Booking.com Business Model Canvas 

Innovationtactics.com

Develop Innovation Ideas You can be Proud of

 
 

December 12, 2017

Business Model Canvas Booking.com

The travel industry is a $1.3 trillion heavy. And the biggest player by market
capitalisation in this huge pond is the Booking.com’s parent, the Priceline
Group. Priceline owns a number of brands that are all running a ​platform
business model​ (the most promising business model right now).

Booking.com and Expedia are the biggest ​Online Travel Agencies (OTAs)​. I
have compared their ​business models here​. But this space is becoming more
interesting by the day with an increasing amount of players moving into this
space, including ​TripAdvisor and Google​.

What makes Booking.com so successful despite the enormous competition by

similar and other business models and a strong pushback by the major hotel
chains? That is what we will be looking at today.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

1 
 

The Business Model Canvas

The Business Model Canvas consists of the 9 categories you see below to
describe a company. Broadly speaking, the left-hand side is the supply side
from the business’ perspective and the right-hand side is the customer side.

The ​Business Model Canvas​ as devised by Alex Osterwalder.

Download the business model canvas as excel file: ​Business-model-canvas

[xlsx]

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

2 
 

Before we get started on Booking.com, let’s have a brief look at the other
brands that the Priceline Group owns:

■ Booking.com:​ online accommodation reservations

■ Priceline.com:​ combined packages for hotel, rental car, airline
ticket and vacation reservation (in the US)
■ Kayak.com:​ travel meta-search engine
■ Agoda.com:​ online accommodation reservations (in the
Asia-Pacific region)
■ Rentalcars.com:​ rental car reservation service
■ OpenTable:​ restaurant reservation and information services

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

3 
 

Value Proposition
Platform businesses have ​two or more customers​ that they need to provide
value to. In the case of OTAs, these are the travellers and the hotels.

Value proposition to travellers

1. Cheap(est) prices:​ Booking.com has contracts in place with the
hotels that it lists. One of the clauses, called rate parity, is that the
hotels can’t offer the same (type of) room at a cheaper rate on the
hotel’s web pages. And if they do so they have to match it on
Booking.com. Without such a rule, users could choose a hotel on
Booking.com but then complete the booking on the hotel’s pages.
Despite some changes in this space, Booking.com is still able to
offer the cheapest prices on those hotels it most prominently
features.
2. Amount of choice:​ Booking.com has now over 1 million places to
stay in their database and a large amount of filtering options that
make it easier for the user to find what they are after. Moreover,
Booking.com helps consumers to make value choices.
3. Reduction of risk:​ the star rating and reviews generated (over
100m reviews to date) by other users reduce the risk of being
disappointed. Booking.com features reviews only from those who
have booked through them. This system effectively prevents
manipulation, a problem well known on many other platforms. I
have covered this topic ​extensively in my Yelp article​.
4. Call centres:​ Many people still want to talk to a human prior
committing to a considerable amount of money. Two-Thirds of

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

4 
 

Booking.com’s employees are in the customer service areas for

this reason.
5. Useful app:​ the traveller’s journey does not end with the booking.
Booking.com’s app has useful content prior to the booking but
increasingly also travel guide functionality in their app. Also,
bookings through apps have multiplied from 2015 onward and are
expected to stay in the double-digit growth space.
6. Useful travel content:​ useful content that accompanies the
traveller’s micro moments​.

Value proposition to hotels

Hotels have a love-hate relationship with the OTAs. While a majority of their
bookings come through other channels, OTAs remain crucial to get as close
to being fully booked as possible*.

1. Incremental revenue:​ the key value proposition is that

Booking.com helps to fill otherwise empty-staying rooms. Hotel
rooms are like perishable goods. If they are not booked on a night
the revenue for that room that night is irrecoverably gone. With
hotels being high fixed cost assets, this loses the room’s
contribution to the high fixed cost base.
2. Ability to react:​ Booking.com allows hotels to implement their
revenue management strategy​ by providing the ability to flexibly
decide/change which rooms they offer through Booking.com on
which nights and its rates. This allows hotels to drive additional
business on a short fuse, to put up special promotions, and
dynamically adjust commission for soft periods to rank higher.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

