This experience also extends to partnerships throughout the industry, for example with major hotel chains and airline groups. Expedia is able to work with those companies to package off unused capacity in exchange for superior pricing and exclusive deals on attractive packages.
It must be considered that the combined effect of Expedia's experience, strong brand and high traffic, along with its ample financial might, enables the company to compete as a cost leader in the packaged vacation business, as well as operate a differentiated strategy. The Expedia website will be able to consistently offer very low prices, because it does substantial volume. The high traffic also allows the company to offer packages that other travel agents simply cannot offer. Expedia can gain exclusive deals, based on its partnerships within the industry, and these will be tough for most competitors to match.
In addition, Expedia's family of brands allows it to drive more traffic to its websites than its competitors can. One of the ramifications of this is that Expedia is able to increase its volume, allowing it to reduce prices further. In addition, Expedia can use the popularity of other sites in its family, particularly TripAdvisor, to drive traffic not only to Expedia, but away from other consolidators.
The site also has developed a core competency in bundling packages, something that has emerged over the years of its operations. Expedia has processed hundreds of thousands of transactions since its inception, and many of these were travel packages that its customers built for themselves. The company now has the ability to compile this information, which allows it to offer packages that are more attractive to its customers. This internal market research gives Expedia a formal base of knowledge that most of its competitors do not have in any formal format.
When all of this is put together, Expedia has a lot of strengths from which to gain advantage over its competitors. There are competitors such as Priceline that can match some of the strengths, but no competitor can match all of the strengths. In addition, Expedia does not have many glaring weaknesses. Its traffic suffered when the global tourism industry in general and packaged tourism in particular suffered, and there have been points where Expedia perhaps overpaid for certain assets, but the core of its business model is strong and its competitive advantages appear difficult to match for almost all of its competitors. Over time, shopping for packaged travel has shifted to the online sphere, and this has allowed Expedia to grow rapidly over the past fifteen years. The company is poised to leverage its strengths increasingly in the coming years, as its offline competitors become weaker and the market for packaged travel become stronger.
There are two most important sources of opportunity in the packaged travel business in the future. These are the impending retirement en masse of the baby boomers and the increasing shift to online travel purchasing. The baby boomers retiring means that the global travel business is expecting a substantial increase in the coming years. This effect will be particularly pronounced in the parts of the world that experienced the largest baby boom, including core Expedia markets of the U.S., Canada and the UK. The company, therefore, is well positioned to gain simply by virtue of the fact that the market is going to grow rapidly. Expedia does not need to improve its market share in order to share in this gain.
The shift to online travel purchasing is also something from which Expedia is positioned to benefit. The customers who today are not buying their travel online tend to be 60 years or older. Over time, new members of this group will come from generations that area currently tech-savvy and making their purchases online. As a result, there is going to be a shift in the coming years away from bricks-and-mortar package travel sellers to Internet-based ones. At present, there are few such sellers who have the Internet experience and strong brand recognition of Expedia. Moreover, the family of sites that can drive traffic to Expedia -- especially the industry-dominant Trip Advisor -- gives Expedia a source of competitive advantage that will be difficult for even the most powerful of competitors to match.
Expedia is also well-positioned with respect to its ability to simultaneously pursue a cost leadership strategy and a differentiated strategy. The cost leadership strategy can be executed on the basis of Expedia having a significant advantage in pricing power compared with other consolidators on the basis of its size, traffic and financial resources. The traffic also allows the company to provide packaged holidays that cater to niche audiences, which is something that most providers cannot do profitably.
In addition to analyzing Expedia's ability to capture upcoming market opportunities, its ability to deal with threats must also be taken into consideration. The company's main two threats are those of competition and those of the economy. The economy is a threat mainly to the company's growth, not its market share. Expedia has the financial resources to withstand any downturns in the global travel market for the foreseeable future.
The most significant threat comes from competition. There are few barriers to entry, but there are barriers to reaching the size and scope of Expedia. Many firms, however, have financial resources and brand power that exceed those of Expedia. These companies include Amazon and Wal-Mart, but there are others as well. Amazon in particular has extensive experience in online retailing and Wal-Mart has experience and expertise in merchandising. Either of these firms, should they decide to enter the packaged business, could threaten Expedia within years if not months. While the family of sites can act as a hedge against these new entrants, Expedia must be aware that consumers have very low switching costs. They can acquire information from anywhere, and shop around for the best deal. Expedia will need to have exclusivity agreements with top providers, based on its database of past purchases, in order to adequately fend off such challenges.
Overall, however, Expedia is in a strong business position. The company's resources match well with the opportunities that are in the market, and the resources can also be used to defend the firm's market share, if not profitability. There is little reason to believe that under current market conditions Expedia will not continue to grow and prosper.
The set of competitive advantages that Expedia has, especially the family of websites and the 14-year history in the online travel business, will allow it to wage battle against all but the strongest of potential competitors. The firm has strong partners within the travel industry, particularly in accommodation and transportation, and these providers can help to insulate Expedia by providing the company with low prices and an extensive selection of bundles from which to choose. Expedia's proprietary stock of information can allow it to form the most attractive packages possible for its clients. As a result, Expedia has all of the tools that it needs to capture a greater share of what is expected to be a strongly growing market over the coming years. The only question that remains at this point, is whether or not the company will be able to execute this strategy. It is recommended that Expedia build market share quickly over the coming years, however, in order to keep larger, better financed competitors with strong brands from entering the industry, as they have undoubtedly noticed the strong potential in packaged holiday sales online already.
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