Everything eventually comes full circle, right?
Alternative accommodations is a large and complex opportunity for Booking Holdings, and it’s ironic that in one sense the company’s home-sharing push is turning its business model back toward what it was during the first dozen years of its existence.
That’s because beginning last year and into the first six months of 2019, Booking Holdings reversed a seven-year trend that saw its merchant model sales declining as a percentage of total revenue. Under the merchant model, Booking.com is the merchant of record for the transaction and consumers must pay the company the full price of the stay at the time of the booking. Under the agency model, the property accepts payment at the time of the stay and pays Booking.com a commission after the guest checks out.
Booking Holdings is ramping up its pre-pay alternative lodging business through its online payment system because many hosts, particularly owners with one or two properties, may not have the ability to accept credit cards, e-checks and a variety of other payment systems from WeChat Pay to Alipay. Serving as the merchant of record enables Booking to accelerate signing up new properties, and provide more flexible payment options to guests.
Since 2018, Booking Holdings’ pre-pay merchant model sales have been climbing, rising 40 percent in 2018, and 26.4 percent in the first half of 2019.
From its initial public offering in 1999 and through 2010, merchant model sales dominated the business model of Booking Holdings, which debuted in the public markets as Priceline.com. During those years, the company’s Name Your Own Price hotel, airline ticket and rental car business used the pre-pay merchant model, but that changed in 2011 when Booking.com’s pay at the hotel agency model became ascendant.
Booking Holdings attracted about 86 percent of its revenue in the first half of 2019 from hotels and alternative accommodations services, and the business model for these includes both merchant and agency revenue.
Booking Holdings’ strategy is to have Booking.com, the parent company’s largest brand, increasingly use the merchant model to assist alternative accommodations’ owners who may not be able to handle credit card transactions — or PayPal, WeChat Pay, Alipay, Paytm and electronic checks — on their own. This enables Booking.com to offer travelers more flexible payment options, and to accelerate the growth of its roster of vacation rentals and apartments, the company stated in financial filings. Being the merchant of record also helps the company’s tours and activities business.
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