Priceline’s OpenTable Acquisition and the Changing OTA Industry

This past June, The Priceline Group (PCLN) purchased OpenTable for $2.6 billion in an all cash deal — a 46% premium given OpenTable’s previous day’s closing share price. This acquisition adds extraordinary diversity to The Priceline Group’s holdings, which raises some questions about the current state and the potential future of the online travel industry.

This acquisition is indicative of Priceline’s expansion efforts, which began in 2005 with the purchase of, which operates primarily in Europe, has become the world’s largest online travel agent (OTA) and has proved to be an exceptionally beneficial asset for The Priceline Group. Priceline also expanded into the Asian travel market with their acquisition of Agoda in 2007, and into the meta-search space with their 2012 acquisition of KAYAK. These acquisitions have helped to propel The Priceline Group’s stock price exponentially over the past several years.

Compared to previous acquisitions, the $2.6bn acquisition of OpenTable is Priceline’s largest and most surprising. The purchases of Agoda and seem logical, as they were established firms in their respective and attractive foreign travel markets. This begs the question, what interest does the world’s largest online travel agency have in dining reservation software?

According to Darren Huston, Priceline’s CEO, “It’s critical to understand [that] it’s the same customers, travelers are diners. This is another leg of the stool for The Priceline Group.” Though it remains unclear as to how Priceline intends to integrate OpenTable’s services into its existing line of products, in a letter to the OpenTable team Huston hinted to the advantages of scale, stating, “we pride ourselves in being a collection of like-minded, entrepreneurially-led, performance-driven brands who like to win and who share best practices in areas where everyone gains and the cost of coordination is low.”

Consolidating the Travel Value Chain

As the industry becomes more competitive, OTAs seem to be expanding in order to consolidate and capture as much of the travel value chain as possible by offering a more expansive range of services.

For example, TripAdvisor, a platform to rate and discuss destinations, now offers its own meta-search service allowing users to compare prices on flights and hotels. Although TripAdvisor doesn’t profit directly from the commission on their users’ reservations, this additional feature keeps users on their website longer, generating more revenue from advertisers.

Furthermore, a recent partnership between Yelp and travel-startup Hipmunk will allow Yelp’s users to book hotel room reservations on its own website. In July of 2013, Yelp also acquired SeatMe, a competitor of OpenTable, enabling users to book restaurant reservations through their native platforms as well. Previously, customers could read and learn about different points of interest on Yelp, but were forced to take their business elsewhere in order to actually book their reservation. Though Yelp is traditionally not an online travel agent, it is clear that they are trying to expand into new markets by offering additional features that adds new value to their customers’ travel planning experience.

The Global Travel Market

A recent study by PhoCusWright, a travel-market research firm, sheds light onto why these companies may be so eager to expand and provide more services to customers. According to their research, the total global travel market is currently valued at $1.2 trillion dollars and is projected to grow ~8% to around $1.3 trillion dollars in 2015. The report suggests that the travel market is one of the largest and most globalized industries in the world; however, less than one-third of that value is actually captured online. There is extraordinary untapped potential in emerging and developing markets, where the offline methods and processes of travel remain very popular.

As more of the world gains access and acclimates to an ecommerce environment, firms seem to be anticipating that these travelers will take their business online. Thus, it makes sense that online travel agents and similar companies, like TripAdvisor and Yelp, are in a footrace to expand their businesses, maximize their global reach and, ultimately, maximize their future profits.

New Competition

Moreover, traditional online travel agents are beginning to face mounting pressure from tech-giants and startups alike. Although firms like Facebook, Google, and Microsoft have not made significant moves in the direction of offering travel-related services, doing so could prove to be extraordinarily effective, as these companies may have the ability to offer unique value to their customers through their social connectivity capabilities and their mass storage of user data. Additionally, well-funded startups such as Airbnb, and OneFineStay may pose a threat to the future of the traditional lodging industry, which would undoubtedly have an impact on the hotel-reservation businesses of these online travel agents.

Due to the untapped potential in the global travel market coupled with a variety of surmounting external pressures, online travel agencies are trying to expand and create new footholds wherever possible. And though The Priceline Group paid a significant premium for OpenTable, in an increasingly competitive industry, the reasons to remain complacent are few and far between.

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