How Does Tripadvisor Make Money? Business Model of TripAdvisor


How Does Tripadvisor Make Money

Tripadvisor is a popular online travel guidance platform that hosts user-generated reviews of hotels and tours. Travelers can book hotel rooms, restaurant seats, and flights on TripAdvisor.

Tripadvisor primarily makes money via click-based advertising. The company also makes money on subscription-based advertising, display-based advertising, experiences, dining, rentals, and ticket sales.

Founded in 2000 by Stephen Kaufer and Langley Steinert, Tripadvisor started as a vertical search engine for travel locations. In 2004, Expedia acquired Tripadvisor for $210 million. Then in 2011, Expedia spun out Tripadvisor as an independent company.[1]

Later in the same year, Tripadvisor launched its IPO, which was valued at $4 billion.[2] This showcased how much the business had grown since its acquisition by Expedia in just seven years. To date, Tripadvisor has acquired 30 organizations, with its most recent purchase being SinglePlatform in 2019.[3]

What is Tripadvisor & How Does It Work?

Tripadvisor is an online travel advisor platform that hosts user-generated reviews for hotels, tourism sites, local attractions, and more. Anyone can make a free account on Tripadvisor and post a review, with photos and their personal experience. The review can be for an existing page, or a new venue that is yet to be listed on Tripadvisor.

In total, there are over one billion reviews for eight million businesses.[4] Venues are rated on a scale from one to five stars, and contextually recommended to relevant users with the help of an algorithm. Tripadvisor automatically narrows down the list of locations based on a user’s preferences.

Then, it provides them with the most relevant reviews for each venue within that location. Tripadvisor also provides booking services for hotels, flights, B&Bs, restaurants, vacation rentals, and more. The company is partnered with several booking firms that provide Tripadvisor customers with better rates and special offers.

To use Tripadvisor, customers create a free account. An email address, username, and password are all that is required for this process. Then, they can use the various networking and booking services available through the platform

Users can view hotels, vacation rentals, local attractions, restaurants, tours, and more for any given location. Tripadvisor is currently available in 48 countries and supports 28 languages. Because of this, users can browse through a wider range of reviews.

Reviews are posted by both solo and group travelers who visit a location at different times of the year. Customers can narrow down reviews by visit type, time of stay, and venue features. The massive userbase of Tripadvisor ensures that reviews can be found for all relevant locations within any given area of a country.

In 2019, there were over 5.2 million restaurant listings on the platform. And over 1.4 million hotel listings.[5] Each listing contains an average rating, a phone number, booking options with the lowest prices, and photos.

Venues can be saved for future trips and shared with contacts. Amenities such as parking, free Wi-Fi, pools, and meals are listed alongside the reviews. Tripadvisor also lists special features and highlights for each location so potential customers can distinguish between similar hotels and restaurants.

Users can interact with the community by visiting travel forums that are sorted by country and theme. Tripadvisor also contains reviews and bookings for cruises and vacation packages. If a user wants to hire a professional trip designer, they can also do so on Tripadvisor.

Trip designers are recommended based on the travel location. They are experts on local cuisine, art, culture, and history. Users can chat for free with a trip designer to understand what is being offered and whether the designer is a good fit.

To hire a trip designer, users pay a $199 fee. Then, the designer will craft a custom itinerary that includes pre and post-trip planning. During the process, customers will stay in touch with their trip designer to customize the details of their plan and share important documents.

Tripadvisor’s comprehensive suite of services makes it a one-stop solution for travelers around the world. Venue selection, trip planning, hotel reservations, and tours can all be arranged from a single app. The platform also functions as a social networking spot for like-minded travelers who wish to discuss locations and share exciting news.

Each user has a public profile. It contains their review history, photos, contributions, travel map, follower list, and more. Discerning travelers in need of specific information can choose to chat privately with a reviewer using direct messages.

