Expedia: expecting an excellent future

True, it’s still loss-making. But the company has plenty of cash reserves, and its revenue is growing fast. Expedia has an excellent business model, and it is likely to end up as a major success in the online travel sector.

Expedia.com today announced that its revenues have increased by over $40 million (from the same quarter last year) to reach $76 million. Excluding additional charges, net losses dropped to $1.3 million, down from $16.8 million this time last year.


Expedia’s investment in technology has paid off - the site is one of the best travel sites around to use. Its innovative features, such as the ‘Fare Compare’ search engine, provide a service that is user-friendly and differentiated from the competition.


The firm is also good at keeping costs down - through its merchant business, it purchases inventory in bulk from a network of preferred suppliers, allowing it to negotiate better rates and increase gross margins. Also, Expedia is able to determine the net price of hotel rooms and therefore offer lower prices to its customers. Its success in this sector has contributed significantly towards diversifying its revenue base, another important factor in its success. Low-margin airline ticket commissions now make up less than 25% of total revenues. While the launch of airline-backed travel sites such as Hotwire.com adds even more uncertainty to the future of airline commissions for intermediary agencies, Expedia instead positions itself as a full-service travel agent.

Expedia has also leveraged its own brand to partner with a number of high profile travel service providers. These partnerships include deals such as that with MSN, to increase traffic on the site. Other partnership deals aim to enhance the overall shopping experience - for example, eTicketing is available on BA flights. Customer service partnerships are also important - Thomas Cook uses its experience and expertise in fulfillment to provide customer service functions for Expedia in the UK. Partnerships are also used successfully to support its brand awareness strategy, through online marketing campaigns and promotions.

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All of these factors together have allowed Expedia to increase its conversion rates from 4.1% in June 2000 to 4.8% in September, and thus increase revenues and reduce losses. While losses are expected to increase next quarter due to a new marketing campaign, the firm has large cash reserves following a private placement of $50 million in the summer of 2000 from Technology Crossover Ventures and a further $10 million from former parent company Microsoft, so its future looks secure. Expedia should be one of the (perhaps few) major B2C success stories.

 

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