Despite now being a larger company than AOL , TripAdvisor's IPO got relatively little coverage in the business press and you could be forgiven for not knowing exactly what the company actually does. It may be helpful to think of TripAdvisor as the Yelp of travel.

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See our explainer on Yelp's business here. Like Yelp, the site has grown through user-generated reviews of hotels and attractions , keeps visitors engaged through social networking features, and uses ruthless search engine optimization tactics to grow its audience.

Also like Yelp, the company has been subject to a number of controversies and lawsuits regarding its reviewing process and practices. There are also some big differences, as we'll see.

TripAdvisor uses Facebook to find and connect with your friends as soon as you sign up see screenshot above. The site then uses information from your friends' profiles, such as restaurants and other businesses they have 'liked', to create a personalized city-specific social traveling experience. You may, like myself, be a bit curious how the site already knew who were when you've never enabled the Facebook feature.

Well it turns out if you have ever used the 'Where I've Been' app on Facebook to rub in your friend's faces in how much more cultured you are than them, then you have inadvertently become a TripAdvisor user.

They purchased that company last July. Including its subsidiaries, the company has more than 65 million monthly unique visits. But how does TripAdvisor make money? According to the their S-4 filing the equivalent of a S-1 for a spinoff , the company earns substantially all of its revenue through click-based advertising , although they also have display advertising see screenshot below with lots of click-based ads. TripAdvisor generates revenue from clicks because of the peculiar economics of the online travel industry.

Travel was one of the first industries to be disintermediated by the internet, and it's an industry with big average purchases on things with low marginal costs, like hotel rooms. Those economics mean online travel is very lucrative and, as a result, very competitive.

Because people spend money, average revenues-per-user are high. Because ARPUs are high, sites spend tons of money bringing in users. Because of that, ad rates are high, which means the losers lose hard they can't break through the noise because they can't afford to buy traffic and the winners win big because they reap the winnings.

All of this is to say TripAdvisor has got some pretty good economics: TripAdvisor has another good thing going for it, which is its relation with its former parent, Expedia.

At this point it is necessary to step back for a second and explain the nature of the of the spinoff. Expedia is not exactly shoving TripAdvisor into the cold and wishing it the best of luck on its own.

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Expedia shareholders are being compensated with TripAdvisor stock as part of the spinoff. In other words, the companies have a mutual interest in each other's success. It is our understanding that this strategic partnership will continue for the foreseeable future with TripAdvisor essentially operating Expedia's ads while reaping fees from traffic directed to Expedia.

The partnership undoubtedly brings down TripAdvisor's sales and marketing expense as well. Needless to say, this is a huge strategic advantage for TripAdvisor.

These are due to both TripAdvisor's economics and its relationship with Expedia. But part of these economics depend on a healthy relationship with Google , which is another can of worms. In the past the company has been criticized for using sleazy SEO tactics and then burying its content under a slew of obnoxious click-through ads.

Since then, it seems the company has cleaned up its act a bit and refocused on its content, which can be quite good. This underlines an important point, though: And just like Yelp, this relationship has been pretty contentious.

TripAdvisor has complained that Google has appropriated its content for Google Places without due credit, not to mention the web traffic it peels off. Now that Google has full-on moved into the travel space with Google Flights , TripAdvisor is only a step away from directly competing with the hand that feeds it. On the whole, TripAdvistor is a very healthy business, with favorable economics and a good position in the marketplace.

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Like many other companies, it faces a strategic threat from Google, but that is mitigated by the strength of its relationship with Expedia. Tech market is nowhere near the dotcom days. How augmented reality is changing the way we work. You are using an outdated version of Internet Explorer.

How $3 Billion TripAdvisor's Business Works - Business Insider

For security reasons you should upgrade your browser. Please go to Windows Updates and install the latest version. Trending Tech Insider Finance Politics Strategy Life Sports Video All. You have successfully emailed the post. The Economics Of Online Travel Media According to the their S-4 filing the equivalent of a S-1 for a spinoff , the company earns substantially all of its revenue through click-based advertising , although they also have display advertising see screenshot below with lots of click-based ads.

SEO Blues In the past the company has been criticized for using sleazy SEO tactics and then burying its content under a slew of obnoxious click-through ads. TripAdvisor Expedia IPOs BII Research. Recommended For You Powered by Sailthru.

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