Why did Australian regulators okay Expedia Inc's $703 million acquisition of Wotif Holdings last October? Documents released on Tuesday explain their official reasoning.
At the core, the regulators were watchful of the rapidly growing domestic market share of Priceline Inc'sBooking.com, which, if left-unchecked, might become a quasi-monopoly.
In its investigation, the Australian Competition and Consumer Commission (ACCC) found that Booking.com became Down Under's most visited OTA website in 2014--overtaking the previous market leader Wotif.
Booking.com also lived up to its name by transacting the most global bookings made by Australians via online travel agencies (OTAs) last year.
The commission defended the merger by arguing that an enlarged Expedia, despite its size, would be more capable of preventing Booking.com from having undue influence on the market.
It also said that both OTAs would remain vulnerable to new competitors, such as "direct bookings through metasearch options...such as TripAdvisor" and by "new products and business models" that might arise.
How did Wotif stumble in performance?
Commission documents say:
"Wotif has experienced a decline in its market share of Australian accommodation bookings since 2011, a period that has seen Booking.com experience significant growth....
For example, The Wotif Group’s number of room nights booked in Australia and New Zealand decreased by 9.4% in between mid-2013 and mid-2014, which Wotif considers is due to it being out-spent on advertising by its competitors....
[More broadly,] this decline is attributed to the lack of ongoing investment in Wotif’s online platform, its booking fee levied to consumers (which puts it at a competitive disadvantage to its competitors who do not charge a booking fee) and its failure to match the advertising spend of its key competitors, especially for key search terms on Google AdWords."
In contrast, during the past two years, Booking.com has boosted its inventory so that it has nearly at the same domestic coverage as Wotif.
So without the acquisition, says the commission, Booking.com might otherwise become "the dominant player in the market in the foreseeable future."
A trend toward consolidation
Wotif remains a huge, profitable player, with lower rates of commission than the other two (only 12% in 2014). Some accommodation providers said that more than half of all bookings received via OTAs are from Wotif.
Accommodation providers told the commission that only the top three digital brands provided significant sources of bookings via intermediaries: Wotif, Expedia, and Booking.
In one passage, the report summarised:
"Industry participants noted that the base commission charged by Expedia and Booking.com in Australia is less than they charge in other parts of the world, and considered that it was the presence of Wotif that constrained Expedia and Booking.com from increasing commissions.
Some industry participants raised concerns that the acquisition of Wotif would result in Expedia increasing commission rates to accommodation providers."
Yet the commission ultimately accepted the arguments of foreign powerhouse incumbents that the best way to ensure competition was to let the Expedia Wotif merger go through.
Expedia has yet to say what its plans for Wotif are, though it does intend to keep the brand.
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