Priceline.com has boosted annual ad spending to more than $1 billion for the first time, extending its lead over Expedia in the hotel-booking market and stepping up a rivalry that’s benefiting Google. The top online travel agents choose to place most of their ads on search sites, where consumers can quickly compare prices and complete a transaction in a matter of clicks.
“One of the secrets to Priceline’s success has been its ability to manage search campaigns,” Mark Mahaney, an analyst at RBC Capital Markets in San Francisco, said in an interview. “There is a major new marketing war going on between Priceline and Expedia, and Google is the beneficiary.”
Priceline, fueled by its Amsterdam-based Booking.com unit, has more than tripled spending on internet advertising to $1.27 billion in the past three years. About 90 percent of that goes to Google, according to Mahaney. The surge in search spending coupled with rapid global expansion has helped Priceline grow faster than Expedia, which is racing to catch its larger rival.
Based on Mahaney’s estimate, Priceline spent about $1.14 billion with Google in 2012, accounting for 2.6 percent of the search company’s ad revenue. While Google doesn’t disclose spending by specific customers, the company said on its fourth-quarter earnings call that the top 25 advertisers are paying more than $150 million a year, on average.
Unlike Priceline, Expedia doesn’t break down online and offline ad spending. The company’s total ad budget jumped 40 percent in the past three years to $870 million in 2012. Expedia spent 22 percent of last year’s revenue on advertising, compared with 25 percent for Priceline.
Both companies have focused on hotels in recent years as consolidation and dwindling margins in the airline industry crimped profits for online agents. Priceline bought Booking.com in 2005 and Bangkok-based Agoda.com two years later. Expedia’s growth has been spurred in part by its Hotels.com unit.
They’re chasing sales in the U.S. and European online hotel bookings market. Revenue from the two regions combined will jump 16 percent to $79 billion next year from $68 billion in 2012, according to researcher PhoCusWright Inc.
Investors have favored Priceline. The stock jumped more than sixfold in the past five years for the second-best performance in the Standard & Poor’s 500 Index. With a market capitalization of about $36 billion, Priceline is four times as valuable as Expedia, which has more than tripled.