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What is the breakdown of advertising money for the internet travel business industry?
Hello! Thanks for asking Wonder about the advertising spend in the online travel industry (OTA), specifically as it relates to the acquisition of Millennial customers. The most useful sources I found to respond to your query were eMarketer, Skift, and Travel Market Report.
In short, advertising costs in the online travel industry have increased largely due to increased pressure from Google for online advertising and costs related to acquisitions of other companies and their related marketing needs. While Millennials appear to be gravitating toward the use of traditional travel agents over online entities to help them craft their travel experiences, I found no evidence that difficulty in reaching Millennials is a significant driver of increased customer acquisition costs (CAC). Instead, industry competition appears to be the primary driver of increased CAC. Below, please find the results of my research.
ADVERTISING SPEND IN ONLINE TRAVEL INDUSTRY
A 2016 article by digital marketing company USDM states that advertising spend by the travel industry is expected to grow at 10% to reach $7.27 billion in 2019. It also states that mobile ads are increasingly taking over the digital ad spend in the travel industry. Currently, mobile ads account for about 49% of digital advertising, but they are expected to overtake desktop ads in the future.
According to eMarketer, travel marketers in the US were expected to "spend $5.96 billion on digital advertising in 2016," a 20.5% increase over the previous year and accounting for 8.3% of all digital advertising expenditure in the US. Digital ad spend is expected to reach $8.9 billion by 2020. These figures include all travel marketers, not only online travel agencies.
According to a Skift article, Priceline and Expedia spent approximately $4.9 billion in online advertising during 2015 and were expected to hit $6.8 billion in 2016. The article's focus is on Google's dominance in the travel advertising market, noting that it is likely receiving 90% of those ad dollars. It further notes that Trip Advisor was expected to spend $500 million in Google advertising in 2016.
TRIP ADVISOR
Trip Advisor's 2016 financial report states that advertising and marketing expenses totaled $554 million in direct marketing costs in 2016. Overhead and personnel costs related to marketing add an additional $202 million, bringing the total marketing spend to $756 million (or 51.1% of revenue). It notes an increase in direct selling costs, largely due to higher "SEM and other and online traffic acquisition costs of $79 million." In 2015, direct marketing costs were higher than the previous year, partly due to a $51 million television advertising campaign.
PRICELINE
In 2016, Priceline's advertising expenses totaled approximately $3.5 billion, related to Google and other search services, as well as affiliate marketing. By comparison, ad spend in 2015 was $2.7 billion and $2.3 billion in 2014. They also spent $296 million on brand advertising, compared to $274 million and $257 million in 2015 and 2014, respectively. While the report does not break down the ad spend any further, it does mention that its primary online advertising outline is Google, via pay-per-click ad campaigns. They note that performance advertising includes "the costs of (1) search engine keyword purchases; (2) referrals from meta-search and travel research websites; (3) affiliate programs; and (4) other performance-based advertisements." Brand advertising consists of TV ads, online video ads, and display ads, as well as tradition advertising such as billboards and subway ads. The company states they "have observed a long-term trend of decreasing performance advertising returns on investment ("ROIs")," a trend they expect to see continue. They note, "Changes by Google in how it presents travel search results, including by placing its own offerings at or near the top of search results, or the manner in which it conducts the auction for placement among search results may be competitively disadvantageous to us and may impact our ability to efficiently generate traffic to our websites."
Priceline was set to increase its ad spend on Facebook targeted ads. A Morgan Stanley OTA report discusses higher ad spending in the OTA industry but better advertising spend efficiency. However, it states that the rising cost of online traffic acquisition through Google is forcing Priceline to use less-efficient television advertising and mobile app ads. It also notes pressure from Google's mobile travel products is driving up paid search costs. The report states that Priceline's advertising spend is at 6% of its bookings.
A Skift article notes that Priceline spent $3.36 billion on advertising in 2015, and breaks down that figure as $2.8 billion in online advertising, a 18.5% increase from 2014, and $214.7 million in offline ads, a 7.1% decrease from the previous year. The article notes that Priceline generated $2.74 in revenue for every marketing dollar spent.
