There have been whispers — mostly uninformed — that because private equity firm Silver Lake recently invested $1.2 billion in Expedia Group and $1 billion in Airbnb that the two rivals might have a merger in their future plans.
Newly appointed Expedia Group CEO Peter Kern, who has private equity experience of his own as a former managing partner of InterMedia Partners, spoke with Skift earlier this week about Silver Lake, Airbnb, Google, and his views on mergers and acquisitions in the coronavirus era.
Kern said he hopes Silver Lake will make money from both its Airbnb and Expedia Group investments, and he believes both rivals will emerge from the coronavirus crisis as still-strong competitors.
“Silver Lake was very upfront about their position with Airbnb, which did not bother us at all,” said Kern, who was named Expedia’s CEO in late April.
He added: “Neither one of them is a control investment, a significant investment, that’s going to guide the future of either company.“
It’s clear that Kern views Airbnb and Expedia Group as frenemies, although he used the term “friendly competitors.”
A PARTNERSHIP INVITATION FOR AIRBNB?
Kern said both Airbnb and Expedia are good companies and there is no master plan because of Silver Lake to do a deal. Still, with Airbnb trimming a quarter of its staff and downplaying hotel investment after buying HotelTonight in 2019, Kern said he’s open to a hotel partnership with Airbnb.
“if there are opportunities together like in the hotel space or other things that become opportune we might talk about those things, but there’s no master anything going on,” Kern said. “They are a friendly competitor and that’s fine.”
At the same time, Kern thinks its vacation rental brand, Vrbo, may win new allegiances — even what amounts to exclusive partnerships — with homeowners because of a backlash because Airbnb unilaterally refunded guests because of coronavirus lockdowns, and left homeowners mostly out in the cold.
“We believe for the foreseeable future there is very good business in Vrbo the way it is,” said Kern, who pointed to early signs of the brand’s recovery during the company’s first quarter earnings call Wednesday. “I think we’ll have suppliers who may not have been thrilled with some of the stuff Airbnb did, and are more apt to play ball with us, or to be effectively exclusive to us.”
He said Expedia isn’t mounting a huge campaign urging homeowners to leave Airbnb, nor is Expedia trying to drive a “wedge.”
“I do think in the VR (vacation rental) space, many homeowners don’t necessarily need to be on every platform,” Kern said. “If they are frustrated with one (platform) they can move to another one, and fill up their calendar, and they effectively become exclusive.”
Kern argued it is debatable as to which company — Airbnb or Expedia — took the right approach regarding cancellations and refunds. Expedia urged hosts to provide locked-down guests with partial refunds or vouchers for future travel, but didn’t mandate it.
““They (Airbnb) did what they had to do,” Kern said. “We did what we had to do. We think our approach was more fair to the supply side, and I’m sure we’ll see some benefit from that. But I don’t think it will be tectonic and some major shift of business between us.”
Airbnb declined to comment on Kern’s remarks.
MERGERS AND ACQUISITIONS
Don’t look for Expedia Group to be a major buyer during the coronavirus crisis because it is focused on simplifying its business, and no one knows the course of coronavirus, Kern said.
Kern said Expedia would be opportunistic but doesn’t want to chase the types of deals that appear advantageous “but take us down a rathole.”
THE GOOGLE ISSUE AND PREDECESSORS’ TRACK RECORD
As he did during the earnings call, Kern spoke about deemphasizing performance marketing through Google, and building up its own brand marketing.
Referring — perhaps — to the strategies of predecessors at Expedia Group, Kern argued that Expedia Group’s restructuring will make it more efficient. He said the company’s past efforts to merchandise offers to customers has been “woefully inadequate.”
In the reorganization, the company, for example, consolidated its marketing teams into a single unit working for all its brands, and seeks to avoid having sister brands compete against one another in Google advertising auctions.
“I just think if we fix the things about us that are no fault of any person or effort but just structurally were hard to get done before, and now will not be hard to get done, then we can do ourselves a lot of good before we even get to the question of do we spend another dollar on Google,” Kern said.
Asked whether Expedia Group might withdraw from Google Hotels or Google Vacation Rentals, Kern said his team has probably considered everything. Still, there is still valuable traffic coming from Google, and Expedia doesn’t want to “cut off our nose to spite our face.”
“Some features that you named are less friendly or more disturbing than others,” Kern said. “We measure that and think about that all the time.”
BOOKING.COM HAS PERFORMED BETTER
Booking Holdings, for one, ceased participating in Google’s vacation rentals feature around the world.
Kern looks to rival Booking.com as a model of how to reduce reliance on Google and be more efficient in terms of unit economics — but he argued that Expedia Group has advantages over Booking Holdings, including more data.
A simpler business “has helped them (Booking Holdings) and that has helped them rely less on Google,” Kern said. “There’s the stark example in the art of the possible, and I hope we can do more than that because frankly we have more travel data than they do. We have more air data, we have more brands, and we have a lot of good ways to reach the customer.”
Of course, Booking Holdings had been on the road to becoming more wide-ranging by adding flights for Booking.com and Agoda, and trying to scale its tours and activities business. In the third quarter of 2019, while Expedia and Tripadvisor suffered from Google eating into their respective businesses, Booking Holdings by all accounts was less severely impacted.
THE BOTTOM OF THE TROUGH?
Kern clearly has a reclamation project in Expedia Group on his hands. Earlier this year, senior executive Barry Diller labeled the company “bloated,” with too many complexities, and employees not knowing what to do when they showed up to work.
Expedia was reorganizing and reducing its workforce even before the coronavirus crisis. The company appointed Kern CEO April 23, well into the coronavirus pandemic.
Asked why he would take on the role given the cards he’s been dealt, Kern said: “At this stage of my career, it has to be pretty interesting to make me want to get out of bed in the morning. The push side of all the horribleness was the opportunity I saw. I get excited about helping a group of people change their course. And I think we have a real opportunity to do that.”
As he said during the company’s earnings call, Kern will be judged on how much he can change Expedia’s trajectory.