”). Preparation of the consolidated financial
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