The trivago Business Model – How Does trivago Make Money?

Executive Summary:

trivago is a hotel booking platform that gathers and displays listings from over 100+ travel-related websites across the web. Users can browse a selection of over 2.5 million hotels and make a booking on trivago’s partner site (including platforms such as Airbnb or Booking.com).

The business model of trivago is based on a Cost-Per-Click (CPC) model. The company, therefore, makes money whenever a user clicks on one of its listings. Other sources of income include subscriptions and display ads.

Founded in 2005 and headquartered in Düsseldorf, Germany, the company has become a huge success. In 2012, Expedia went on to acquire a majority stake (61.6 percent) in exchange for $632 million. Four years later, trivago went public on the Nasdaq stock exchange, becoming the first German startup to do so.

How trivago Works

trivago is a hotel booking marketplace that accumulates listings from over 100+ websites across the internet.

how trivago works
trivago.com

The company is a so-called metasearch engine, which are platforms that scrape the content of other websites and list it on their own page. Similar models have been applied in the job or apartment listing space by companies like Indeed or Zillow.

This greatly increases the amount and variety of offerings a consumer can browse. Example websites that trivago scrapes include platforms such as Booking.com, Agoda, Airbnb, or Expedia.

The company is, therefore, incentivized to come up with the best listing for any given search query.

It does that by a) allowing to filter more narrowly (i.e. by ratings, hotel stars, distance, or price range) and b) utilizing machine learning algorithms that, over time, learn what the “best” listings are and start recommending it to users.

When making a purchase you’ll complete it on trivago itself or be redirected to the original source (such as Airbnb, for example).

Aggregators like trivago are not liable for the quality of the stay or the payment. This responsibility remains either with the hotel or booking site.

Travellers on trivago can either book stays (apartments, hotels, or houses), flights, or rent cars.

A Short History Of trivago

trivago, headquartered in Düsseldorf, Germany, was founded in 2005 by Rolf Schrömgens (picture), Stephan Stubner, Peter Vinnemeier, and Malte Siewert.

Prior to launching trivago, Schrömgens, Stubner, and Vinnemeier (who all became friends during their studies at German business school HHL in Leipzig) already made their marks in the German startup world.

In 1999, at the height of the dot-com craze, the trio launched Amiro.de, a platform that helped consumers to compare prices across various items. Soon after the company’s inception, they merged together with ciao.de, another price-comparison platform.

In the months that followed, ciao went on to raise over $20 million in venture capital. Unfortunately, the merger and investment led to a dilution of their shares, leaving them with almost nothing to show for.

Soon after, all three founders left the company. Schrömgens went on to start another business, which ultimately failed. Then, he dabbled in the world of academia, but quit his Ph.D. shortly after.

Left without ideas, he moved back to Düsseldorf, his hometown, to take over his family’s restaurant business. He was essentially broke and lagged any meaningful idea to follow.

Lucky for him, that wasn’t the end of the story. After leaving ciao, Schrömgens went on to teach himself how to program. He dabbled in various software projects together with his university buddies Stubner and Vinnemeier.  

And as fortune would have it, one of those projects would end up becoming trivago. The company was launched at a time when many other hotel booking sites just went or already started taking off. The company’s role models became the likes of Booking or Hotels.com, which are now juggernauts of the travel industry.

One year after launching, the trio added Siewert to the founding team. He had extensive experience in the financial sector, working on M&A deals for banks like HSBC and Merrill Lynch.

trivago, being the first local booking platform of its kind in Germany, quickly took off. Two years after its official launch, the company already had more than two million people visiting its website every month.

And this time, the founders learned their lesson. That meant staying extremely resourceful when it came to spending as well as raising capital. Throughout the first five years of its existence, trivago raised less than $2 million in venture capital funding.

The focus on resourcefulness would end up being the right decision. In 2012, Expedia spent $632 million in cash and common stock to acquire 61.6 percent of trivago. Yet again, Schrömgens and his team would insist on keeping their shares. Even after the investment, the founding team would keep over 30 percent of the company.

Under Expedia’s guidance, trivago would go on to expand into new markets and regions. The continued growth led to the company’s IPO in 2016. Apart from raising $287 million in its public offering, it became the first German startup to list on the Nasdaq stock exchange.

One of trivago’s recipes for success was grounded in the way it treats its employees. The company does not believe in hierarchies and lets employees decide how many days of vacation they take in a year. In 2016, the company moved into a new state-of-the-art office, highlighting some of the company’s values through architecture.

Second, in an effort to decrease its independence from Google and increase brand awareness, the company had multiple hits in the advertising space. Its slogan “Hotel? trivago” became one of the landmarks that made the company so distinguishable.

But keeping public investors happy and continuing on the path of growth does sometimes come with its own set of problems. Talking about Google, for instance: the search engine behemoth decided to launch Hotel Finder (later renamed to Google Hotel) in 2012, a trivago-like metasearch engine that lists hotels and other accommodations.