5 
 

3. Global reach:​ Booking.com helps hotels to reach global markets

and potential customers that by themselves they would not reach.
Achieving global reach in a meaningful way (i.e. high conversion
rates) requires investments that may be underestimated.
Booking.com have localised content, payment options, apps, etc.
They also translate the hotel content into the local language (~40
languages done by a localisation team) and are present on the
relevant advertising channels. The Priceline Group have acquired
local online travel agencies who have captured a meaningful local
market share and built a recognised brand. They have ​offices in
many countries​, an online presence in over 220 countries, feed
their mobile apps and keep all the content consistent.
4. Risk reduction:​ Fees are structured in a way that there is no
upfront payment and no payment whatsoever unless there is a
booking. Unlike in online marketing, there is no risk of paying
money for advertising for no return. ​Cost-per-click models​ that I
have described previously come with the risk of no or low returns.
5. Drive additional traffic to the hotel’s website (“billboard
effect”):​ One ​prominent study​came to the conclusion that there
are is a considerable amount of travellers who research on the
OTAs, like Booking.com, but then book on the respective hotel’s
website. Thus, the OTA pays for the customer acquisition cost
(CAC) but generates no revenue for themselves. This effect is
called “billboard effect.” More recently, other studies have
questioned that this effect​ (still) exists. It is ultimately hard to
measure due to the hundreds of ​micro moments over which the

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

6 
 

customer journey unfolds​. But there are two things I am very

certain of:
1. Being present on an OTA with good ratings will have
positive effects.
2. Bookings will take place where the customer gets
additional benefits (loyalty benefits, perks, freebies) – at
the same price, be it on the hotel page or on the OTA
pages.
6. Market intelligence:​ Booking.com shares market intelligence,
booking forecasts for given locations as well as how the hotel is
performing on the Booking.com platform in relation to competition.

* Some of the most important KPIs in the hotel industry are Average Daily
Rates (ADR) and Revenue Per Available Room (RevPAR). For the purposes
of this article, note that “fully booked” means maximising these KPIs,

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

7 
 

Key partners
1. Hotels or property owners:​ Booking.com sees anyone who
registers their property to be bookable through them as a partner.
And there are many ​types of properties​ that fall into this (hotels,
villas, golf courses, castles, boats, capsules, tents and more).
2. Major hotel chains:​ Hotels – esp major chains – have a love-hate
relationship with Booking.com. Sticky points are commissions and
customer data. I have described the ​tug-of-war in detail here.
3. Affiliates:​ Booking.com runs an ​affiliate program​ through which
those websites make a commission (on Booking.com’s
commission) should their webpage originate a booking. They offer
various products​ to their affiliates. This helps Booking.com grow
into the non-OTA areas that still manage a lot of the market.
4. Travel agents:​ Booking.com wants ​travel agents to book through
their platform​ and earn commission through it. Benefits for the
agents are no upfront costs as well as no additional operational
costs.
5. Corporate travel managers:​ Booking.com offers an option for
corporate travel managers​to ​make bookings on behalf of their
employees​. They have not entered the travel market business in
earnest. But surely, it will be an area of interest to drive growth
even if not top on the strategy agenda right now.
6. Technology partners:​ I classify only those tech providers as key
partners that provide cutting-edge, proprietary (and ideally
exclusive) technology and actively collaborate as key partners.
There are not many as such as Booking.com develops most of
their software in-house and relies on acquisition where

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

8 
 

complementary platforms emerge. Global distribution systems,

channel managers and reservation systems as such are in my
mind not key partners as we are talking about well-established
interfaces in this space.
7. Meta search engines:​ Meta search engines are becoming
increasingly important. Priceline own one of the biggest ones,
Kayak.com. ​Booking.com collaborates with TripAdvisor​ and
Google Hotel Ads who are two of the other big ones.
8. Lobbyists:​ lobbyists play a big role in the tug-of-war that I have
linked to above.

Accommodation providers are key partners of Booking.com and key to

positive indirect network effects [source: ​Priceline investor
presentation​]

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

9 
 

Key activities
The biggest difference between traditional business model and the platform
business model are ​indirect network effects​. Key activities have to aim to
enhance these. Of course, Booking.com knows this very well. From their
investor presentation, you can see how they see the positive indirect network
effects.

