The Expedia and Booking.com business model

How OTAs Make Money (3 Business Models)

1) Merchant Model (OTAs Buy Inventory)

• The OTA purchases hotel rooms and/or other travel inventory in advance at a discount (volume buying).
• The OTA resells to customers at a higher price while often still remaining below the hotel/airline’s current market rate.
• Illustrative example (pricing in subtitles):
  • OTA buys 50 rooms at $100/night
  • Hotel market rate is ~$150/night
  • OTA resells at $135/night
  • Customers perceive savings vs. $150/night; the OTA’s profit is spread between the purchase price and the resale price.
• The OTA also uses merchant purchasing for air tickets and rental cars, and bundles them into package vacations.
• Key operational claim: Expedia notes the merchant model enables OTAs to sell packages at lower prices than buying components separately.

2) Agency Model (OTAs Act as a Booking Facilitator)

• The OTA does not take customer payments directly; it facilitates the booking with the travel supplier.
• The supplier (hotel/airline/etc.) pays the OTA a commission/fee.
• Operational flow (as described):
  • Customer makes a reservation through the OTA (e.g., Booking.com)
  • OTA passes reservation details to the supplier
  • Supplier pays commission to the OTA (timing described as around/after the customer completes the travel)
• Revenue sources (per subtitles):
  • Primarily commission payments
  • Also booking and insurance fees
• Concentration: Most agency revenue for Booking Holdings comes from Booking.com.

3) Advertising + Other Revenue (Monetize Traffic + Owned Platforms)

OTAs can earn money through:

• Advertising sold on their platforms (e.g., trivago as a hotel price comparison platform)
• Subsidiary/adjacent services, such as:
  • HomeAway / VRBO (vacation rentals & home sharing)
  • Restaurant reservations (e.g., OpenTable for Booking Holdings)
  • Meta search/referrals (e.g., Kayak): referral fees when users are directed to another site for booking
• Expedia Group “other” segments: HomeAway/VRBO and trivago materially contribute to “other” segments (per subtitles).

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Expedia Group vs. Booking Holdings (Business Model Comparison)

Portfolio / Assets

• Expedia Group brands (examples listed):
  • Expedia, Hotels.com, trivago, HomeAway, VRBO, Orbitz, Travelocity, Hotwire (and more)
• Booking Holdings brands (examples listed):
  • Booking.com, Kayak, Priceline, Agoda (and references later to OpenTable and “no cars”)

Overall Revenue (Financial Metrics Cited)

• Booking Holdings (2018): >$14.5B revenue
• Expedia (2018): ~$11B revenue
• High-level comparison note: Booking’s market cap is described as ~4x Expedia’s.

Revenue by Model (Directional Findings with Figures Mentioned)

Expedia

• Highest channel: Merchant model
• Expedia’s merchant-model revenue is stated to double booking’s merchant segment.
• Advertising/other: Expedia is said to do more here, largely attributed to HomeAway/VRBO.
• Agency model revenue (2018): stated as ~$3B in 2018.
• trivago: revenue decreased year-over-year (between 2017 and 2018, per subtitles).
• Service composition: lodging is the biggest revenue area, stated as ~$7B of $11B.
• Growth areas (directional): strongest growth mentioned as HomeAway, then Agencia (corporate travel manager).

Booking Holdings

• Agency model strength: described as generating >$10B/year via the agency model, largely through Booking.com.
• Advertising/other: also meaningful, with OpenTable and Kayak referenced.
• Agoda growth: referenced as growing, especially in international markets like Asia.

Noted Caveat

• The subtitles question whether the metrics are truly apples-to-apples, due to different unit economics (e.g., room nights vs rental car days vs airline ticket equivalents).

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Actionable “Playbook” Takeaways (Implied Strategy / Operations)

Diversify Revenue Streams Across the 3 Levers

• Merchant: profit from inventory purchase/resale + enable lower-priced packaging.
• Agency: scale commissions from suppliers without holding customer money.
• Advertising/other: monetize traffic and expand into adjacent verticals (rentals, comparisons, reservations, meta search).

Use Owned Platforms to Strengthen Acquisition and Conversion

• Meta search (Kayak) → referral fees
• Price comparison (trivago) → ad sales tied to hotel intent
• Owned reservation verticals (OpenTable, rental platforms) → additional transaction/service revenue

Geographic Expansion via Specialized Brands

• Agoda highlighted as a growth engine for international (Asia) accommodation demand.

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Key Metrics / KPIs Explicitly Mentioned

Revenue (2018)

• Booking Holdings: > $14.5B
• Expedia: ~ $11B

Model-Level Revenue References

• Expedia merchant model: described as “highest channel” and doubling booking’s merchant segment (no exact absolute figure given in subtitles)
• Booking agency model: > $10B/year
• Expedia agency model: ~ $3B in 2018
• Expedia advertising/other: said to be > $1B contribution from HomeAway/VRBO (stated as “brought in over 1 billion dollars”)

Service Composition

• Expedia lodging revenue: ~ $7B out of ~ $11B (lodging is the majority share)

Growth / Trend Notes

• Expedia: growth areas HomeAway, then Agencia (corporate travel manager)
• Expedia: trivago revenue decreased YoY (2017–2018)
• Booking: growth in Agoda in Asia/international

Market-Level (Not an Operational KPI)

• Booking market cap described as ~4x Expedia (high-level comparison)

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Concrete Example / Case Scenario

Merchant Model Pricing Example (Customer Savings Narrative)

• OTA buys 50 rooms at $100/night
• Resells at $135/night
• Market rate referenced at ~$150/night
• Demonstrates how OTAs can create a customer savings narrative while earning margin.

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Presenters / Sources Mentioned

• Presenter/channel: “Explorer Informed” (presenter speaking as “we” / host of the series)
• Sources referenced:
  • Expedia Group 10-K
  • Booking Holdings 10-K (including references to Booking.com’s 2018 10-K)