BusinessWeek: Getting Along with Suppliers

The online travel agencies that formed Expedia had dreadful relations with hotel chains. How Expedia changed that is instructive

Published: 04 Sep 2008

The online travel agencies that formed Expedia had dreadful relations with hotel chains. How Expedia changed that is instructive

Original story form BusinessWeek can be found at http://www.businessweek.com/managing/content/sep2008/ca2008092_371191.ht....

More than burgeoning Internet technologies helped online travel agencies rise to prominence in the early part of this decade. In the post-9/11 travel slump, hotels were looking for a place to unload their empty rooms at a great price. And it was in that environment that InterActive Corp. Chairman Barry Diller acquired Expedia.com, along with fellow travel discounters Hotels.com and Hotwire.

But by 2005, the travel industry was back in full swing, and hotels were less apt to offer such deals. In an effort to let the rest of IAC's business get out from under the "shadow of travel," as he said in an employee memo, Diller responded by spinning the travel sites off as a separate business.

The newly public company, Expedia, got started without the best relations with its suppliers. "Hotels.com in particular had taken a relatively aggressive stance with hotel suppliers during this time," says Paul Brown, president of Expedia North America, who joined the company just after the spinoff. Expedia adopted some of these practices, too. If the hotel companies didn't pay higher margins, they wouldn't get equal treatment on the site itself. That left "extremely strained supplier relationships," Brown recalls.

Schizoid Brands

In addition, because the new company had been pieced together from different brands in different regions, it had as many as 15 different groups that worked externally with suppliers. Each group looked out for itself, negotiating deals or contracts that fit the needs of that unit. "If you were a big global hotel chain, you would see 15 different Expedias," Brown remembers. "From a global perspective, it looked quite schizophrenic."

By the end of 2005, several suppliers threatened to quit. "You're acting the same way you were in the post-9/11 period," Brown remembers some hotel chains saying. "We'd rather take the risk of losing some revenue vs. continuing to do business with you."
At the same time, investors were paying extra attention to the suppliers' woes. "They were hearing a lot of noise in the supply landscape," says Brown. That, of course, prompted Brown and other senior management to take action. "We stood back and said, this is not a sustainable position, long-term, for us. We have to have access to great supply and the best product. If we don't have good inventory and great prices on our shelves, our consumer proposition will erode over time."

But what to do? The current structure had its advantages: The separate staffs were easy to hold accountable, and they allowed the individual businesses to be more flexible. If each business was autonomous, for instance, a contract with one hotel chain could be different in Spain than in the rest of the world, which helped make Expedia nimbler. "There were concerns about reducing that flexibility," Brown recalls.

Advantageous Overview

Still, the positives of forming a central group to smoothe out relationships with suppliers outweighed the negatives. A single entity allowed Expedia to present one face to hotel chains that complained about having to "deal with 15 Expedias," Brown says. It also gave the travel company an overall view of each hotel chain's total business. As a result, Brown says, "we would not be surprised if a particular issue in one region bubbled up and became a big issue globally."

To make the new central "partner services group" work, Brown and his team had to spend a lot of time physically meeting with Expedia country heads, account managers, and hotel representatives in different markets to allay concerns. Brown brought in new experts in hotel and airline metrics who could help set up a standard system across the company. And he began holding everyone in different parts of the business to the same performance standards.

Three years later, Brown says, supplier relationships have evolved from a sore spot to a core strength. The issue comes up less frequently among investors. Some 11,000 new merchant hotels have been added to Expedia's inventory. And, Brown says, its price competitiveness is particularly strong. "We have the broadest selection and the best inventory," he says. "That wouldn't happen if we didn't have the right types of relationships with our suppliers.""

Paul Brown will be speaking at The Travel Leadership Forum: Evolution of Online Travel being held during World Travel Market on 12th November at London’s ExCel. For complete information and to see which senior travel executives will be joining him to discuss the future of online travel please go to www.eyefortravel.com/wtm/leaders.

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