1. Enhance positive network effects​ and customer experience by

increasing:
■ the number of bookable accommodations at an
increasing amount of locations
■ the types of bookable properties (variety)
■ useful content, such as user reviews, pictures, etc
■ and by enhancing customer experience
2. Provide great ​customer support
3. Improve the websites and the app​ based on the captured data
and evolving technology, trends and feedback
4. Improve conversion rates​ based on data and ​over 1000
experiments at any given time
5. Accompany the micro moments​ on the traveller’s customer
journey
6. Search engine visibility:​ Maintain top rankings on paid
advertising and improve on organic search rankings
7. Observe​ the moves of ​hotel chains​ who want to increase direct
bookings
8. Grow loyalty programs​ to counter the hotel chains loyalty
program and to obtain valuable customer data

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

10 
 

9. Develop new travel-related services​ to grow partner and

customer base
10. Observe regulatory landscape​ and moves of lodging lobbying
groups
11. Observe industry landscape​ for new entrants and adjacent
industries for new/potentially disruptive approaches (e.g. meta
search engines)
12. Observe​ the moves of the known ​direct competitors
13. Stimulate demand​ through promotions/notifications to
subscribers

Technological lead helps Booking.com to accompany the traveller’s

journey to hotel selection across devices and micro moments [source:
Priceline investor presentation​]

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

11 
 

Key resources
The master resource of your platform are its ​network effects​ which are
enabled by the participants, the content, the data/algorithms, skilled staff and
the website/app infrastructure:

1. Number of hotels​ and other accommodation partners available for

booking
2. Number of locations​ covered
3. Engaging content:​ high-quality, professional photos, good hotel
descriptions incl all amenities&facilities
4. Fresh user-generated content:​ reviews, ratings
5. The ​captured user data​ and proprietary algorithms
6. User experience (UX)​ of the website and app
7. The global network​ of Priceline-owned peer-platforms
8. Skilled ​technology staff​ (>2500 technology staff)
9. The ​loyalty program​ and its members
10. Affiliate​ program members
11. Trained ​customer services staff​ (2/3 of all employees)
12. The ​website and app infrastructure​ and all the interfaces to
the various hotel/flight/rental car/ etc distribution systems

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

12 
 

Choice, content, localisation allow high conversion rates thus enable

Booking.com to auction cost-per-click advertising higher than others
and get traffic and bookings [source: ​Priceline investor presentation​]

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

13 
 

The Booking.com webpage key to achieving high conversion rates that

allow auctioning for rank #1 in Google and Bing advertising spots. It is
full of persuasive webelements to close the sale. Click image for full
size.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

14 
 

Customer Segments
In the platform business model, there are two or more sides that should be
considered customers (or partners and customers). Let’s start with ways to
segment accommodation providers​:

1. Property types:​ hotel, resort, apartment, villa, Hostel, motel

2. Room types​ offered
3. Star rating​ 1-5; ​user rating​ -10
4. Amenities​ (fitness, sauna, jacuzzi, pool, beach), ​facilities​ (wifi,
restaurant, cafe), ​room facilities
5. Proximity​ to sights (or remoteness)
6. Type of hotel:​ Independent, small chain, large chain,
7. Locations:​ Single location, multi-location, multi-national
8. Type of infrastructure:​ property management system, central
reservation system, channel manager, etc

There are many ways to ​segment travel customers​. Here are a few
examples:

1. Travel motivation:​ Leisure, business, group

2. Demographics:​ Age group, gender, marital status, kids, income
bracket, lifestyle, etc
3. Booking details:​ length of stay, how many days prior booked,
booking device, booking location, package/accommodation only
4. Employment:​ income bracket, full-time/part-time, retiree
5. Spending behaviours:​ ancillary bookings/spending

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

15 
 

The issue with this is that the data required for the above type segmentation is
disbursed across the multitude of players in the industry (or not known) and
will not satisfy the recommendations of ​effective segmentation​:

■ identifiable​ so that they can be measured & tracked

■ accessible​ by communications and distribution channels
■ substantial​ so as to be profitable
■ durable​ to maintain stability of cost and impact to profits

Therefore, traditionally you will find a ​more transaction-centric way to

segmentation​.

All this said you can sense that there is a great opportunity in this space (and
some airlines have built their capabilities in this space very well through their
loyalty programs).

