How does TripAdvisor make money?

TripAdvisor makes money from advertising, as well as booking fees from hotels and attractions

Since starting life in 2000, TripAdvisor has been on a long journey to get where it is today. What began life as a site for aggregating official hotel reviews from guidebooks, newspapers and magazines eventually became a destination for mostly user-generated content, with real customers writing their own reviews of hotels, attractions and restaurants.

Throughout the years it has also changed hands numerous times. It was first bought by IAC in 2004 for $200 million before being spun off as part of Expedia just a year later. It was eventually spun off once again as Expedia split into two companies, and became its own publicly traded company in 2011. 

Starting in 2007, the company also began making numerous acquisitions, most notably BookingBuddy.com and Viator, that allowed it to go from only featuring reviews of different to becoming a platform for actually booking with those same hotels and attractions. 

That allows the company makes money in two different ways: from advertising as well as from booking fees.

Advertising

TripAdvisor has three types of advertising revenue. The first is traditional display-based advertising, in which the company is paid to show ads for hotels and other services on the site.  Then there's its click-based advertising product, in which it gets paid every time a user clicks through to book on website owned by a hotel or an attraction.

"A CPC campaign allows independent hotels to bid to appear in the TripAdvisor PriceFinder search area. With CPC, you can post your rates and availability alongside Online Travel Agents (OTAs) in high-visibility PriceFinder search results right on your property’s TripAdvisor listing. If a traveler clicks on your link, they’re sent straight to the online booking page of your property’s own website –  helping you convert them quickly and easily into direct bookings," the company says in a blog post.

"To use this cost-per-click solution, hoteliers must place bids to appear in the PriceFinder results. Your bid and the rates you provide to TripAdvisor determine your placement within the results. Providing both competitive bids and competitive rates continues to be the best way to optimize your appearance in PriceFinder results. If a traveler clicks through to your website, you’ll pay whatever price you’ve bid for that click."

Finally, the company makes money from subscription-based advertising, in which businesses pay the company to display more information about their services. For example, there's TripAdvisor Premium for Restaurants, which comes with features such as Storyboard, Top 3 Reasons to Eat Here and Favorite Reviews, as well an an analytics suite.

The exact price of a Premium subscription is tailored to each property based on a variety of factors such as location, size, and traffic. 

Booking fees

TripAdvisor also makes money from booking fees from hotels, attractions and vacation rentals through its instant booking product.

"Instant booking gives travelers all the information they need to book their stays with you immediately on TripAdvisor. TripAdvisor collaborates with your connectivity partner to display your live rates and availability right on your listing page. When travelers click 'Book on TripAdvisor,' they can effortlessly convert from browsing to booking — without leaving the site. The booking process is fully optimized for desktop, tablet and mobile platforms, in all global currencies. You’ll receive the bookings directly through your connectivity partner, pay commissions only for completed stays and enjoy access to exclusive data on your performance," the company writes.

A connectivity partner, TripAdvisor explains, is a company like Central Reservation System, Internet booking engine or channel manager that provides the software to support and manage a property's bookings.

Instant booking works on a commission model, with a choice of two commission rates: either 15 percent or 12 percent. With a 15 percent commission, the property will get paid for half of all “Book on TripAdvisor” traveler views, as well as any resulting bookings those views may generate. With a 12 percent commission, the property will get paid for a quarter of all traveler views and any resulting bookings.

For example, if "Book on TripAdvisor" is displayed 100 times for a property, and they have signed up at a 15 percent commission, their rates and availability will show at least 50 times out of the 100. At the 12 percent commission, their rates and availability will show at least 25 times.

In addition to these revenue streams, TripAdvisor also makes money from licensing content with third-party sites. That includes click-based ad revenue, display-based advertising and room reservations sold through those websites.

Hotel vs non-hotel

It's difficult to tell if TripAdvisor makes more money from advertising or from bookings simply because of the way the reports its financials, which breaks it down to hotel versus non-hotel revenue rather than advertising versus bookings. 

Non-hotel revenue is money made from TripAdvisor's Attractions, Restaurants and Vacation Rentals. In the fourth quarter of 2017, revenue from the company's non-hotel streams brought in $77 million, or 24 percent of the $321 million the company made during that quarter. For all of 2017, it made $360 million, or 23 percent of the $1.5 billion in total revenue for the year.

For hotel revenue, TripAdvisor breaks it down further into three categories: "click-based and transaction" along with "display-based advertising and subscription" and "other hotel revenue."

Click-based and transaction revenue is, by far, the largest revenue segment for the company, with $137 million in Q4, or 43 percent of revenue, and $756 million for the year, or 48 percent of revenue.

Display and subscription revenue saw $77 million in Q4, or 24 percent of revenue, and $292 million for the year, or 19 percent of revenue.

Other hotel revenue, which include the revenue from third party sites, saw just $30 million in Q4, or 9.3 percent of revenue, and $148 million for the year, or 9.5 percent of revenue.

(Image source: tripadvisor.com)