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7 months ago
 

Priceline Group spent $2.8 billion on online advertising in 2015

Little wake-up call shared today by the Priceline Group for consumer-facing startups thinking they can challenge the big boys and girls of the online travel world.

In its fourth quarter and full year 2015 earnings announcement, Booking.com/Agoda/et al’s umbrella company disclosed it had spent $2.8 billion on online advertising over the course of the 12 months ending December 31 2015.

The figure of $2.8 billion was joined by a more modest $215 million used to push the brands on offline channels, such as television and outdoor.

The online ad spend is a jump upwards from $2.4 billion in 2014, although the cost of its offline activity has decreased from $230 million.

Other sales and marketing services cost the company $353 million, up from $310 million in 2014.

Chief financial officer Daniel Finnegan says there has been “some pressure” over the course of the last three years around the metrics and ROI, but that the company is “well positioned” to take advantage of its expertise in keyword bidding and use of its digital marketing technology.

Still, any startup or established (but smaller) competitor to Priceline Group that might be thinking this is just one juggernaut in front of them needs to reconsider.

Expedia Inc‘s full-year 2015 earnings report disclosed similar, eye-watering levels of media spend.

Not content with a hefty $2.8 billion outlay of its own across the portfolio of brands in 2014, Expedia Inc says it spent $3.3 billion during 2015 – an increase of 23% y/y.

The company says Expedia, Trivago, Hotwire and Hotels.com accounted for the majority of the total increase.

NB: Advertising image via Shutterstock.

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Kevin May

About the Writer :: Kevin May

Kevin is senior editor and a co-founder at Tnooz. He was previously editor of UK-based magazine Travolution and web editor of Media Week UK from 2003 to 2005.

He has worked in regional newspapers (Essex Enquirer) and started his career at the Police Gazette at New Scotland Yard in London. He has a degree in criminology, a postgraduate diploma in magazine journalism and publishes his first book - a biography about Depeche Mode - in late-2016.

 

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  1. Laurren

    The big issue is that, not all hotels received the same exposure. So, the big money is spent for few hotels/partners and the other can just wait or seek an alternative! I think the main issue with such company might be on their software or search engine! a better optimized one and a guide to hotels on how to improve their exposure will be more than welcomed.

     
  2. Omri Ben-Canaan

    Hi we are Bedforest, we are competing with these guys. Oh yes, and self funded too (so far) ahah! Any help welcome of course!

     
  3. Eivind

    Alternative headline; “Hotels payed Priceline Group more that $2,8 bill. to sell their rooms online.”

     
    • mirko

      Wouldn’t be a much higher sum of money if each hotel did its own online marketing?

       
    • Kevin May

      Kevin May

      @eivind – Priceline Group would probably counter that argument that, looking at the maths (850,000 properties on its system), it spent $3,294 per hotel on marketing. Probably far less than if each hotel had to do its own digital marketing.

       
      • Gon Ben-David

        @Kevin – taking your math one step forward, there’s also a question if *every* hotel received more than $3,294 in value in return: As no system is perfect, I’m sure that with every OTA partners there are winners and losers.
        This value is as important to the OTAs themselves, as now – more than ever before – there’s more competition (and presumable, profitable alternatives) for the hotel’s marketing dollars – from Google, to Tripadvisor Instant Booking, in addition to going direct.
        So the key question that should be asked if you looked at every OTA simply as a (easy to use) distribution platform is not how much was spent, but what’s the ROI in comparison to other alternatives. This question will also make the OTAs better in creating sustainable value to the hotels, which will keep profits for the long run – even with lower marketing budgets.

         
        • RobertKCole

          You are forgetting one critically important aspect – Risk. The hotels only pay that average $3,294 when they have received $21,960 in revenue (assuming a 15% commission,) or a guaranteed 567% ROAS – risk free. Certainly the ROAS is lower if hotels pay a higher commission (257% at 28%) and there is no guarantee of sufficient volume to adequately fill a hotel, but that’s not the point.

          The issue is highly structural and tightly related to business model. Hotels are a highly fragmented business. Consumers value the convenience and speed of cross-brand and cross-destination accommodation search. Most hotel groups, even some of the largest ones, lack the brand awareness, technology, data, user experience and marketing budgets to effectively compete with the largest OTAs on a global scale.

          They hate when I say it, but by going asset light and heavily shifting toward the franchise model, major hotel groups have largely become intermediaries – beyond establishing brand standards (which may be eased for affiliated “soft” brands), the focus is on branding, rewards programs and distribution. Hyatt owns 41 and manages 320 of its 640 properties. Starwood owns 32 of its 1,297 properties and manages less than half of the rest. Marriott only owns 1% of its properties and manages another 40%. Hilton owns 140 and manages 570 of its 4,322 properties.

          The explosion of new brands increases brand room density in major markets, but is of questionable value to individual owners – the debate over the point of diminishing returns on a macro destination basis is becoming a point of contention.

          Many of these hotel groups also assess fees to their owners that range between 10-14% of total room revenue (on all occupancy – not just that produced via their direct channels.) Affiliation with brands is strongly preferred by organizations providing project financing – again, as a method to reduce the risk of going it alone.

          Hotel brands are driven to maximize customer lifetime value across their portfolio – most popularly, through some form of activity tracking/communication-enabling rewards program. Some valuations of Starwood allocated 40% of total brand value to SPG. A frequent guest at an individual hotel is a different animal than a brand frequent traveler. Converting that property guest to a brand guest is a low cost of acquisition/high return proposition, making the whole stronger than the sum of its parts.

          So for both OTAs and hotel groups, the strategy is to grow, largely through industry consolidation – leveraging corporate technology investments and human capital. An excellent strategy for hotel group shareholder returns, but for individual hotel owners, over the longer term, the jury remains out…

          The bottom line is that through their aggressive ad spend (which unquestionably either generates ROI or achieves customer acquisition cost targets) the OTAs are creating a strong consumer-facing franchise that is developing considerable barriers to entry except for the largest hotel groups, well-positioned niche players and local standouts.

          Loathing OTAs or wishing really hard that they will disappear is not a strategy. In most cases, the hoteliers are simply out gunned – bringing little more than a metaphorical soup spoon to an automatic weapons battle.

          If this is problem for hotels, the model needs to change – a difficult challenge for such a fragmented industry. A solution that reduces the value of an intermediary channel (choking off the commissions that make multi-billion OTA ad spend a reality) could potentially have the same impact on hotel brands.

          Most importantly, that strategy is not simply trying to alter consumer behavior to shop through a brand intermediary (a retail boutique) as opposed to an agency intermediary (a shopping mall.) Over the near term, the hoteliers need to strategically manage all their distribution channels – understanding the full cost of customer acquisition

          Relying solely on either OTAs, hotel brands or property-direct business is a losing proposition – the channel mix needs to be strategically managed until a new model arises. If that model entails increased hotelier risk however, adoption will be slow – with many preferring to complain rather than change.

           
    • Richard

      Hotels do not want to spend on customer acquisition, neither in a great website for customers, experiment, have developers a/b testing, make it friendly, visual, etc. they pay someone to build websites and wait until customers magically appear, thats why probably you see those figures, reality check for hotels, they need to promote them self, not just build a building and a website and wait 🙂 By the way, I do work in one of the big hotel chain, thats what I see.

       
 
 

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