Once you have a rich data set, you can segment and micro-segment
depending on the problem you are trying to solve. For traditional advertising
and targeting purposes, segments should be at least 10-15% of your visitors.
But for more innovative and personalised purposes, your micro-segments can
be smaller.

Let’s conclude with the reminder that good segmentation is a powerful enabler
for effective revenue management.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

16 
 

Customer Relationships
Relationships with hotels
■ The relationships with the hotels is that of a love-hate relationship
■ Hotels are unhappy about the amount of commission they have to
pay for bookings through the OTAs
■ Due to this ambivalence, Booking.com makes it very easy to join
their platform
■ They make sure there is no risk for the hotel (no booking, no fees,
no set-up fees at all, etc)
■ They give “instant gratification” to those that join by making them
visible globally, translation to other languages, etc at no cost

Relationship with travellers

■ Customer service (two Third of Booking.com employees are in
customer services)
■ Ensure content and reviews are representative of the actual
accommodation
■ Remove all friction and risk
■ Transparency
■ Privacy

Owning the customer relationship is one of the most important things that all
platform businesses have to keep in mind. And when we say that we, most
tangibly, mean their contact data (i.e. email address). This is crucial for the
ability of repeat-, up- and cross-sales.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

17 
 

Hotels would love to have the customers email-address once they book
through Booking.com. This would give them ample opportunity to build a
customer relationship, to cross and up-sell themselves and get ancillary
revenue etc. This is one of the reasons why hotels entice their guests to sign
up to their loyalty program.

But it also is an area of trials. As an example, ​Expedia and Red Lion Hotel
have started collaborating on their loyalty proposition​ as part of which Expedia
shares more information with Red Lion (most notably the customer’s email
address).

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

18 
 

Channels
Booking.com’s ​sales channels​ to their customers:

■ The Booking.com webpage

■ The mobile-optimised webpage
■ The Booking.com app
■ TripAdvisor (Cost-per-acquisition model)

Ad channels:
■ General search engines, Google, Bing:
■ paid advertising
■ organic search ranking through useful content
■ other OTAs
■ TripAdvisor (Cost-per-click model)
■ Meta search engines:
■ Kayak.com
■ Google Hotel Ads
■ other

Communication, content and other channels:

■ iTunes ​App Store​, Google Play Store, etc for their app
■ eMails​ for direct communication with their customers
■ Useful content​, e.g. ​Booking.com’s destination finder ​pages
■ User generated travel guides
■ They have a broad range of ​inspirational articles​ with links to city
overview pages and hotels

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

19 
 

Cost Structure
Let’s look at ​Priceline’s annual report​ to understand their operational cost
structure. Note, that they don’t split out Booking.com’s costs separately.
Hence, we have to take things at an aggregate level. With Booking.com being
the largest entity, we still get a good feel for the numbers.

Operating expenses
Priceline’s operating expenses​ from their annual report (pg 71):

■ Performance advertising:​ $3.4b

■ Brand advertising:​ $0.29b
■ Sales and marketing:​ $0.43b
■ Personnel, including stock-based compensation​ of $0.24b,
respectively $1.3b
■ General and administrative:​ $0.45b
■ Information technology:​ $0.14b
■ Depreciation and amortization:​ $0.3b

Capitalised costs
Priceline’s capital expenses​ from their annual report (pg 71)

We are not interested in all their capital costs (capex). But let’s have a quick
look at capex in relation to their website/app development shows ​overall
capitalised costs of $54.2m​. In the balance sheet, direct website/app assets
are recorded as property & equipment.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

20 
 

■ Property & equipment:​ $347m

■ Intangible assets:​ $2b
■ Goodwill:​ $2.4b

Priceline Acquisitions
You may be surprised about the low operational expenses to Priceline’s
website/app development capex given their portfolio of brands (and in relation
to the assets listed). To get the complete picture on this you need to look at
their major ​acquisitions of travel-related platforms​.

