TripAdvisor’s Drive To Remove The Friction Associated With Mobile Bookings Will Lift Smartphone Monetization Levels

Mobile devices are emerging as a big growth opportunity for online travel companies including booking agencies, such as Expedia and Priceline, and review websites, such as TripAdvisor. The percentage of travelers using a mobile device to search for travel related information has gone up from 8% in 2009 to 38% in 2012 for leisure travelers and from 25% to 57% for business travelers. ^[1] The boom in mobile device usage for travel means that travel companies must tap these sources to not only generate incremental revenues, but to also stay competitive in the industry.

A significant portion of the aforementioned travelers (~40%) convert into bookers on mobile browsers, while only 10%-20% of travelers use mobile apps to make bookings. The main reasons for such low conversion rates on mobile apps include handoff issues while navigating to a travel supplier’s (advertiser) website, a small screen size that makes it difficult to feed in data, and low perceived security on mobile devices. ^[1]

TripAdvisor has been struggling with similar problems. Its app does not offer a smooth and user friendly experience. However, the company is striving to make its apps better by keeping the user experience at the top of its priority list. We believe that this will help the company to improve conversion rates and monetization levels. In this article we talk about TripAdvisor’s evolution to address issues in its mobile apps and how we believe it will benefit the company.

Our price estimate of $80 for TripAdvisor is at a discount of about 10% to the current market price.

Why TripAdvisor Needs To Make The Most Out Of Smartphones

TripAdvisor recently began displaying display advertising on smartphones.  Its smartphone monetization is presently less than 20% of that on desktops due to lack of further smartphone monetization strategies. With an average of 108 million monthly unique visitors on phones and tablets, mobile devices account for close to 40% of the total traffic on TripAdvisor. Cumulative downloads for TripAdvisor’s app stand at 69 million, helped the partnership with Samsung to offer pre-installed apps on the Samsung galaxy S4 mobile phone. An average of 7 million monthly unique users access TripAdvisor’s app from that smartphone. Also, hotel shoppers on smartphones continue to grow by more than 100% year-on-year. ^[2] For these reasons we believe that TripAdvisor must monetize its smartphone traffic well.

Recent Mobile Issues And TripAdvisor’s Initiatives To Reduce Friction

Earlier, a user on TripAdvisor’s app had to click through to different advertiser websites in order to seek information on hotel pricing and availability. The new meta-search feature launched by the company in Q4 2012 collated this information and presented it on TripAdvisor’s app itself. Using the app was cumbersome despite this enhancement as users still had to click on advertisers’ links to see the rest of the details and complete the booking process.

The company launched native apps for Android and iOS in early October this year to fix the issue. The re-launched apps allow in-app navigation by keeping the booking experience restricted within TripAdvisor’s app instead of launching new advertiser windows in a mobile browser. ^[3]

Although this has enhanced the interface, users continue to struggle when they want to move back and forth between advertisers’ and TripAdvisor’s content. The problem is more prominent in smartphones than other devices due to the smaller size of the screen. Therefore, the company has finally decided to take up direct bookings on its smartphone apps beginning 2014. ^[4] This will simplify the booking process as users will have the option of booking with TripAdvisor in addition to other OTA options. Completing the booking with TripAdvisor itself will also increase the likelihood of the transaction being successful.

TripAdvisor made it clear in its Q3 2013 earnings call that it only intends to facilitate bookings and it will not become an online travel agency (OTA). If the company chooses to adopt the same practice as its competitors such as Kayak and Hipmunk, it will partner with an OTA that will process the bookings and handle customer service. The option of booking with TripAdvisor will be accompanied with other OTA options. ^[5]

Rapid Evolution Will Help The Company Earn More Dollars Per Page View

TripAdvisor’s meta feature is currently facing headwinds related to conversion rates. The company had expected a significant rise in the percentage of leads sent to advertisers that convert into actual bookers. However, conversion rate improvement in Q3 2013 was below the management’s expectations.

Management attributed this to leakages in the meta system, which results from users who check pricing and availability information on TripAdvisor but do not click on to advertiser websites to make bookings. These users instead visit the advertiser’s website directly to complete their bookings. Hence, the search could effectively convert into a transaction but TripAdvisor doesn’t get its due credit. This is preventing TripAdvisor from earning the expected ad revenues per page view from its advertisers. (Read: TripAdvisor’s Quarterly Results Denote A Bumpy Patch Ahead Of Strong Growth)

The new native apps allow the company to keep the booking process within the app, thereby reducing the browsing related hassles for the user. The direct booking tool will further enhance usability by allowing the user to complete the booking without leaving TripAdvisor. We think that these initiatives will help the company to improve conversion rates, and thus smartphone monetization, in turn boosting advertising revenue earned per page view.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Multi-device websites: How can hoteliers have it all?, TravelDailyNews, Jan 2013 [↩] [↩]
2. TripAdvisor Management Discusses Q3 2013 Results – Earnings Call Transcript, Seeking Alpha, Oct 2013 [↩]
3. TripAdvisor’s New Smartphone App Is All About Metasearch, Skift, Oct 2013 [↩]
4. TripAdvisor Management Discusses Q3 2013 Results – Earnings Call Transcript, Seeking Alpha, Oct 2013 [↩]
5. TripAdvisor To Take Direct Hotel Bookings on Mobile Apps In 2014, Skift, Oct 2013 [↩]