Tripadvisor Forced by Hotel Chains to Reverse Course on Subscriptions to Cash-Back Model

In a stunning reversal, just three months after officially launching the Tripadvisor Plus subscription program in the U.S., Tripadvisor bowed to hotel chain concerns and will transition the offering from immediate discounts on hotels when subscribers book an accommodation to cash-back after check-in.

The change, which begin to take shape in the fourth quarter, seemingly takes the wind out of the program. Consumers obtained an average $350 savings on initial hotel bookings, according to the company, after signing up for the program for a $99 annual subscription fee.

The issue with the current version of the program, which had hotels providing Tripadvisor with discounted rooms at rates lower than the publicly available ones on their websites, and not paying commissions on bookings, is that Tripadvisor was openly displaying these rates to site visitors to entice them to sign up for Tripadvisor Plus.

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In an interview Saturday, Sean Graber, Tripadvisor Plus general manager, said potential subscribers wanted to see what they would be signing up for in advance.

However, despite the fact that Tripadvisor attracted tens of thousands of hotels to participate in Tripadvisor Plus at the property level and from aggregators, such as global distribution systems, major hotel chains balked at Tripadvisor so openly displaying discounted room rates that were below their published retail rates. Under “rate parity” rules, hotels don’t undercut the retail rates they offer to the general public through online travel agencies and on their websites to visitors who aren’t members of their loyalty programs.

One of the reasons Tripadvisor is making the change in the business model is because the company calculated that it wouldn’t obtain enough hotel supply without major hotel chain participation to attract a sufficient numbers of subscribers.

Room Rates That Are Widely Available Elsewhere

The model that starts to get tested and rolled out in its initial stages in the fourth quarter has hotels paying Tripadvisor a negotiated commission and providing the company with their publicly available rates. Tripadvisor, in turn, will use these commissions to provide Plus bookers with cash back, or Tripadvisor Funds, in their Tripadvisor accounts for use once they check into the hotel.

In theory, travelers would be able to use these funds to spend at the hotel, to buy a tour, to book another trip on Tripadvisor at any hotel, or to receive the reward in the form of cash back.

For a time during the transition, Tripadvisor will offer both the upfront discounts for some bookings and cash back for others, but the immediate discounts will get phased out.

Will the Thrill Be Gone?

However, will Tripadvisor Plus have the same appeal when transitioning from the current instant gratification model — when making a weeklong hotel booking at a rate several hundred dollars lower than the rate on the hotel website —to having to wait for the trip to take place and obtaining cash back at check-in?

There are many cash back programs offered by credit card companies and online travel agencies, including HotelTonight and Booking.com, so the new Tripadvisor Plus would have plenty of competition. On the other hand, the substantial up-front discounts in the initial version of the program, had lots of appeal, and the cash back may not be as great for a variety of reasons.

Another factor in the program’s eventual success or failure is the amount of the Tripadvisor Funds that the company would award subscribers after booking may turn out to be less than under the current immediate discounts’ plan. The Tripadvisor cash back will be heavily tied to the amount of the hotel commission, and several of the major hotel chains regularly pay online travel agencies commissions lower than 10 percent, although they may throw in some perks to Tripadvisor bookers, as well.

Countering the idea that consumers might find cash back less compelling than up-front discounts, Graber said in tests the concept of a Tripadvisor Funds “piggybank” resonated with consumers.

Tripadvisor Had High Hopes for Tripadvisor Plus

Subscription programs, including those offered by Inspirato for luxury accommodations and eDreams Odigeo for flights and hotels in Europe, seemed to be gaining momentum throughout the travel industry.

Only as recently as last month, Tripadvisor co-founder and CEO Steve Kaufer told financial analysts that the company’s consumer base is so large — 100 million travelers perusing the site monthly “in normal times” — that Plus in the long run might enroll tens of millions of members.

“So it’s a small fraction of those travelers sign up each month for our subscription product because they know they’re going to save money on these hundreds of thousands of hotels, hundreds of thousands of attractions,” Kaufer said August 6 during Tripadvisor’s second quarter earnings call. “We end up adding millions of subscribers over the next years with that same longer-term opportunity in the tens of millions.”

But some will question whether the revamped Tripadvisor Plus will have legs or whether it will add to a long list of Tripadvisor tests and setbacks, including in vacation rentals, Tripadvisor instant booking, and a much-hyped social feed. 

“This shift would be a big departure for Tripadvisor, having previously pushed Tripadvisor Plus as offering ‘no brainers’ to customers and enticing them with best in class rates,” said Bernstein analyst Richard Clarke. “The new model makes sense and could offer good deals to customers, but will be in a competitive space with Booking.com, Hopper and Revolut also offering cash back/credit on bookings with also charging a $99 fee. This might ultimately be a test if Tripadvisor Plus can be a full service travel subscription offer, not just a discount club.”

Tripadvisor spokesperson Brian Hoyt argued that the Tripadvisor Funds program, which would include some form of “wallet,” would be compelling for hotels in that it goes beyond the usual transactional relationships between hotels and online travel agencies. Under Tripadvisor Plus, the consumers book hotels on Tripadvisor but the hotels process the booking behind the scenes and obtain the customer data.

Tripadvisor executives likewise contended that the new Tripadvisor Plus provides a brand-building opportunity for hotels in that there could be joint communications from Tripadvisor and the hotel to bookers about spending the cash back on property during their stays. In this way, hotels might get an additional opportunity after the booking to generate revenue.

Consumers who signed up for Tripadvisor Plus under the initial vision — up-front discounts on bookings — will have an opportunity to recoup their subscription payment although Tripadvisor didn’t immediately provide details on how this will work.

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