7 ms·

This is the guy who made a huge tactical mistake when Booking.com was challenging Expedia by choosing to stick to merchant model (i.e., buying inventory) as Boo

This is the guy who made a huge tactical mistake when Booking.com was challenging Expedia by choosing to stick to merchant model (i.e., buying inventory) as Booking went for the agency model (i.e., lead gen). Expedia has moved to an agency model since but the damage was done. Booking managed to get far more inventory, capitalise on more search/PPC traffic and blow past Expedia. Wonder if he's going to make a similar kind of mistake and misread the transportation market. Props to a fellow originally Iranian though :-)

shalmanese 9y ago
I think that's one of those decisions that only look better with hindsight though. The merchant model had absolutely monster margins compared to the agency model (especially with bundle deals that provided a defensive moat) and Expedia was in a strong negotiation position vis a vis hotels that they didn't want to lose. I think a lot of people were surprised at just how much inventory was out there and how much the merchant model hindered going after that extreme long tail.
- kiyanforoughi 9y ago
  Fair. However, nothing stopped them from testing a hybrid (agency/merchant) as the agency model made way more sense to consolidate international hotel inventory as it is way more fragmented than in the US.
  - shalmanese 9y ago
    I think a hybrid would have been the worst of both world because you lose your negotiation leverage without getting in a superior strategic position. I think Expedia was hoping the hotel industry would modernize and consolidate way faster than it actually did (remember, this was the gogo 90s where the entire world was hopping onto the information superhighway). What they eventually discovered was that it's hard to underestimate just how much hoteliers hate technology, even when you take into account this effect. Little known fact: Expedia was actually close to buying out Booking.com and switching them over to an merchant model buy Booking.com got cold feet and got bought by Priceline for a pittance just a few years later. If Expedia had owned the biggest merchant provider in the US + Europe, there's a fair chance today no agency competitor could have stood up against them and the entire world would be still on the merchant model.
    - kiyanforoughi 9y ago
      All good points. I just don't think a merchant model would've worked in anywhere but the US. The market is just too fragmented elsewhere (especially Asia & Europe).
indescions_2017 9y ago
Pretty sure even my grandma knows where the transportation sector is headed: electric, autonomous, sharing, services based, etc ;) I think this is more about $UBER IPO. Stabilize the ship, smooth relations with investors, and start shopping to underwriters. Expect to see road show by Q2 2018.
- askafriend 9y ago
  This is spot-on, in my opinion. All they need is someone who is demonstrably competent and experienced to stabilize the ship and steer it towards an IPO. There's no need for the candidate to be a visionary or meddle drastically with something that's already working extraordinarily well. That part is largely done - the Uber machine is mature and chugging along. A seasoned operator needs to come in to provide PR cover, put in some basic organizational guardrails and rebuild the executive ranks to get the company IPO ready. Hiring a CFO is probably top priority as well as getting PR back on track. Those two moves alone would suppress external distractions and start the IPO process by having someone working on it full-time (CFO). Let's see if Dara can pull this off.
  - sillysaurus3 9y ago
    I think this is exactly how Uber will fade into irrelevance. Think about it: We're bringing in a money guy to "stabilize the ship." When the opposite of "rock the boat" is in power, don't be surprised if you get an irrelevant cruise ship. They run out of money soon, and nothing will change that short of a mass layoff or raising their prices above taxis. Then what? They needed that autonomous driving tech. And I don't see a money guy pulling that off. Remember how Marissa Meyer turned out? People ended up saying "Well, nothing could've saved Yahoo." But you could've said the same thing about Apple at its nadir. Same with Uber. Uber is a real opportunity. Kalanick is unpopular, but he got Uber to where it is. So how certain are you that it was a good idea to kick the founder in exchange for a money guy? Given those options, I'd bet on the unpopular founder every time.
    - ghaff 9y ago
      Autonomous driving in the sense of door-to-door taxis is not going to happen in a timeframe remotely relevant to companies like Uber. Maybe in a few decades. Uber needs someone not betting on that.
vadym909 9y ago
yup- he's bound to miss the next big strategic thing that everyone else can see, because that's the only thing he did at Expedia! C'mon dude
bogomipz 9y ago
Could you elaborate on how the merchant model vs the agency model works in online hotels booking sites? I have not heard this before.
- sankyo 9y ago
  Merchant model is where the OTA (online travel agency) is the merchant of record. Your credit card is debited by the OTA when you book. Behind the scenes, OTA buys N room nights from the hotel chain for some discounted price, and sells the room nights via their site. Agency is where OTA acts as an agent between customer and lodging supplier. The OTA takes a fee and/or percent cut of the booking. Usually the customer pays the hotel directly upon checkin, and the hotel in turn pays the OTA. Booking.com uses the Agency model and they dominate Europe. Expedia is strong in North America and struggles to get a foothold in other regions. Expedia now uses the agency model and merchant model. Europeans understandably do not prefer to pay for the hotel stay at the time of booking. There are more nuances, but that is basically how it works.
  - beambot 9y ago
    > Europeans understandably do not prefer to pay for the hotel stay at the time of booking. I do not understand the obviousness of "understandably". Seems like a likely culture difference. Explain?
    - paganel 9y ago
      Not sure what the OP meant, as I'm an European who does all of his traveling through Booking.com and as such I've encountered both situations, I'd say in equal measure: i.e. I've either paid the booking up-front or I've paid it after the stay was over (at check-out). I slightly prefer to pay at check-out, but that is in no way a stopping point for me when shopping for accommodation. What Booking.com is really excellent for is that it just works and that it takes away a lot of the stress when traveling. Just by filtering on 8+ -rated reviews and by your desired nightly pay and you're sure to get what you want, no hidden gotchas, no anything.
user5994461 9y ago
>>> Expedia has moved to an agency model since but the damage was done. Booking managed to get far more inventory, capitalise on more search/PPC traffic and blow past Expedia. Absolutely not! Expedia has the hotels.com brand. They are doing very very well by all metrics. hotels.com and booking.com are about 50/50 market share globally. hotels is bigger in the USA, booking is bigger in the EU. Historically, the USA hotels are massive chains whereas the EU hotels are smaller and independents. That's why they respectively started with the merchant and agency model. Source: Insider data.
- _joe 9y ago
  booking.com and hotels.com 50/50? LOL. And yes, failing to kill booking.com when Expedia was a clear market leader is a huge mistake indeed.
  - user5994461 9y ago
    Yes, they are.
  - jgust 9y ago
    > booking.com and hotels.com 50/50? If you consider only OTAs, this is about right.
hammock 9y ago
Agent model is not sustainably competitive+scalable. C.f. Groupon
- smueller1234 9y ago
  I think booking.com and the Priceline Group stock (PCLN) and financial performance beg toyl differ about being competitive and scalable for many years now. Disclosure: booking.com employee.
yesiamyourdad 9y ago
Personally as an Expedia shareholder and former employee, this sucks. I thought he did a good job as CEO. EXPE is down 4% right now, so it seems like the stock market agrees. Hopefully EXPE has someone groomed to take over.

