Travelzoo 2010 Annual Report Download - page 32

Our Industry
While our mission is to provide our subscribers and users the highest quality information about the best travel,
entertainment and local deals, our revenues are generated from advertising fees. According to Kantar Media, travel
companies in the U.S. spent $2.8 billion in 2010 on advertising (source: Kantar Media, 2011). According to BIA
Advisory Services and The Kelsey Group’s U.S. Local Media Annual Forecast (2008-2013), U.S. local advertising
revenues will be $144.4 billion in 2013 (source: BIA Advisory Services/The Kelsey Group, 2009). We believe that
traditional media outlets such as newspapers, television and radio continue to be the primary medium for travel
companies, entertainment companies and local businesses to advertise their offers, though the percentage spent on
advertising in these traditional media outlets is decreasing.
We believe that several factors are causing and will continue to cause travel companies, entertainment
companies and local businesses to increase their spending on Internet advertising of offers:
•The Internet Is Consumers’ Preferred Information Source. Market research shows that the Internet has
become consumers’ preferred information source for travel (source: Forrester’s North American
Technographics Travel Online Survey, Q1 2008).
•Benefits of Internet Advertising vs. Print, TV and Radio Advertising. Internet advertising provides
advertisers advantages compared to traditional advertising. These advantages include real-time listings,
real-time updates, and performance tracking. See “— Benefits to Travel, Entertainment and Local
Companies” below.
•New Advertising Opportunities. The Internet allows advertisers to advertise their sales and specials in a
fast, flexible, and cost-effective manner that has not been possible before.
•Suppliers Selling Directly. We believe that many travel suppliers prefer to sell directly to consumers
through suppliers’ websites versus selling through travel agents. Internet advertising attracts consumers to
suppliers’ websites.
Problems Travel, Entertainment and Local Companies Face and Limitations of Newspaper, TV and
Radio Advertising
We believe that travel, entertainment and local companies often face the challenge of being able to effectively and
quickly market and sell their excess inventory (i.e. airline seats, hotel rooms, cruise cabins, theater seats, spa
appointments or restaurant seats that are likely to be unfilled). The success of marketing excess inventory can have
a substantial impact on a company’s profitability. Almost all costs of these services are fixed. That is, the costs do not vary
with sales. A relatively small amount of unsold inventory can have a significant impact on the profitability of a company.
We believe that travel, entertainment and local companies need a fast, flexible, and cost-effective solution for
marketing excess inventory. The solution must be fast, because services are a quickly expiring commodity. The
period between the time when a company realizes that there is excess inventory and the time when the service has
become worthless is very short. The solution must be flexible, because the demand for excess inventory is difficult
to forecast. It is difficult for travel, entertainment and local companies to price excess inventory and to forecast the
marketing effort needed to sell excess inventory. The marketing must be cost-effective, because excess inventory is
often sold at highly discounted prices, which lowers margins.
We believe that newspaper, TVand radio advertising, with respect to advertising excess inventory, suffers from
a number of limitations which do not apply to the Internet:
• typically, ads must be submitted 2 to 5 days prior to the publication or airing date, which makes it difficult to
advertise last-minute inventory;
• once an ad is published, it cannot be updated or deleted when an offer is sold out;
• once an ad is published, the company cannot change a price or offer;
• in many markets, the small number of newspapers, television companies, radio stations and other print media
reduces competition, resulting in high rates for traditional advertising; and
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