UK economy prompts Expedia to shift marketing spend
(01 August 2008) Expedia Inc is adopting a less aggressive approach to its marketing spend in the UK in response to the economic climate and is looking to grow new markets in continental Europe instead.
CEO Dara Khosrowshahi told analysts during its Q2 earnings call: "The UK market continues to show some weakness [and] we are not going to spend aggressively into a weaker environment."
He said that the UK accounts for about one-third of its European business and is more profitable than other territories: "The more mature markets, such as the US and the UK, where we have a strong brand presence, the higher our profit margins are because a higher percentage of our traffic comes from travellers coming direct to the site".
As it looks to grow its other point of sales in continental Europe, this proportion will drop. ´The UK will become a smaller proportion of our overall business,´ he said.
Venere.com, the Italian bed bank acquired by the business earlier this summer, is a key part of its plans, not only for Europe but also to build an agency model channel for hotels.
Khosrowshahi admitted that it paid "full price" for the business in an auction by its VC owners. "Our main line business is the lodging business and whether that´s merchant or agency, we want to be a big player and Venere gave us the chance to make an entry into that marketplace and we took it."
With the deal expected to close in Q3, finer details are still to be worked out. He said that the businesses will be run separately with "intermingling" of inventory where appropriate.
Hotels.com in Europe saw a 70% increase in bookings during the second quarter.
He also talked up the "diversification on our business mix, where advertising and international businesses now deliver over 40% of worldwide revenues [compared with] 25% just three short years ago."
Advertising continues to be an important part of the mix, and Khosrowshahi revealed that the UK is the test market for some initiatives which, if successful, will be introduced to the US. Specifically, it has launched Google sponsored links onto hotels.co.uk. It is looking to see to what extent it cannibalizes other revenue streams.