Tripadvisor also publishes yearly Traveler’s Choice awards with reviews of the best spots and activities. These include beaches, restaurants, guided tours, and more. The company rewards users based on the number of locations they visit and reviews they publish.

With this strategy, Tripadvisor boosts social engagement and fosters a highly active community. According to a 2019 report, they received 460 million visitors on the website from around the globe.[6] Reviews are thoroughly scanned by both automated and manual processes to remove fraudulent or paid content.

A recently published transparency report showed that Tripadvisor had to remove 943,205 fraudulent reviews in 2020. This accounted for 3.6% of the total reviews submitted that year. Tripadvisor claimed that 67.1% of the paid or fake reviews were caught by its automated moderation algorithm before making it onto the platform.[7]

Paid reviews have been a consistent source of trouble for Tripadvisor. Their platform thrives on the principle of providing free and unbiased information to travelers. This means the company has to spend a considerable amount of time and money on technologies to moderate reviews that compromise its integrity.

 

Business Model of Tripadvisor

Tripadvisor follows a business-to-consumer (B2C) model. Their platform is free to use and attracts a huge pool of users who visit the app for its reviews. All content is generated by users who write long-form reviews with detailed insight into key features of travel locations.

When customers click on the booking option for a restaurant or hotel, they’re redirected to the website for that business. Tripadvisor gets a commission from hotel chains and tourism companies for each customer it brings to them. Advertisers from travel agencies, cruises, and airlines buy ad spots on a cost-per-mille (CPM) basis.

There are three key components within the Tripadvisor business model- customers, venues, and advertisers. Customers are acquired through an organic process that involves the use of a basic search engine like Google for travel planning. Since Tripadvisor is the world’s most popular travel advisory site, it usually shows up at the top of recommendations.

From there, users can create an account and browse through the catalog of services offered by the site. They can browse reviews, post comments on forums, and create their own reviews. Customers can also book flight tickets and hotel reservations for venues through advertising partners.

A growing customer base drives more reviews and engagement, drawing in even more visitors. This creates value for advertising and booking partners. These partners drive traffic to restaurants and hotels.

It is a mutually beneficial cycle for all three parties involved. Unlike traditional online travel advisors, Tripadvisor differentiates itself by offering exclusively long-form reviews. By providing travelers with all the information they need, Tripadvisor transforms a high percentage of visitors into paying customers.

Visitors feel more confident booking a room or trip on Tripadvisor after reading a detailed review. These reviews are often backed by photographs and a direct message option. By offering an end-to-end solution for travelers, Tripadvisor caters to a broader section of the market.

The company also offers value to its customers by displaying the best prices and a wide selection of venues. Hotels, restaurants, and tourist companies receive a reliable advertising channel with high-value leads. Advertisers get the opportunity to drive traffic to their websites through Tripadvisor’s booking system.

Based on the amount of traffic it generates, Tripadvisor is the number one travel and tourism site. It also attracts a high percentage of female users, who make up over 52% of all users. On desktop, people within the age group of 25 to 34 make up 27.7% of Tripadvisor’s userbase, its largest demographic.[8]

Combined with the high percentage of female users, this indicates that the site is quite popular among couples. It is also a great resource for young families looking to go on their first vacation. When people have a positive experience with their first Tripadvisor journey, they’re more likely to leave a high rating.

In 2020, 65.8% of all reviews had a five-star rating. Only 7.2% of users felt unsatisfied and gave a one-star rating.[9] A high user satisfaction rate coupled with organic advertising through search results makes Tripadvisor an excellent choice for advertisers and venues.

Over 78% of all Tripadvisor traffic is driven by search engines such as Google.[10] The remaining traffic is provided by direct visits, referrals, and social media. Tripadvisor also has a diverse revenue mix, with revenue generated from a wide variety of direct and indirect sources.

Tripadvisor’s biggest rival is Expedia, as they offer similar services. However, Expedia contains a mix of snippets, short reviews, and long-form reviews. In contrast, Tripadvisor is exclusively focused on long-form reviews with an average character count of 688 for accommodations.