EXPEDIA
According to their 2016 financial statement, Expedia spent $3.53 billion in direct marketing costs, and an additional $837 million on indirect costs, totaling $4.367 billion (or 49.8% of revenue). However, the report does not further segment these expenses except to say that expenses grew $986 million in 2016 driven by direct costs that included both online and offline expenses related to marketing. Increasing marketing costs were attributed to the acquisitions of HomeAway and Orbitz, as well as additional personnel costs. While they do not segment their advertising dollars, they do state that their marketing channels comprise online and offline advertising, as well as social media advertising, loyalty programs, mobile app ads, and direct consumer contact via email, offering coupons and other special offers. A Skift article states that Expedia generated "$1.84 of revenue per marketing dollar."
TELEVISION ADVERTISING
Expedia dominates television advertising in the online travel market. A Skift article notes that Expedia spent $218.3 million on US television ads in 2015, outpacing Priceline, which spent Priceline spent $86.1 million. TripAdvisor spent $20 million in 2015, vowing to eliminate most TV advertising in 2016.
Expedia's German-based Trivago brand spent a little less than $100 million on TV ads in the US. A article at The Streets states they spend $562 million in the first three quarters of 2016. Trivago claims that "over half its traffic comes via "branded sources" such as TV, YouTube, radio and out-of-home ads."
CUSTOMER ACQUISITION
While I did not find any data specifically outlining customer acquisition costs in the online travel sector, I found a few references to issues pushing these costs higher.
According to a report by the Henry Fund, "Competition between companies tends to be based on advertising expense, but concentration is very high with a few firms generating the bulk of revenues."
Tom Vandeventer of Tocqueville Opportunity, which owns shares in Priceline, noted that competition in the market is driving higher acquisition costs in the online travel agency sector. Travel industry service providers, such as hotels and car rental companies, are using loyalty programs and advertised specials to lure in more customers, pulling clients away from OTAs.
The USDM article acknowledges increasing competition from hotels enticing consumers with direct booking deals and perks, such as free wi-fi and mobile check-in. Hotel direct booking holds a 25% share of the market, while OTAs hold 20%.
MILLENNIALS
While I did not find data specifically tying increased customer acquisition costs to the Millennial generation, the available information suggests that the habits of Millennial travelers could be adding to these costs, as online travel agencies compete with traditional agents for this very selective, experience-driven travel group. The Millennial generation is increasingly using traditional travel agents, according to a couple of industry reports. The American Society of Travel Agents (ASTA) indicates a 14% increase in Millennial use of traditional travel agents in 2017, compared to the previous three years. Travel Market Report finds that 41% of Millennials book reservations through a travel agent, compared to 31% of Baby Boomers and 21% of the Mature generation. Millennials also rely on a greater number of resources when planning travel, consulting 10.2 sources, on average. Millennials cite their desire for control over their travel experience as a reason for working with an agent. Millennials are known for weighing "experience" over cost when it comes to travel, and therefore, they are willing to pay a travel agent to help them ensure they have the experience they are after. Millennials also value the opinions of friends or family over professionals, so word of mouth advertising is crucial for online or traditional travel agents.
Millennials are expected to spend more on travel than any other age group in 2017, and technology will play a big part in that experience. A Priceline survey found that nearly half of all Millennials "would use digital headsets to preview a destination they are planning to travel to." The OTA Booking.com hopes to drawn Millennials with the release of its a "Booking Experiences" app that uses artificial intelligence to predict where travelers want to go to provide expert advice to experience-driven travelers.
SUMMARY
Advertising costs in the online travel industry have increased largely due to increased pressure from Google for online advertising and costs related to acquisitions of other companies and their related marketing needs. While Millennials are increasingly depending on traditional travel agents to help them craft the perfect travel adventure, I found little evidence that they are a primary driver for increased customer acquisition costs. Competition in the online travel industry appears to be the main driver of these costs.
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