# Yea Company Price Ref(s).

1 2004 Major stakes in Travelweb and Active Hotels [13]

2 2005 Booking.com [14]

3 2007 Agoda.com [15]

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

21 
 

4 2010 TravelJigsaw / ​Rentalcars.com [16]

5 2013 Kayak.com $1.8 billion [17]

6 2014 OpenTable​* $2.6 billion [18]

7 2014 MBuuteeq and Hotel Ninjas $98 Million [19]

8 2015 Rocketmiles [20]

9 2017 Momondo​ and ​Cheapflights $550 million [21]

10 2017 Mundi [22]

[Source: ​Wikipedia​, Dec 2017]

* In their annual report 2016, Priceline accounted for impairment to goodwill in

relation to OpenTable of 94om.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

22 
 

Revenues
The Online Travel Agency business is characterised by two ​predominant
business models​ and then some other:

1. Agency​ business model

2. Merchant​ business model
3. Advertising​ business model
4. Subscription​ business model
5. Other (e.g. travel insurance fees, marketing and business analytics
services)

Booking.com generates most of its revenue through the agency model where
each reservation incurs a commission (they also generate some ad, merchant
and other revenues but these are a very small percentage). Here are some
examples where Booking.com and the other subsidiaries of the Priceline
Group use the above business models:

■ Reservation of accommodation, rental cars, etc generate

commissions and fall into the agency business model
■ Priceline’s Name Your Own Price and package deals fall under the
merchant business model
■ Their meta search engine Kayak.com earns advertising revenues
on a cost per click pricing model

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

23 
 

■ OpenTable earns commissions but also subscription services for

their reservation management system (see my ​article on Yelp​ for
this)
■ Travel insurance fees which for now I am not going to elaborate
further on
■ Revenues generated by Booking.com’s BookingSuite
accommodation marketing and business analytics services

Online travel booking is capturing an increasingly larger share of the

>$650b accommodation booking market [source: ​Priceline investor
presentation​]

Priceline believes that travel booking is in a secular shift from offline to online
booking. On global level online booking accounts for <40%. In the US, online
bookings have now captured over 50% market share. Some analysts expect
that it will now taper but that other countries will catch-up to similar levels. A

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

24 
 

case might be made that where there is no strong tradition of offline travel
agencies, the online space may capture an even large share.

From their annual report, you can see that the majority of ​Priceline’s revenues
come from Booking.com using the agency business model:

1. Agency business model:​ $7.98b/$10.7b = ​74%

2. Merchant business model:​ $2b/$10.7b = ​19%
3. Advertising and other revenues​ = $0.7b/$10.7b = ​6.6%

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

25 
 

Network effects
Platform business models have indirect network effects at their core. Here is
how Priceline describes these for their own business.

Priceline and Booking.com indirect network effect fueling a virtuous

cycle [source: ​Priceline investor presentation​]

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

26 
 

Business Model Canvas Booking.com

And here is finally the summary Business Model Canvas for Booking.com.

Business Model Canvas for Booking.com

Download as pdf: ​Booking.com Business Model Canvas [pdf]​ and/or as a

Powerpoint file: ​Booking.com Business Model Canvas [pptx]​.

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

27 
 

Valuable links
I have more in-depth articles in this series of travel platform businesses:

1. Business models compared: Booking.com, Expedia, TripAdvisor

2. Customer journey comparison: TripAdvisor, Booking.com, Expedia,
Google
3. Micro moments: how Booking.com, Expedia, Airbnb, TripAdvisor,
Google guide the customer journey
4. Business model canvas Expedia
5. Business model canvas TripAdvisor
6. Business model canvas Airbnb

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

28 
 

What does this mean for you?

It was not anyone from the travel industry who came up with the idea of
TripAdvisor, Expedia, Airbnb or Booking.com. It was passionate innovators
and entrepreneurs. But it could have also come out from a bunch of engaged
intrapreneurs from within the industry. This only means anyone from within or
outside of an industry can come up with great ideas.

You can either use some of the ideas in this article as individual innovation
tactics or even a platform business model. The knowledge you have gained in
this article gives you the opportunity to develop innovation ideas that you can
be proud of!

If you haven’t joined ​InnovationTactics.com​, join now for free to receive

high-quality innovation articles in your inbox.

I promise that you will only receive high-quality content like this article that will
improve your innovation knowledge. We focus on real-world examples and the
details that others don’t share with you.

Author:​ Dr Murat Uenlue, PgMP, PMP; Managing projects >$1b 

Innovationtactics.com - Develop Innovation Ideas You can be Proud of 

29