Travelzoo 2015 Annual Report Download - page 57

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Given that we intend for our hotel booking platform to consist of an agency model whereby we will facilitate reservations
on behalf of a hotel, the payment of hotel occupancy taxes and other taxes should be the responsibility of the merchant. The
intended business practice for our hotel booking platform will primarily be for the merchant to be responsible for remitting
applicable taxes to the various tax authorities. Nevertheless, to the extent that any tax authority succeeds in asserting that we
have a tax collection responsibility, or we determine that we have one, with respect to future transactions, we may collect any
such additional tax obligation from our customers, which would have the effect of increasing the cost of hotel room
reservations to our customers and, consequently, could make our hotel service less competitive (i.e., versus the websites of
other online travel companies or hotel company websites) and reduce hotel reservation transactions. Either step could have a
material adverse effect on our business and results of operations. We will continue to assess the risks of the potential financial
impact of additional tax exposure.
Our business model may not be adaptable to a changing market.
Our current revenue model depends primarily on advertising fees paid by travel and entertainment companies. If current
clients decide not to continue advertising their offers with us and we are unable to replace them with new clients, our business
may be adversely affected. To be successful, we must provide online marketing solutions that achieve broad market acceptance
by travel and entertainment companies. In addition, we must attract sufficient Internet users with attractive demographic
characteristics to our products. It is possible that we will be required to further adapt our business model and products in
response to changes in the online advertising market or if our current business model is not successful. For example, the trend
toward mobile online traffic will require us to adapt our product offering to facilitate consumers use of our products. If we do
not adapt to this trend fully or quickly enough, we may lose advertising revenue as consumer usage may decline from our non-
mobile traffic. If we are not able to anticipate changes in the online advertising market or if our business model is not
successful, our business could be materially adversely affected.
If we fail to retain existing advertisers or add new advertisers, our revenue and business will be harmed.
We depend on our ability to attract and retain advertisers (hotels, spas, restaurants, vacation packagers, airlines, etc.) that
are prepared to offer products or services on compelling terms to our members. We do not have long-term arrangements to
guarantee the availability of deals that offer attractive quality, value and variety to consumers or favorable payment terms to us.
We must continue to attract and retain advertisers in order to increase revenue and maintain profitability. If new advertisers do
not find our marketing and promotional services effective, or if existing advertisers do not believe that utilizing our products
provides them with a long-term increase in customers, revenue or profit, they may stop making offers through our marketplace.
In addition, we may experience attrition in our advertisers in the ordinary course of business resulting from several factors,
including losses to competitors and advertiser closures or bankruptcies. If we are unable to attract new advertisers in numbers
sufficient to grow our business, or if too many advertisers are unwilling to offer products or services with compelling terms to
our members or offer favorable payment terms to us, we may sell less advertising, and our operating results will be adversely
affected. For example, we may lose advertisers due to market conditions or performance, such as our recent loss of revenue
from certain online booking engines, airlines and vacation packagers. We may not add enough additional revenue, such as hotel
revenue from Getaways or the hotel booking platform, in order to replace the lost revenue. Furthermore, the new revenue may
cost more to generate compared to the costs that the lost revenue required to generate, thereby adversely impacting our
operating results.
Our existing advertisers may shift from one advertising service to another, which may adversely affect our revenue.
Existing advertisers may shift from one advertising service (e.g. Top 20) to another (e.g. Local Deals, Getaways or the
hotel booking platform). 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,
Getaways and the hotel booking platform, depending on how many vouchers are purchased by members and how many hotel
bookings are made. In addition, we are anticipating a shift from our existing hotel revenue to commission-based revenue in
connection with the continued expansion of our hotel booking platform capabilities, which may result in lower revenue
depending on volume of hotel bookings.