shalmanese 9y ago

I think that's one of those decisions that only look better with hindsight though. The merchant model had absolutely monster margins compared to the agency model (especially with bundle deals that provided a defensive moat) and Expedia was in a strong negotiation position vis a vis hotels that they didn't want to lose. I think a lot of people were surprised at just how much inventory was out there and how much the merchant model hindered going after that extreme long tail.

kiyanforoughi 9y ago
Fair. However, nothing stopped them from testing a hybrid (agency/merchant) as the agency model made way more sense to consolidate international hotel inventory as it is way more fragmented than in the US.
- shalmanese 9y ago
  I think a hybrid would have been the worst of both world because you lose your negotiation leverage without getting in a superior strategic position. I think Expedia was hoping the hotel industry would modernize and consolidate way faster than it actually did (remember, this was the gogo 90s where the entire world was hopping onto the information superhighway). What they eventually discovered was that it's hard to underestimate just how much hoteliers hate technology, even when you take into account this effect. Little known fact: Expedia was actually close to buying out Booking.com and switching them over to an merchant model buy Booking.com got cold feet and got bought by Priceline for a pittance just a few years later. If Expedia had owned the biggest merchant provider in the US + Europe, there's a fair chance today no agency competitor could have stood up against them and the entire world would be still on the merchant model.
  - kiyanforoughi 9y ago
    All good points. I just don't think a merchant model would've worked in anywhere but the US. The market is just too fragmented elsewhere (especially Asia & Europe).

indescions_2017 9y ago

Pretty sure even my grandma knows where the transportation sector is headed: electric, autonomous, sharing, services based, etc ;) I think this is more about $UBER IPO. Stabilize the ship, smooth relations with investors, and start shopping to underwriters. Expect to see road show by Q2 2018.

