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. Another source of income includes a subscription package (named Business Studio PRO), tailored at the hotels registered on its platform.
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.
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.
Apart from the collection of listings, trivago furthermore takes care of coming up with the best possible listings for any given query. It does so 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.
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.
trivago’s platform covers more than 2.5 million hotels across 190 countries. Over 5 million people visit the company’s website every month.
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 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.
Luckily for him, that wasn’t the end of this 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 launch, the trio added Siewert to the founding team. He gained 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. Through 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.
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.
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.
Today, over 1,000 people are employed by trivago. Its website and app serve over 150 million users each month. Over 5 million listings are live on the company’s 54 localized websites that operate in over 190 countries.
How Does trivago Make Money?
As opposed to some of its competitors, including the likes of Booking.com or KAYAK, trivago’s focus remained on only surfacing the best hotel deals.
Meanwhile, other aggregators have started to branch out into different industries such as flights, experiences, or travel insurance.
The goal is to diversify the business and thus protect themselves against the likes of Google, which has started to cannibalize and eat into the aggregator’s businesses by promoting their own products in the search results.
trivago, on the other hand, remains focused on the hotel booking experience. The company’s belief is that by focusing on one single category, it can understand that industry better, surface the best listings, provide a great user experience, and create a strong brand that makes it independent of Google.
The company’s business model remains aligned with this core strategic focus. trivago makes money through two major channels, namely fees it collects for clicks as well as subscriptions. Let’s take a closer look at them below.
Cost Per Click Model
trivago operates on the so-called Cost Per Click (CPC) model. 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.
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.
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, in which the company raised another $287 million, Trivago was valued at around $4 billion.
In recent years, that valuation shrank to below $700 million, with shares being priced at $1.98 (its IPO share price was at $11.20). This is a result of the coronavirus pandemic that has shuck up the whole travel segment as well as declining revenue the company has experienced in the past two years. For the fiscal year 2019, Trivago’s revenue declined to $914.5 million, down 8 percent from the previous year. The company posted profit figures of $18.76 million for the sa