Nov 11, 2019
The Selective Scapegoating of Google
Google might be a reason why some online travel companies are struggling, but it’s also been a key driver of their success
When results exceed expectations in the online travel sector, executives generally point to good execution in a number of company-driven areas: mobile booking improvements, marketing optimization, investment in brand, improvements in technology, streamlined operations, international expansion, price transparency, revenue diversification, product improvements, as well as the ever present machine learning and AI. In other words, success is explained as a natural consequence of optimal strategies and superb execution.
However, when the business is facing challenges and quarterly results are falling below expectations, there is a popular scapegoat: Google. And this generally goes unquestioned. After all, accusing Google and other large technology companies of all evils falls on sympathetic ears among a large swath of the media and the political machinery.
Let’s look at some examples from this past week.
Tripadvisor had disappointing Q3 results. Year-over-year, its revenue fell 7%, EBITDA declined 12% and net income dropped 28%.
Tripadvisor stated that their most significant challenge was Google becoming more aggressive and “siphoning off quality traffic that would otherwise find TripAdvisor via free links”.
Q3 was more difficult than we anticipated…Tripadvisor saw some incremental SEO headwinds over the course of the quarter…Google has gotten more aggressive — CEO Stephen Kaufer, Earnings transcript
Tripadvisor might be the one company in the world that has benefited the most from FREE traffic from Google, many times to the expense of travel suppliers. The fact that Tripadvisor is seeing a decrease in SEO’s share of their total traffic (still gigantic no doubt) is a reality check. That’s business as usual for most digital companies. In addition, if Google’s algorithm is impacting negatively major online travel players, this should be opening big opportunities for global media travel companies (starting with Tripadvisor) to position themselves as Google alternatives. But I doubt that Tripadvisor will be giving that traffic away for free though.
Expedia Group’s share price fell by 27% after the company announced its Q3 earnings. Revenue rose 9% year-over-year, but its earnings per share fell 7% due to a 10% decrease in average revenue per ticket.
CEO Mark Okerstrom stated that “the quarter did not play out as planned” and that Expedia saw “incremental weakness in SEO volumes and a related shift to high-cost marketing channels”. CFO Alan Pickerill explained that changes in Google’s algorithm had reduced visibility of organic results, resulting in a heavier reliance on paid advertising, and that moving to paid links presented a sizable headwind for the company. (Source: CNBC)
Here again, having to pay for advertising is a reality for most companies that operate in the digital world, and all of those that operate in the physical world.
Not everyone seems to have been hit by the headwinds of Google’s algorithm changes. Some OTAs announced Q3 results that exceeded expectations, pointing out to successful strategic innitiatives.
Latin American OTA Despegar grew 26% in gross bookings and 19% in revenue.
We are encouraged with our third quarter performance, which reflects continued progress on the strategic initiatives we began rolling out more than 2 years ago. — CEO Damian Scokin. Earnings call
The strategic initiatives included a rebranding initiative, new product launches and improvements in mobile booking experience (mobile now accounts for 39% of transactions).
Damian was asked about Google in the Q&A. His response:
Yes, we are facing the same challenges our other colleagues have referred to recently. And as you put it, Google is evolving constantly, and so we are in reaction to that. Our marketing team has been extremely effective in leading with the new SEO challenges that Google poses to all of us in terms of how they display the results. And our team has been extremely effective in increasing other sources of unpaid traffic, particularly direct.
Booking Holdings, the largest company in online travel, also announced Q3 results. They were good. Booking saw year-over-year growth in room nights (11%), revenue (8%), net income (10%) and adjusted EBITDA (5%). When asked about the challenges coming from changes in the Google algorithm, this is what CEO Glenn Fogel responded: “We saw some headwinds in the SEO channel that did create some modest pressure, but it’s a small channel for us”. He also touched on Booking’s discipline in paid channels and its focus on increasing conversion from these channels and gave a shout out to “our 26,000 employees who are executing very, very well. Earnings transcript
Blaming Google is not new. In June 2015, after posting disappointing results, eDreams Odigeo CEO Dana Dunne referred to “changes in the Google algorithm” as the explanation to higher variable costs. (Source: eDreams 2015 year results.
As far back as I can remember, Google has been seen as a major threat to Online Travel Agencies and other travel companies. However, Google has also been a growth engine for OTAs and a key driver for their high market share of online bookings. I am confident that any hotel and airline trying to drive more direct bookings will agree with this. Google is a key reason how today’s online travel leaders got there in the first place.
Furthermore, a change in Google’s search algorithm is not a one-off event. Google changes its search algorithm thousands of times per year. It’s business as usual for OTAs. Isolating bad quarterly results to a change in Google’s algorithm, as tempting as it might be, is an excuse. A failed strategy and/or a deficient execution would be more realistic explanations. Particularly when a company’s business model relies on free traffic.
As Ben Thomson points out, Amazon could have also blamed Google for trying to favour its own shopping channel results. But instead, Amazon worked at improving its product and customer experience from search to delivery to become the aggregator. Amazon focused on being better than Google, not on calling for regulatory help.
More product searches start on Amazon than Google, not because Amazon spent its energy complaining about Google favoring its own shopping results, but because Amazon went out and delivered a better experience for users. — Stratechery: The Google Squeeze