Longer reviews result in a higher likelihood of the user booking accommodations. This is based on a survey done by Tripadvisor. In the survey, 68% of participants mentioned that they were more likely to make a purchase after reading a long review.[11]

Expedia is ideal for bundle bookings in which the hotel reservation, car rental, and flight are all packaged into one purchase. Comparatively, Tripadvisor offers better deals on solo bookings that involve only one service. Tripadvisor also has better search and filtration systems to help users find the exact type of accommodation they’re looking for.

Booking.com is another Tripadvisor competitor and gets a high amount of monthly traffic. But it doesn’t cover the same range of services as Tripadvisor, being limited to hotel and restaurant bookings. Yelp is also a competitor with a similar user-generated review system, but it’s primarily targeted at local foodies and shoppers rather than travelers.

Tripadvisor has significant costs associated with its business model. In 2021, the company generated a total revenue of $902 million. It also spent $1 billion on operating and revenue costs.[12]Sales and marketing cost $469 million. Technology and content development took up $212 million. General and administrative costs accounted for a further $167 million.[13]

 

How Does Tripadvisor Make Money?

Tripadvisor makes money from seven different revenue streams. These include click-based advertising, subscription-based advertising, display-based advertising, experiences, dining, rentals, and ticket sales.

In its annual reports, the company splits its revenue into two segments. The first segment is ‘Hotels, Media & Platform.’ The second segment is ‘Experiences & Dining.’

The ‘Hotels, Media & Platform’ segment includes revenue from click-based advertising, subscription-based advertising, and display-based advertising. Commissions-based revenue from third-party booking and dining services are included within the ‘Experiences & Dining’ segment.

In 2021, the company made $549 from its hotels, media & platform segment. Which is 60.8% of the total revenue. It also made $307 from its experiences & dining segment.[14]

Finally, Tripadvisor makes money from sales of car rentals, airline tickets, cruise trips, and property rentals. The sales from these rentals and ticket sales aren’t reported. Tripadvisor classifies them as ‘Other’ income sources in its annual report.

‘Other’ revenues added up to $46 million, or 5% of the total revenue in 2021. In total, Tripadvisor made $902 million in 2021.[15]

Click-Based Advertising

Click-based advertising is the largest source of advertising revenue for Tripadvisor. Every venue on Tripadvisor has a booking option with the best prices and reservation dates listed next to it. Whenever a user clicks on this option, they are taken to a booking partner’s website or app.

Online travel advertisers and booking partners pay Tripadvisor on a cost-per-click (CPC) basis. The CPC rate is determined beforehand through an auction process. In which partners place bids for links that will take Tripadvisor visitors to their booking platform.

 

Subscription-Based Advertising

Subscription-based advertising is a unique business-to-business (B2B) style advertising system. Partners buy subscriptions that allow them to customize their page information. This can include things like phone numbers, details, special offers, and tourist attractions.

It is not clear how much Tripadvisor charges for these subscriptions.

 

Display-Based Advertising

Display-based ads are primarily used by airlines, cruises, and destination marketers. These are sold on a cost-per-thousand-impressions (CPM) basis. Brands use these to shape their image and boost their popularity.

Tripadvisor does not list how much it charges for this kind of advertising.

 

Experiences

When users click on the ‘Things to Do’ tab, they are shown a collection of activities and tours. Unlike hotel and restaurant bookings, these bookings are done directly within Tripadvisor. Instead, Tripadvisor earns a referral commission from tour providers and hotels for every booking secured on its site.

Referral commission amounts likely vary depending on the agreement negotiated with the particular activity or tour provider.

 

Dining

Users who reserve a seat in a restaurant through Tripadvisor pay a transaction fee. Tripadvisor collects a transaction fee for each seat reserved. It also offers subscription-based advertising and reservation management services to restaurants that want access to market analytics.

