How Does Booking.com Make Money? Business Model of Booking.com


How Does Booking.com Make Money

Booking.com and its suite of online travel booking subsidiaries have the market cornered on the online travel business. Booking.com’s key revenue stream includes commissions for selling travel reservations. But they have a few others.

Booking.com primarily makes money via commissions and transaction fees on the travel bookings it sells through its Booking.com website and the company’s other travel booking subsidiaries. These include Priceline, Agoda, Kayak, OpenTable, and RentalCars. The company also makes money on advertising.

Booking Holdings was founded in 1996 and was originally called Priceline.com Incorporated and later The Priceline Group. In 2018, the company changed its name to Booking Holdings to represent the fact that Booking.com made up the majority of the company’s revenue.

Booking.com was launched in 1996 by Dutch entrepreneur Geert-Jan Bruinsma and is headquartered in Amsterdam. It was purchased by the Priceline Group in 2005. Booking Holdings is based in the US.

What is Booking.com & How Does It Work?

Booking.com is an online site where individuals and companies can search for deals on hotel stays, flights, car rentals, and attraction fees.

The website is available in 43 different languages allowing people around the world to use the site to book travel. The site has millions of listings of hotels, flights, and car rentals. Customers simply input the dates and other details of their travel, and then Booking.com provides them with a list of travel options that they can choose from.

Travel sites like Booking.com are great for customers who want to quickly see their travel options so they can choose what works best for them based on price, convenience, and amenities. Travel booking sites simplify the process of researching and comparing travel options.

Usually, customers can get additional discounts if they book several parts of their travel at the same time on a site. For example, they can potentially get a discount by booking both their flight and their accommodations at the same time.

Once a customer knows which flight or travel package they want, they choose it and check out. Booking.com then sends the details of their travel reservation to them. The company can also help them in case customers need to make changes to their reservation, just like a travel agency would.

Essentially, these online travel sites act like travel agencies. In fact, much of their revenue comes from agency fees and travel reservation commissions just like travel agencies.

Bookings Holdings also runs a number of other websites. It’s more well-known include Agoda, Kayak, Priceline, and RentalCars, where customers can similarly book parts of their vacation online.

In addition to these similar services, the company owns OpenTable, where people can book restaurant reservations online.

 

Business Model of Booking.com

Booking.com’s business model revolves around being a convenient place where people can plan and reserve all aspects of their travel, from their flight to the attractions that they want to check out.

The goal of online travel companies like Booking.com is to provide people with an easy and convenient way to book travel so that they come to Booking.com when looking to travel rather than going directly to airlines and hotels or to a physical travel agency to purchase their travel.

The majority of Booking.com’s revenue comes from typical travel reservation commissions and booking fees. They essentially work as a travel agency on behalf of the consumer and get the types of payments a travel agency would receive.

But online travel sites have other revenue streams. They get paid merchant fees from transactions where travelers book rental car reservations or accommodations.

By becoming a central place where a large number of people look for travel, online sites like Booking.com can also build another revenue stream: advertising. Travel companies who want people to book their travel service over their competitors will pay Booking.com for ads targeted at people about to make a travel purchase. This is valuable bottom-of-the-funnel advertising for travel companies.

Booking.com can also earn referral or affiliate fees when it sells travel packages or sends its customers to other travel companies and travel service providers.

What many might find confusing about Booking.com’s business model is how many different kinds of travel sites Booking Holdings owns. What’s the purpose of having multiple sites that do roughly the same thing?

Having multiple sites is a core part of the business model for companies specializing in online travel bookings. For example, Expedio also owns Hotels.com, Hotwire, Travelocity, and other travel sites. There are a few reasons why this makes sense.

  1. Economies of scale: Having more websites doesn’t greatly increase the cost of the company around things like technology or partnerships. While it might increase advertising expenses, it doesn’t require two completely separate marketing or sales teams.
  2. Acquisition-led growth: Travel sites tend to buy other travel sites that have already been successful in a market they want to enter rather than trying to compete head-to-head with an established competitor. It helps them penetrate a market quickly and reduces the acquisition cost of new customers over time.
  3. Taking out competition: Some sites will buy their competitors so that they don’t lose the battle for customers or have to increase their ad spend to remain top of mind for consumers.
  4. Geographic differentiation: While some of these sites look the same, they might be performing much better in certain markets than they are in others. Just because two travel sites have the same travel options doesn’t mean their customers are the same.