D-EDGE Hospitality Solutions state that Google’s market share in the hotel search industry increased from 0.2 percent in 2012 to 52 percent in 2019. Likewise, trivago has stated in many of its revenue reports that this heavily eats into the company’s business.

Furthermore, the company was caught breaking Australian consumer laws when it created misleading representations about its hotel room rates – both on the company’s website and via its TV advertisements. It was hit with a $32.6 million penalty in April 2022.

After all these years of success and turbulence, Schrömgens finally decided to step down at the company he once started. He handed his CEO position to Axel Hefer, who joined the company in 2016 as CFO. Schrömgens departed from his position in December 2019 and went on to join Trivago’s advisory board.

In the meantime, demand for trivago’s aggregation services began to bounce back as Coid-19 vaccines across the world would roll out.

The re-accelerating growth even enabled the company to make its first acquisition in three years. In January 2021, it acquired online travel agency Weekend.com for an undisclosed amount.

The firm also expanded the product’s functionality, for instance by adding an activities section in April 2021. Rebounding traffic, furthermore, enabled trivago to pour tens of millions of Euros into marketing its service again.

Today, trivago lists five million accommodations from 190 countries across the globe. Over 1,000 people are employed by the company on a full-time basis.

How Does trivago Make Money?

trivago makes money from cost-per-click advertising, display ads, as well as by selling various subscription packages.

It runs an aggregator business model, meaning trivago is responsible for organizing and optimizing query results. It then charges a fee to companies willing to advertise or list on the platform.

Let’s take a closer look at trivago’s business model in the section below.

Cost Per Click Model

Most of trivago’s revenue is derived from Cost Per Click (CPC) advertising. This means that the company makes money whenever a user clicks on one of its advertiser listings.

The company defines this as Referral Revenue in its financial statements. Referral revenue makes up the majority of the company’s income.

For the platform’s advertisers, including travel powerhouses such as Expedia, Booking, or Airbnb, the process works as follows:

  • First, they set an ad budget that they would be willing to spend on trivago.
  • Second, they identify the search terms that they would like to rank for, such as “London” or “Barcelona” and upload listings for these categories/cities.
  • Third, advertisers start bidding for these keywords. The more an advertiser bids on a given keyword, the higher the likelihood of its listings ranking on top of the search results.
  • Fourth, whenever the user clicks on the listing and is redirected to the hotel’s website, a fee is deducted from the budget.

trivago’s algorithms then take care of displaying the best possible offer, i.e. the one that results both in the highest click-through rate and would lead to a booking.

Subscriptions

The second stream of income, although only making up a fraction of the company’s revenue, is a subscription fee that is charged to access the PRO package of Business Studio.

Business Studio is primarily aimed at hoteliers. It helps them to compete with the likes of Booking.com, Agoda, or Airbnb by allowing them to:

  • Upload and manage their own listings
  • Track impressions and clicks of their listed properties
  • Receive an overview of guest ratings
  • Post special offers
  • Obtain visitor profiles to better understand and target customers

While Business Studio’s basic version is free of charge, customers will need to pay to gain access to some of its advanced features. Example PRO features include the option to advertise activities, display local news, or show any other updates relevant to the hotel’s region.

trivago will provide a pricing quote upon request. The company claims that the PRO package leads to an average of 21 percent more clicks and 45 percent more bookings.

Display Advertising

Lastly, trivago also generates revenue via display advertising. These ads are displayed across the site, for example on the right sidebar as well as within search results.

trivago, in all likeliness, is compensated on an per-impression basis. Meaning whenever a user sees an ad, trivago collects a small fee.

With more than 95 million unique monthly visitors, there’s certainly a lot of eyeballs to be had for advertisers.

This seems particularly applicable to any company in the travel industry. For example, hotel chains such as Hilton would be suitable partners to promote on trivago.

trivago Funding, Valuation & Revenue

According to Crunchbase, Trivago has raised a total of $55 million across three rounds of venture capital funding.

Notable investors into the company include the likes of Insight Partners, Global Founders Capital, HOWZAT Partners, and many others.

trivago was valued at about $915 million when Expedia acquired a 61.6 percent stake in the company, paying $564 million in an all-cash deal.

During its 2016 IPO, which allowed the company to raise another $287 million, trivago was valued at around $4 billion. These days, its business valued at about $600 million.

For the fiscal year 2021, trivago reported annual revenues of €361 million, representing a 45 percent increase from the Covid-riddled prior year.

Who Owns trivago?

As previously stated, trivago had been acquired by Expedia, which paid $632 million in cash and common stock to acquire 61.6 percent of the company.

Four years later, trivago went public, meaning portions of its stock are made available to outside investors.

PAR Capital Management is currently the largest public shareholder with an ownership stake of 22 percent.

Other major shareholders include mutual fund ETFMG Travel Tech (3.67 percent) and Columbia Management Investment Advisers (2.17 percent).

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.