It is unclear how much the company makes from either of these forms of revenue.

 

Rentals

Tripadvisor users can rent cars, condos, villas, and beach properties through the platform. The company has rental agreements with property owners and rental companies and collects a commission for each booking.

Tripadvisor does not state how much they charge in commissions for these kinds of bookings.

 

Ticket Sales

Whenever a customer books a flight or cruise trip on Tripadvisor, they are directed to the website of the airline or cruise company. Tripadvisor collects both click and display-based advertising revenue from their airline and cruise partners.

 

Tripadvisor Funding, Valuation & Revenue

Tripadvisor (TRIP) is currently a public company trading on the NASDAQ exchange. The company launched its IPO in 2012 at a price of $26 per share for a valuation of $4 billion.[16] As of September 2022, the company’s stock traded for just over $24 at a valuation of $3.4 billion.

Prior to going public, the company went through two funding rounds and raised a total of $3.3 million. Tripadvisor’s latest funding round was a post-IPO equity round in 2021 that raised $300 million. Notable Tripadvisor investors include TCV and OneLiberty Ventures.[17]

Tripadvisor was not profitable in 2020 and 2021. This is almost entirely because of a decline in the travel and tourism market caused by the pandemic and does not necessarily indicate long-term financial or profitability issues.

In 2021, the company’s total revenue was $902 million. A 49% year-over-year (YoY) uplift from the $604 million it made in 2020.[18] This indicates that Tripadvisor is recovering from the temporary decline it suffered in 2020.

YearTotal RevenueNet Income
2019$1.5 billion$126 million
2020$604 million($289 million)
2021$902 million($148 million)

 

Is Tripadvisor Profitable?

Tripadvisor has not been profitable for the last two years, owing to a decline in travel market activity caused by the pandemic. But the company is on track to post profits in 2022, judging by their Q2 2022 report. This shows that Tripadvisor made a net income of $31 million from a quarterly revenue of $417 million.[19]

Compared to 2021, the company has boosted its second-quarter income by 77.4%.[20]

Tripadvisor is focusing on its experiences and dining revenue streams that are part of the company’s core business model. Combined with an increase in ad revenue from travel bookings, the company is very likely to be profitable again in the near future.

 

Conclusion

TripAdvisor has made a name for itself as one of the most popular travel websites in the world. It’s a great way for travelers to find out about restaurants, hotels, and attractions in their destination city.

However, it’s important to note that TripAdvisor is not just a website—it’s an entire ecosystem of products and services that help people plan their trips and get the most out of their vacation experience.

As you can see, TripAdvisor has come up with a unique way to make money out of its users’ travel experiences. It’s a model that works well for the site’s users, businesses, and investors.

The business model is simple: they provide a platform for people to share their experiences with others, who can then use those experiences to make their own decisions about where to go on vacation. They also provide this service at no cost to their users, which makes it appealing to everyone involved.

It is not just travelers who use TripAdvisor, though. Businesses also use TripAdvisor to get feedback from their customers, which helps them improve their services or products. This can be really useful if you are looking for a new hotel or restaurant and want to know more about other people’s experiences there before booking yourself.

If you’ve ever used TripAdvisor before, you know how helpful it can be when planning your next vacation—which is why TripAdvisor has been so successful in making money!

655 Amazing Travel Agency Name Ideas Ever

475 Vacation Captions for Instagram That Look Epic

How Does Yelp Make Money? Business Model of Yelp

Sources

  1. Harvard Business Review
  2. Financial Times
  3. Crunchbase
  4. Tripadvisor
  5. Statista
  6. Tripadvisor
  7. Tripadvisor
  8. Similarweb
  9. Tripadvisor
  10. Similarweb
  11. Tripadvisor
  12. SEC
  13. SEC
  14. SEC
  15. SEC
  16. Financial Times
  17. Crunchbase
  18. SEC
  19. Tripadvisor
  20. Tripadvisor