Sausage Making “Not Pretty

Diane Clarkson | November 13, 2006, 11:40 AM

It was a rough quarter for Expedia, with profits falling 28 percent and its stock price at 75% of what it was when spun off from IAC in August 2005.

An article in Bloomberg News suggests this is due to travelers’ preference for booking directly with suppliers. This is consistent with the JupiterResearch travel forecast where we expect 57% of total online travel revenue to be coming through supplier websites.

While I agree that supplier-direct is a significant contributor to Expedia’s challenges, there has been a more profound downturn at Expedia than other online travel agencies, suggesting that there is also a market share shift between online travel agencies occurring (noting Priceline’s stock price has gone up 64% since August 2005).

“The sausage making,” Barry Diller says, “has not been pretty”.

Somewhat eclipsed in the media by financial performance is the launch of Expedia’s loyalty program. In partnership with Citibank, Expedia has launched the Thank You Network. Points are earned in conjunction with a travelers’ existing loyalty programs, and offers an incentive to book through Expedia. The program is ambitious and holds a lot of potential as a customer retention tool.