Expedia is doing well, thank you very much. In 2009 the company did 21,8 billion $ in gross turnover, churning out a revenue of 2.9 billion $. This revenue is the result of the commissions, fees and advertising and media revenue. 13.5%, not bad for a travel company. Most of the branded and non branded hotelcompanies have agreements with Expedia, and pay generous commissions to the company. After all, you only pay for real sales, for “heads in the beds”. Read on to understand how the Expedia business model works … for Expedia.
In their Q1 2010 company overview, Expedia gives a detailed insight in the business model for its product category “hotel”. It is based on five simple, but very efficient elements.
-No risk! For many properties, Expedia is the merchant of record but there is absolutely no inventory risk for Expedia. What works for your hotel (no sales - no cost) also works for Expedia.
-Cash is king! Expedia receives cash upfront from travelers, and pays hoteliers several weeks later. In the meantime, the company makes money … on the money.
-Package and sell! Expedia is permanently looking at opportunities to package a hotel opaquely with other products, allowing the company to yield higher margins on the package than on the individual components
-Long term relationships work! Expedia has 1-3 year contracts with several major chain lodging properties. This gives stability and makes forecasting easier.
-We are your consultants! Based on their own databases full of consumer information, Expedia has successfully made the transition from aggressive salespersons to consultative account managers. They bring loads of industry leading intelligence to hoteliers and property owners.
A sample of the Expedia revenue model shows that, while Expedia is a good sales channel for hoteliers, hotels are a solid revenue source for Expedia.
Example: a $350 night stay at a luxury hotel
Cost to the Traveler: $ 350
Cost to Expedia: $ 280
Revenue to Expedia: $ 70
Wit cash received on booking and supplier (hotel) payment due much later, this is a very robust, cash generating and highly profitable business model. The only major threat at the horizon for the likes of Expedia: the growing importance of the hotel websites and the aggressive expansion of global hotel brands with own booking systems, customer loyalty programs and direct communication with the end user.
To many hotel managers -and to even more hotel owners - the commission amounts that are paid to Expedia, never show up as cost. They are just factored into the room rate. This "blissful ignorance" is one of the cornerstones of Expedia's success: a hotel never has to budget the sales cost of Expedia, it just shows a lower room rate. If the real cost of sales of Expedia and its online competitors would be revealed, many hotel managers and owners would scratch their heads and think twice about their growing dependence on an expensive sales channel.
Expedia is doing well, thank you very much. In 2009 the company did 21,8 billion $ in gross turnover, churning out a revenue of 2.9 billion $. This revenue is the result of the commissions, fees and advertising and media revenue. 13.5%, not bad for a travel company. Most of the branded and non branded hotelcompanies have agreements with Expedia, and pay generous commissions to the company. After all, you only pay for real sales, for “heads in the beds”. Read on to understand how the Expedia business model works … for Expedia. 
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