The Background

Popular travel site Expedia had its humble beginnings as a travel booking division by Microsoft in 1996, known as Microsoft Expedia Travel Services. The goal was to provide a groundbreaking method for customers to research and book their trips.

In the early 2000s, American media and internet company, IAC took over Expedia and what followed was a string of other ecommerce site acquisitions: Hotels.com, Hotwire, TripAdvisor, and China’s eLong.com.

“Buy, not build” would become the company’s repeated business strategy. Five years later in 2005, Expedia was listed in Nasdaq.

“We are always opportunistic,” commented Mark Okerstrom, Expedia’s then CFO. “The M&A team is never closed for business. We are always on the hunt for interesting opportunities and we’re fortunate to have an incredibly strong core business, which gives us the confidence to go out and do some of these acquisitions that are a little bit more intensive.”

Source: Expedia

The Challenge

Technology, as with most industries, has disrupted the travel business at a blink of an eye, shaping the expectations of travellers. New forms of “travel tech” such as fare comparison, travel design and emerging business models like Airbnb’s share economy, shook an industry that relied on travellers thinking only “where do I sleep?”

The internet granted people the luxury of a hassle free travel booking; best location, best hotel, best flight all for the best (lowest) price on one platform.

The arrival of Airbnb in 2008 changed the mindset of travellers – mainstream hotel chains no longer attracted them. Travellers sought property in remote, funky neighbourhoods and relied on the local know-how of their host to explore destinations. Could Expedia compete with its traditional hotel offering?

Source: Phocuswright

The Strategy

In order to cope with the volatile industry, Expedia did what it does best – opened its wallet for another acquisition. The company added Airbnb competitor HomeAway to its portfolio for a price tag of $3.9 billion in 2015.

Source: Nikkei Asia

The acquisition helped Expedia increase market share but is still behind Airbnb. In Q2/2017, Airbnb captured 15% of the global home-sharing market while Expedia and Priceline secured 12% and 9%, respectively.

Expedia, already with a stronghold in North America, realized that it needed to focus on emerging markets where 50% of the world’s millennials live and where its competitor, Priceline, established a leading position via Agoda.com and Booking.com.

Asia’s travel industry is expected to rise with a 12% CAGR during 2015 – 2020 to reach sales of $434 billion.

Asia Pacific is expected to remain the main driver of this performance, registering a 20% CAGR over the next five years, as internet adoption picks up in the region.

Source: Skift.com

 

In an attempt to compete with Priceline’s popular Booking.com, Expedia made a recent investment of $350 million into Indonesia-based Traveloka to bolster its presence in Southeast Asia as the company services six of the region’s primary markets.

“The US used to be the driver of our global strategy and other areas would follow,” expressed Dara Khosrowshahi, then CEO of Expedia in June 2017, only months before embarking to Uber. “But Asia is now driving our strategy.”

Unsurprising as the region’s internet economy is expected to grow from $31 billion in 2015 to $197 billion in ten years time. Travel is estimated to account for 45 of that, according to Google and Temasek.

“Our target is to at least double our share of the online travel marketplace in Asia[-Pacific]. I think we are on our way,” said Dara Khosrowshahi.

More specifically, Dara expected to increase gross number of bookings from its non-US businesses from the current 36% to two-thirds. It’s quite possible with Traveloka as an aid because Expedia can capture more of the 168 million Muslims expected to go abroad by 2020 as Indonesia is home to the world’s largest Muslim population.

Before his departure, Dara said there are two keys to winning Asia:

  1. Understanding Asian consumer habits
  2. A mobile-first attitude

To achieve this, the company operates Expedia Innovation Lab in Singapore where it uses sensor technology to understand how users feel while browsing Expedia-branded websites in 14 Asia-Pacific markets, including Australia, China, Thailand and Singapore, most of which have larger traffic volumes coming from mobile users.

Expedia Innovation Lab uses sensor technology to understand how consumers in Asia interact with its websites and services. Source: Nikkei Asia

The Future

The company is trying to fight for a stake in the fast-growing home-rental industry in Southeast Asia, where home rentals are still illegal as regulations have not caught up to the “share economy”, while expanding its core hotel-booking business.

The company already has formed strong alliances with powerful players in the region such as AirAsia. Expedia acting as an official distributor through its agency AAE Travel can bundle AirAsia flights with hotel packages. But in a nascent market such as Southeast Asia, strong discounts are only the beginning as consumers have a plethora of travel agencies to choose from.

Good news? No single company occupies over 23% market share in any major Southeast Asian country.

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