How The Price Line Site Service Works
The Priceline Grouping is an Online Travel Agency (OTA) which offers discounted prices for travel related services (i.e. airlines, hotel chains, car rental companies) to both leisure and business consumers. Growing mainly through a successful acquisition strategy that has included Bookings.com, Kayak.com and Agoda.com among others, the Priceline Group's results have become particularly impressive between 2010 and 2014. During this period full revenues grew at a CAGR of 28.6%, going from 3.08 to 8.iv billion USD, while its net income grew fifty-fifty faster, at a CAGR of 46.3%, going from 528 million The states$ to 2.billion USD. Moreover by December 2014 Priceline showcased an ROE of 30.86%, the highest of the Online Travel Agent (OTA) segment, above Expedia (20.55%) and TripAdvisor (22.39%). These results evidence that Priceline'south business organisation model and operational model accept been very well aligned, making information technology a company worth analyzing to empathize how is information technology that both elements work together.
Priceline's Business Model
When Priceline was founded, it became famous for being the first OTA to offer the "name your price" scheme. Nether this model, customers would state their willingness to pay for a travel related service and in return Priceline would show them several options without disclosing the name of the providers offering them. Whenever the customer chose i, Priceline would earn the spread between what the client was willing to pay and what the service really cost. This is a revenue source was a competitive advantage because information technology allowed the firm to differentiate in forepart of consumers and to charge an attractive fee to providers by acting as merchant when choosing the provider for consumers instead of having consumers cull themselves.
Priceline'due south other two acquirement sources are agency revenues and advertising revenues. Agency revenues stand for the fees Priceline charges service providers through the traditional price-disclosed model, when someone chooses one of their products offered on ane of Priceline's web platforms. Advert revenues is what Priceline charges service providers to place ads on its webpages. As of December 2014, the distribution of the house's total revenues between merchant revenues, agency revenues and advertising revenues is 26%, 69% and 5% revenues respectively. The Agency model has become Priceline's most relevant model equally it requires a lower level of investment from the company and carries lower operational costs, there for it is the well-nigh profitable of the three.
To keep growing and increasing its relevance in the OTA market, Priceline describes its strategy in its 2014 10-K as existence composed by four pillars:
- Providing the best consumer feel when searching and booking through Priceline's many online platforms
- Partnering with travel service providers in mutually beneficial relationships
- Maintaining multiple independently managed brands to offering reservation services in means that entreatment to different consumers
- Investing in profitable and sustainable growth through developing new services, inbound new markets, and pursuing strategic transactions similar acquisitions and joint ventures
Priceline's Operational Model
The operational model that Priceline uses to ensure the materialization of its business model starts by using its online platforms to offer mainly three kinds of products: room nights, airline tickets, and rental motorcar days. Near of Priceline's sales come from room nights, mainly through Booking.com, which information technology caused on 2005. In 2014 alone, it 346 meg room nights were booked through the plataform, representing an increase of 28% from the previous year. In 2014, Priceline likewise sold 7.eight million airline tickets and 51.viii 1000000 rental car days, showcasing growths of 18% and 12% respectively compared to the previous year.
Booking.com has 21 million direct bookable rooms listed, making information technology the largest offering of the sort in the earth. Almost of Booking.com's growth has been driven by the European marketplace, were its listings have increased 35% twelvemonth-over-year. Moreover the acquisition of Agoda.com and its joint venture with CTrip has immune Priceline to establish a potent foothold on the Asia-Pacific market. Developing its presence in international markets has been essential for the visitor to recoup the brackish growth that the United states of america market has experienced since the 2008-2009 crisis and were at to the lowest degree by 2014 it only held 16% of the market while Expedia held more than 40%. This explains why by 2015 94% of Priceline'due south revenues came from international markets and only six% from the U.s.a..
Another factor that has enabled Priceline's success has been the customization of its platforms to ensure a comfortable experience when accessing them through mobile devices. The percent of online users that access OTA'due south through mobile devices has grown from less than v% on 2011 to around 30% on 2015. By developing new applications and upgrading its webpages, Priceline has been able to adjust to this shift. Finally, Priceline has recently acquired the restaurant table reservation site OpenTable, which one time once more proves the importance the company gives to leveraging its knowhow while innovating in its value proposition it offers to its consumers.
Conclusion
Analyzing the primary aspects of Priceline'southward business and operating models allows to visualize their articulate alignment. The market has seen the alignment likewise, which has taken the stock price from 399 USD on December 31, 2010 to 1300 USD by Dec ivthursday, 2015. Past November 5th, after the company released its 3Q15 results, more than lxx% of analysts recommended to buy stock, with a 12 month target toll of 1485. All this tends to indicate that as long as the company keeps ensuring that its operations work towards the successful implantation of their strategy, the positive results they have accomplished and then far should be scalable further.
References:
"How Priceline Group Makes Money", <http://world wide web.investopedia.com/articles/markets/080715/how-priceline-grouping-makes-money.asp>
"Growth AND Widening Margins: the Priceline Story", <http://finance.yahoo.com/news/growth-widening-margins-priceline-story-165751304.html>
"Why Priceline and Expedia clash over 'opaque' hotel offerings", <http://marketrealist.com/2014/04/priceline-business-model/>
"An Overview of Priceline's Revenue Sources", <http://marketrealist.com/2015/11/an-overview-of-pricelines-revenue-sources/>
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"How Has International Growth Helped Priceline?", <http://marketrealist.com/2015/11/how-has-international-growth-helped-priceline/>
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"Will Hotel Bookings Remain Priceline's Most Profitable Segment?", <http://marketrealist.com/2015/eleven/volition-hotel-bookings-remain-pricelines-near-profitable-segment/>
"Has Priceline Geared Up for a More Mobile Globe?", <http://marketrealist.com/2015/eleven/has-priceline-geared-up-for-a-more-mobile-world/>
"Priceline.com – Goldman And Operational Performance Add together To Strong Momentum", <http://seekingalpha.com/article/1857531-priceline-com-goldman-and-operational-performance-add-to-stiff-momentum>
"Priceline: OTA model has significant advantages for the consumer" <http://www.traveldailynews.com/columns/article/50017/priceline-ota-model-has-significant>
"Priceline: What Are Analysts Estimating Post 3Q15?", <http://marketrealist.com/2015/11/priceline-analysts-estimating-post-3q15/>
"Priceline Stock Cost – Dec 31, 2010 to December 4, 2015", <http://finance.yahoo.com/echarts?south=PCLN+Interactive#{"customRangeStart":1293771600,"customRangeEnd":1449205200,"range":"custom","allowChartStacking":true}>
How The Price Line Site Service Works,
Source: https://digital.hbs.edu/platform-rctom/submission/priceline-outperforming-the-online-travel-agency-business-globally/
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