askafriend 9y ago
This is spot-on, in my opinion. All they need is someone who is demonstrably competent and experienced to stabilize the ship and steer it towards an IPO. There's no need for the candidate to be a visionary or meddle drastically with something that's already working extraordinarily well. That part is largely done - the Uber machine is mature and chugging along. A seasoned operator needs to come in to provide PR cover, put in some basic organizational guardrails and rebuild the executive ranks to get the company IPO ready. Hiring a CFO is probably top priority as well as getting PR back on track. Those two moves alone would suppress external distractions and start the IPO process by having someone working on it full-time (CFO). Let's see if Dara can pull this off.
- sillysaurus3 9y ago
  I think this is exactly how Uber will fade into irrelevance. Think about it: We're bringing in a money guy to "stabilize the ship." When the opposite of "rock the boat" is in power, don't be surprised if you get an irrelevant cruise ship. They run out of money soon, and nothing will change that short of a mass layoff or raising their prices above taxis. Then what? They needed that autonomous driving tech. And I don't see a money guy pulling that off. Remember how Marissa Meyer turned out? People ended up saying "Well, nothing could've saved Yahoo." But you could've said the same thing about Apple at its nadir. Same with Uber. Uber is a real opportunity. Kalanick is unpopular, but he got Uber to where it is. So how certain are you that it was a good idea to kick the founder in exchange for a money guy? Given those options, I'd bet on the unpopular founder every time.
  - ghaff 9y ago
    Autonomous driving in the sense of door-to-door taxis is not going to happen in a timeframe remotely relevant to companies like Uber. Maybe in a few decades. Uber needs someone not betting on that.

vadym909 9y ago

yup- he's bound to miss the next big strategic thing that everyone else can see, because that's the only thing he did at Expedia! C'mon dude

bogomipz 9y ago

Could you elaborate on how the merchant model vs the agency model works in online hotels booking sites? I have not heard this before.

sankyo 9y ago
Merchant model is where the OTA (online travel agency) is the merchant of record. Your credit card is debited by the OTA when you book. Behind the scenes, OTA buys N room nights from the hotel chain for some discounted price, and sells the room nights via their site. Agency is where OTA acts as an agent between customer and lodging supplier. The OTA takes a fee and/or percent cut of the booking. Usually the customer pays the hotel directly upon checkin, and the hotel in turn pays the OTA. Booking.com uses the Agency model and they dominate Europe. Expedia is strong in North America and struggles to get a foothold in other regions. Expedia now uses the agency model and merchant model. Europeans understandably do not prefer to pay for the hotel stay at the time of booking. There are more nuances, but that is basically how it works.
- beambot 9y ago
  > Europeans understandably do not prefer to pay for the hotel stay at the time of booking. I do not understand the obviousness of "understandably". Seems like a likely culture difference. Explain?
  - paganel 9y ago
    Not sure what the OP meant, as I'm an European who does all of his traveling through Booking.com and as such I've encountered both situations, I'd say in equal measure: i.e. I've either paid the booking up-front or I've paid it after the stay was over (at check-out). I slightly prefer to pay at check-out, but that is in no way a stopping point for me when shopping for accommodation. What Booking.com is really excellent for is that it just works and that it takes away a lot of the stress when traveling. Just by filtering on 8+ -rated reviews and by your desired nightly pay and you're sure to get what you want, no hidden gotchas, no anything.

user5994461 9y ago

>>> Expedia has moved to an agency model since but the damage was done. Booking managed to get far more inventory, capitalise on more search/PPC traffic and blow past Expedia. Absolutely not! Expedia has the hotels.com brand. They are doing very very well by all metrics. hotels.com and booking.com are about 50/50 market share globally. hotels is bigger in the USA, booking is bigger in the EU. Historically, the USA hotels are massive chains whereas the EU hotels are smaller and independents. That's why they respectively started with the merchant and agency model. Source: Insider data.

_joe 9y ago
booking.com and hotels.com 50/50? LOL. And yes, failing to kill booking.com when Expedia was a clear market leader is a huge mistake indeed.
- user5994461 9y ago
  Yes, they are.
- jgust 9y ago
  > booking.com and hotels.com 50/50? If you consider only OTAs, this is about right.

hammock 9y ago

Agent model is not sustainably competitive+scalable. C.f. Groupon

smueller1234 9y ago
I think booking.com and the Priceline Group stock (PCLN) and financial performance beg toyl differ about being competitive and scalable for many years now. Disclosure: booking.com employee.

yesiamyourdad 9y ago

Personally as an Expedia shareholder and former employee, this sucks. I thought he did a good job as CEO. EXPE is down 4% right now, so it seems like the stock market agrees. Hopefully EXPE has someone groomed to take over.