Booking.com primarily makes its money booking travel outside the US. That’s because international destinations have fewer large chains to book directly with.

Booking Holdings has considerable expenses to run their empire of travel booking sites. In 2021, the company had $8.4 billion in operating expenses. While $2.3 billion was spent on salaries, they spent a whopping $3.8 billion on marketing expenses.[1]

This isn’t surprising given the online travel booking business is extremely competitive and offers similar listings and prices. Winning market share in this industry comes down to which travel booking company is top of mind of consumers when they’re about to book travel.

In 2021, Booking.com brought in $10.9 billion in total revenue with $1.1 billion in net income after operating expenses.[2] This was a significant increase in the company’s fortunes over 2020 when they made just $59 million during global lockdowns. It is still down considerably from its pre-COVID 2019 net income of $4.8 billion.[3]

Whether their 2022 results will show further recovery remains to be seen.

 

How Does Booking.com Make Money?

Booking.com makes money in three different ways. These revenue streams are commissions and booking fees, merchant fees, and advertising and referral fees.

 

Commissions and Booking Fees

Booking.com acts like a travel agency and charges commissions and booking fees on reservations made through their platform directly with other travel companies.

This is the biggest part of Booking.com’s revenue mix. In 2021, they made $6.6 billion via agency revenues. That’s 60% of their total revenue.

 

Merchant Fees

Booking.com sometimes acts as the merchant in a travel transaction. In this case, the customer buys a travel package and the money goes directly to Booking.com, which then passes that money along to the travel company.

When this happens, Booking.com keeps a percentage of that transaction. In 2021, merchant fees amounted to $3.6 billion of the company’s revenue.

 

Advertising and Referral Fees

Booking.com runs a series of travel sites where people can research and book travel options. As such, many travel companies would like to have a more prominent place in the search results or to run ads on those sites to entice travelers to check out their car rentals or hotel.

Some companies also provide Booking.com with referral or affiliate fees for every travel reservation they facilitate. In 2021, Booking.com earned $599 million in revenue from these two sources.

 

Booking.com Funding, Valuation & Revenue

Booking.com (BKNG) is currently a public company on the NASDAQ exchange. Formerly named The Priceline Group, the company had its IPO in 1999 with a starting price of $16 per share. One month later, the company was trading for $162.37 a share.[4]

While the stock came tumbling back down to earth in the 2000 Dot Com crash, Booking has proved to be a profitable and successful stock since. In July 2022, the company had a market cap of $78.6 billion and was trading at just over $1,900 per share.

Prior to going public, Priceline went through three funding rounds and garnered $77.5 million in venture capital funding.[5] Booking.com had just one round of seed funding at $2.42 million before being acquired by Priceline for $135 million.[6]

The stock has been fairly volatile in recent years. Much of this is because of the travel industry impacts of the COVID-19 pandemic. That saw the company’s revenue go from $15 billion in 2019 to $6.7 billion in 2020 and back up to $10.9 billion in 2021.[7] With the travel industry recovering, Booking.com is expected to see its revenue increase going forward.

YearTotal RevenueTotal Ops ExpensesNet Income
2019$15 billion$9.7 billion$4.8 billion
2020$6.7 billion$7.4 billion$59 million
2021$10.9 billion$8.4 billion$1.1 billion

 

Is Booking.com Profitable?

Booking.com is profitable and has been for many years. The company made a profit of $1.1 billion in 2021 on $10.9 billion in revenue. However, they have yet to fully recover from pandemic-related financial difficulties. In 2019, the company took in $15 billion in revenue and had a net income of $4.8 billion.

Hopefully, in 2022 and beyond, the company will be able to return to the same level of profitability they saw before the pandemic.

 

Conclusion

It’s clear that Booking.com is a well-oiled machine when it comes to the online travel industry. With a business model that is tried and tested, they have managed to become one of the most successful online travel companies in the world.

What’s more, they are constantly innovating and expanding their offerings, which means that they are likely to continue to be a force to be reckoned with in the years to come.

If you’re looking for a company that can provide you with a great booking experience, Booking.com is definitely worth considering.

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Sources

  1. Booking Holdings
  2. Booking Holdings
  3. Booking Holdings
  4. Yahoo!Finance
  5. Crunchbase
  6. Tracxn
  7. Booking Holdings