Leading online travel agency (OTA) Priceline (NASDAQ:PCLN) announced the launch of a new sponsored listing service last week. The listing service will allow hoteliers to earn top spots in users’ search results by participating in real-time bidding. It comes with an analytics tool that helps hoteliers monitor and measure the success of their campaigns. 
The listing program is pay-per-click based which means hoteliers pay only when a user clicks on the hotel’s ad and proceeds to the booking path, generating incremental bookings for the hotel. Even if a user does not click on the ad, the hotel gets free exposure as the ad is still being displayed. This enhances overall utility derived from the listing service. 
Useful Features Included For Hoteliers
- Bidding for prime positions in destination searches that will help increase exposure to key customers in hotel search results
- Filtering options by user demographics, date and length of stay to identify key customers and better manage inventory
- Access to real-time reporting metrics such as the number of times the ad was served, how many clicks it received and incremental bookings generated, in order to analyze bid strategy and campaign results
- Active spend management by setting daily, weekly or monthly budgets
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Priceline’s Ad Revenue To Rise Sharply This Year
Advertising revenue contributed ($13 million) less than 1% to Priceline’s total revenue until last year. The company derived over 95% of its revenues from hotel bookings which continues to be its primary business. However, the company has now increased its focus on advertising than ever before. It completed the acquisition of Kayak, the leading meta-search engine in the U.S., this year. Despite Kayak’s inclusion for only slightly more than a month (Kayak was acquired by Priceline on May 21, 2013), the contribution of advertising to total revenues increased to more than 3% in Q2 2013. The contribution will rise further for Priceline in the back half of the year as Kayak brings in revenues over a longer duration.
In addition, advertising is becoming a high-growth revenue stream for bigger OTAs as popularity and reach of their websites are attracting more advertisers. In light of this, we believe the newly launched sponsored listings program will give a further boost to Priceline’s ad revenues.
We are yet to update our $642 price estimate for Priceline for the acquisition of Kayak.Notes: