Expedia 2014 Annual Report Download - page 18

require significant investments, including changes to our financial systems and processes, which could
significantly increase our costs and increase the risk of payment delays and/or non-payments of amounts owed to
us from our supplier partners and customers. In addition, these new initiatives may not be successful and may
harm our financial condition and operating results.
For example, during 2012, Expedia introduced the ETP program to hotel suppliers in the United States and
Europe and subsequently globally. ETP offers travelers the choice of whether to pay Expedia at the time of
booking or pay the hotel at the time of stay. As part of the introduction of ETP, we reduced negotiated economics
in certain instances to compensate for hotel supply partners absorbing expenses such as credit card fees and
customer service costs. Therefore, the global rollout of ETP has negatively impacted the margin of revenue we
earn per booking and will continue to do so in the future. In addition, as we continue to expand the breadth and
depth of our global hotel offering and ETP, we have made and expect to continue to make adjustments to our
economics in various geographies including changes based on local market conditions, which may negatively
impact the margin of revenue we earn in the future. Depending on relative supplier and traveler adoption rates
and customer payment preferences, among other things, the expansion of ETP could continue to negatively
impact our near term working capital cash balances, cash flow over time and liquidity.
Our business could be negatively affected by changes in search engine algorithms and dynamics or
other traffic-generating arrangements.
We increasingly utilize internet search engines such as Google, principally through the purchase of travel-
related keywords, to generate a significant portion of the traffic to our websites and the websites of our affiliates.
Search engines frequently update and change the logic that determines the placement and display of results of a
user’s search, such that the purchased or algorithmic placement of links to our websites and those of our affiliates
can be negatively affected. In addition, a significant amount of traffic is directed to our websites and those of our
affiliates through participation in pay-per-click and display advertising campaigns on search engines, including
Google, and travel metasearch engines, including Kayak and TripAdvisor. Pricing and operating dynamics for
these traffic sources can change rapidly, both technically and competitively. Moreover, a search or metasearch
engine could, for competitive or other purposes, alter its search algorithms or results causing a website to place
lower in search query results. If a major search engine changes its algorithms or results in a manner that
negatively affects the search engine ranking, paid or unpaid, of our websites and the websites of our affiliates, or
those of our third-party distribution partners, or if competitive dynamics impact the costs or effectiveness of
search engine optimization, search engine marketing or other traffic-generating arrangements in a negative
manner, our business and financial performance would be adversely affected, potentially to a material extent. In
addition, certain metasearch companies have added or intend to add various forms of direct or assisted booking
functionality to their sites. To the extent such functionality is promoted at the expense of traditional paid listings,
this may reduce the amount of traffic to our websites or those of our affiliates.
Our business depends on our relationships with travel suppliers and travel distribution partners.
An important component of our business success depends on our ability to maintain and expand
relationships with travel suppliers and Global Distribution System partners. A substantial portion of our revenue
is derived from compensation negotiated with travel suppliers, in particular hotel suppliers, and GDS partners for
bookings made through our websites. Each year we typically negotiate or renegotiate numerous long-term hotel
and airline contracts. No assurances can be given that travel suppliers or GDS partners will not further reduce or
eliminate compensation, attempt to implement costly direct connections, charge travel agencies for or otherwise
restrict access to content, credit card fees or other services, further reduce their average daily rates (“ADRs”) or
decide not to make their travel inventory available to us, or provide accurate booking information, any of which
could reduce our revenue and margins thereby adversely affecting our business and financial performance.
Historically, certain travel suppliers have and may continue to pursue distribution strategies that could
reduce our access to inventory, reduce our compensation, or result in additional operating expenses. In addition, a
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