Marketing and Promotion
Marketing activities form the major cost component for travel websites such as Expedia. For 2014, Expedia spent 48.7% of its revenue on marketing and promotional activities. The company’s marketing activities aim at building brand value to drive traffic and bookings. The more traveler transactions across the company’s brand platforms, the better its profitability.
The company’s selling and marketing expenses include traffic generation costs from search engines and Internet portals, television, radio and print spending, private label and affiliate program commissions, public relations, personnel costs, and stock-based compensation costs. Its costs have grown from $1.06 billion in 2009 to $2.81 billion in 2014, indicating the company’s focus on building brand value.
Cost of revenue
The other major for Expedia is cost of revenue. Cost of revenue consists of customer operations such as support and telesales, credit card processing, including merchant fees, charge backs, and fraud, and other data center costs to support websites, supplier operations, destination supply, certain pre-purchased hotel supply, and stock-based compensation. The company spends about 20% of its revenue on these services and has been able to successfully bring down costs.
Being an online service provider means that the company has to provide 24-hour-a-day, seven-day-a-week traveler sales and support by telephone or email to its customers. Part of this responsibility is handled by in-house call centers that require the company to invest in developing call center technologies. Data centers containing its systems infrastructure and web and database servers also require 24-hour monitoring and engineering support, along with other hardware’s and backup systems. All these technologies require significant investment and manpower. Technical costs are about 11.9% of its revenues for 2014.
Apart from the key elements mentioned above, the company also has to bear general and administrative costs such as human resource costs, legal and finance expenses, and other acquisition and restructuring related expenses.