Expedia 2015 Annual Report Download - page 49

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Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Expedia, Inc. is an online travel company, empowering business and leisure travelers with the tools and
information they need to efficiently research, plan, book and experience travel. We have created a global travel
marketplace used by a broad range of leisure and corporate travelers, offline retail travel agents and travel service
providers. We make available, on a stand-alone and package basis, travel products and services provided by
numerous lodging properties, airlines, car rental companies, destination service providers, cruise lines, vacation
rental property owners and managers, and other travel product and service companies. We also offer travel and
non-travel advertisers access to a potential source of incremental traffic and transactions through our various
media and advertising offerings on our transaction-based websites. For additional information about our portfolio
of brands, see the disclosure set forth in Part I, Item 1, Business, under the caption “Management Overview.”
All percentages within this section are calculated on actual, unrounded numbers.
Trends
The travel industry, including offline agencies, online agencies and other suppliers of travel products and
services, has historically been characterized by intense competition, as well as rapid and significant change.
Generally, 2014 and 2015 represented years of continuing improvement for the travel industry. However,
geopolitical conflicts, significant fluctuations in currency values, sovereign debt issues and macroeconomic
concerns are examples of events that contribute to a somewhat uncertain environment, which could have a
negative impact on the travel industry in the future.
Online Travel
Increased usage and familiarity with the internet have driven rapid growth in online penetration of travel
expenditures. According to Phocuswright, an independent travel, tourism and hospitality research firm, in 2015,
over 50% of U.S. and European leisure, unmanaged and corporate travel expenditures occur online. Online
penetration rates in the emerging markets, such as Asia Pacific and Latin American regions, are lagging behind
that of the United States and Europe, and are estimated to be in the range of 20% to 30%. These penetration rates
have increased over the past few years, and are expected to continue growing, which has attracted many
competitors to online travel. This competition intensified in recent years, and the industry is expected to remain
highly competitive for the foreseeable future. In addition to the growth of online travel agencies, airlines and
lodging companies have aggressively pursued direct online distribution of their products and services.
Competitive entrants such as “metasearch” companies, including Kayak.com (which The Priceline Group
acquired in May 2013), trivago (in which Expedia acquired a majority ownership interest in March 2013) as well
as TripAdvisor (which completed its conversion to a metasearch site in June 2013), introduced differentiated
features, pricing and content compared with the legacy online travel agency companies. In addition, certain
metasearch companies adopted or intend to adopt various forms of direct or assisted-booking tools, the impact of
which is currently uncertain. Furthermore, we have seen increased interest in the online travel industry from
search engine companies as evidenced by recent innovations including direct booking functionality, as well as
licensing deals and proposed and actual acquisitions by companies such as Google. Finally, traditional consumer
eCommerce and group buying websites have been expanding their local offerings into the travel market by
adding hotel offers to their sites.
The online travel industry has also seen the development of alternative business models and variations in the
timing of payment by travelers and to suppliers, which in some cases place pressure on historical business
models. In particular, the agency hotel model saw rapid adoption in Europe. Expedia has both merchant (Expedia
Collect) and agency (Hotel Collect) hotel offerings for our hotel supply partners and we expect our use of these
models to continue to evolve, including through the continued expansion of our ETP program, which offers
travelers the choice of whether to pay Expedia at the time of booking or pay the hotel at the time of stay.
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