Travelzoo 2013 Annual Report Download - page 67

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Our Travel category of revenue includes the publishing revenue for negotiated high-quality deals from travel companies,
such as hotels, airlines, cruises or car rentals and includes products such as Top 20, Website, Newsflash, Travelzoo Network as
well as Getaway vouchers. The revenues generated from these products are based upon a fee for number of e-mails delivered to
our audience, a fee for clicks delivered to the advertisers, a fee for placement of the advertising on our website or a fee based
on a percentage of the face value of vouchers sold or other items sold. We recognize revenue upon delivery of the e-mails,
delivery of the clicks, over the period of placement of the advertising and upon the sale of the vouchers or other items sold.
Our Search category of revenue includes comparison shopping tools for consumers to quickly and easily compare
airfares, hotel and car rental prices and includes SuperSearch and Fly.com products. The revenues generated from these
products are based upon a fee for clicks delivered to the advertisers or a fee for clicks delivered to advertisers that resulted in
revenue for advertisers (i.e. successful clicks). We recognize revenue upon delivery of the clicks or successful clicks.
Our Local category of revenue includes the publishing revenue for negotiated high-quality deals from local businesses,
such as restaurants, spas, shows, and other activities and includes Local Deals vouchers and entertainment offers (vouchers and
direct bookings). The revenues generated from these products are based upon a percentage of the face value of vouchers or
items sold or a fee for clicks delivered to the advertisers. We recognize revenue upon the sale of the vouchers, when we receive
notification of the direct bookings or upon delivery of the clicks. The Company earns a fee for acting as an agent in these
transactions, which is recorded on a net basis and is included in revenue upon completion of the voucher sale. Certain merchant
contracts in foreign locations allow us to retain fees related to vouchers sold that are not redeemed by purchasers upon
expiration, which we recognize as revenue after the expiration of the redemption period and after there are no further
obligations to provide funds to merchants, subscribers or others.
Trends in Our Business
Our ability to generate revenues in the future depends on numerous factors such as our ability to sell more advertising to
existing and new advertisers, our ability to increase our audience reach and advertising rates and our ability to develop and
launch new products.
Our current revenue model depends on advertising fees paid primarily by travel, entertainment and local businesses. A
number of factors can influence whether current and new advertisers decide to advertise their offers with us. We have been
impacted and expect to continue to be impacted by external factors such as the shift from offline to online advertising, the
relative condition of the economy, competition and the introduction of new methods of advertising. The introduction of
competing services and changing search algorithms by search engines such as Google, Yahoo! and Microsoft which may reduce
the level or quality of Internet traffic to our services, in particular our Search products, SuperSearch and Fly.com, the
competitive market pricing of voucher-based offerings may lead to us reducing our take rate (i.e. our commission) in order to
maintain or grow the number of quality deals and merchants we are seeking. For example, the consolidation of the airline
industry reduced our revenues generated from this sector; the reduction of capacity in the airline industry reduced demand to
advertise for excess capacity; the introduction of new voucher-based products offered by competitive companies impacted our
ability to sell our existing advertising products; the reduction in spending by travel intermediaries due to their focus on
improving profitability, the trend towards mobile usage by consumers, the willingness of consumers to purchase the deals we
advertise, and the willingness of certain competitors to grow their business unprofitably. In addition, we have been impacted
and expect to continue to be impacted by internal factors such as introduction of new advertising products, hiring and relying
on key employees for the continued maintenance and growth of our business and ensuring our advertising products continue to
attract the audience that advertisers desire. In response to declining Search product revenue, which includes SuperSearch and
Fly.com products, the Company has initiated a performance review, which may result in merging the products, discontinuing or
replacing one or both of them. Challenges in traffic acquisition from search engines and poor monetization on mobile devices
have led to continued declines in Search revenue. As we are reviewing these products and working on their improvement,
revenue from our Search products may significantly decline.
Existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals and Getaway).
These shifts between advertising services by advertisers could result in no incremental revenue or less revenue than in previous
periods depending on the amount purchased by the advertisers, and in particular, with Local Deals and Getaway, depending on
how many vouchers are purchased by subscribers.
Local revenues have been and may continue to decline over time due to market conditions driven by competition and
declines in consumer demand. Since the introduction of Local Deals in 2010 and Getaway in 2011, we have seen a decline in
the number of average vouchers sold per deal and a decrease in the average take rate earned by us from the merchants for the
voucher sold.