By: Blake Friesen

Technology has changed the restaurant and travel industries drastically from how they were 15 years ago.  Food critics who write for the local newspaper now have less sway over the success or failure of a new restaurant, and travel agents who service the offline travel crowd now have fewer clients.  The once-powerful place of critics and travel agents in society has been disrupted by handy online services such as TripAdvisor, Yelp and Priceline, new multi-billion-dollar companies that allow customers to search millions of listings and reviews in an instant.  The services also allow everyone to be a critic.

These companies have used technology to usher in a new age of competition in which restaurants, hotels, airlines and many other businesses compete for digital awards in the form of ratings given to them by customers.  If enough customers reward individual restaurants and hotels with favorable ratings, those businesses thrive.

Michael Luca, an assistant professor of business administration at Harvard Business School, has completed research that suggests a one-star increase on Yelp leads to an increase in revenue of between 5% and 9% at independent restaurants.  His research also found that the rising influence of Yelp has contributed to a decline in the market share of chain restaurants.

Chain hotels, meanwhile, have managed just fine with the increasing influence of TripAdvisor.  Kate Colley, the public relations manager at Four Seasons Hotel Vancouver, says social media keeps hotel managers on their toes and allows them to provide better service to customers:  “It puts the power back in the hands of the consumer, so they tell you how their experience was. Our strength is our service. We make mistakes, and we have to answer to the customer, which is okay with us.”  Reviewers have rewarded Four Seasons Hotel Vancouver with four and a half bubbles from 1,509 reviews.

According to a study by Chris Anderson of Cornell University’s Center for Hospitality Research, for every point that a hotel improves its online reputation, its revenue per available room goes up 1.4%, and for every point its reputation improves on a five-point scale, a hotel can raise prices by 11% while maintaining the same level of occupancy.

Businesses such as the Four Seasons Hotel Vancouver are embracing TripAdvisor and Yelp with the knowledge that, for better or worse, these tech companies are here to stay and their influence is continuing to increase at a staggering rate.  To better understand just how big of an influence these companies yield, let’s take a look at their numbers.

TripAdvisor Inc. (TRIP)

TripAdvisor, the world’s largest travel site for reviews and travel-related content, has 315 million unique monthly users, many of whom have contributed, by their own volition, a combined 200 million reviews on over 915,000 hotels, 650,000 vacation rentals, 2.4 million restaurants and 500,000 attractions.  The website has local versions in 45 countries, including China under the brand daodao.com.

Every minute, contributors add 125 new reviews to this travel-industry Leviathan.  And as contributors help each other with their due diligence, they are enabling TripAdvisor to continue impressing investors with its admirable financial statements.  In its fiscal 2014, TripAdvisor earned a net income of US$226-million on revenue of US$1.24-billion, an increase of 32% from the previous year.  It now has a market capitalization of US$11.66-billion.  All this from a company founded in 2000.

TripAdvisor is an operation that, quite simply, has the power to spread the word about a newly opened restaurant or hotel and make it an instant hit.  The company estimates 11% of the world’s monthly unique visitors in online travel were using the TripAdvisor app, which has been downloaded nearly 175 million times, and a recent comScore study estimates over 40% of online hotel bookers in the major markets visit TripAdvisor prior to booking.  The impact of TripAdvisor is so large that many restaurants and hotels now have marketing managers who routinely respond to reviews, sometimes five days a week.

Steve Kaufer, TripAdvisor’s co-founder and CEO, said in the company’s latest conference call that he is focused on expanding in China.  TripAdvisor entered the Chinese market in 2009 by launching daodao.com, and later acquired Kuxun.cn, the second-largest online Chinese travel site.  There are already 500 million smartphone users in China, more than the entire population of the U.S.

Yelp Inc. and Dianping Holdings Ltd.

Yelp has more than 71 million cumulative reviews of almost every type of business.  On average, the site has 135 million monthly unique visitors and there are more than 85,000 active accounts.  About 37.5% of its users have an annual household income higher than US$100,000.  The company currently has a market capitalization of US$3.78-billion.  Keep in mind that in 2009, the company spurned a US$500-million takeover bid from Google and a subsequent US$1-billion bid from Yahoo.  This company was formed in 2004 by two former PayPal workers, Jeremy Stoppelman and Russel Simmons.

Yelp listed on the New York Stock Exchange in March, 2012, after selling IPO shares at US$15.  The stock underwent explosive growth in 2013 and 2014, reaching US$101.75, but has backed off since the autumn of 2014, and these days it is range bound at around US$50.

The company also reached a milestone in its fiscal 2014 by turning its first annual profit.  It recorded a net income of US$36.5-million on revenue of US$377.5-million.  Revenue rose 62% from the previous year.  So far, Yelp has no presence in China.

There are, of course, similar services in China.  Dianping Holdings Ltd. fits the bill and it even has a similar market capitalization at US$4.05-billion, based on a US$850-million private placement that closed in March, 2015.

In 2003, Zhang Tao founded Dianping in Shanghai after attending the Wharton School at the University of Pennsylvania, where he earned his MBA.  Yes, Dianping pre-dates Yelp, proving wrong the China-copycat stereotype.  Dianping has an edge over Yelp in monthly active users with about 190 million.  It has more than 60 million reviews of restaurants and local businesses in 2,300 cities in China.  Tencent Holdings Ltd., the owner of WeChat, is Dianping’s largest shareholder with a 20% stake.

The closest competitor to Dianping in China is Meituan, which has a higher market capitalization of US$7-billion but offers a service more similar to Groupon.  Alibaba Group Holding is the largest shareholder of Meituan.

The difference between a U.S. app such as Yelp and a Chinese app such as Dianping is the willingness of Dianping and its competitors to charge lower fees to customers, which eradicates foreign competition and keeps new entrants from entering the market. It also makes long-term growth more favorable for Dianping.

Priceline Group Inc. and Ctrip.com International Ltd.

Moving on to the real behemoths of the travel sector, Priceline is the largest online travel agent in the world.  With a market capitalization of US$64.05-billion, there is no close competitor.  Its market capitalization dwarfs Expedia, which some mistakenly have referred to as an equal, but at US$12.53-billion, there is a large gap between the two.

Priceline listed more than 16 years ago during the tech boom.  When the tech bubble burst, the stock tanked and remained lifeless until around 2006 when it experienced significant turnaround.  The stock has risen more than tenfold over the past six years.

Priceline generates most of its revenue from six brands: Priceline.com, Booking.com, Agoda.com, Rentalcars.com, KAYAK and OpenTable, the latter of which Priceline acquired in the summer of 2014 for US$2.6-billion in an all-cash deal.  Booking.com, which generates the most revenue for Priceline, has more than 600,000 properties in over 200 countries to choose from in 42 languages.

Despite Priceline’s all-encompassing presence, it continues to expand, a story backed up by the company’s financial statements.  In its fiscal 2014, Priceline posted a net income of US$2.42-billion on revenue of US$8.44-billion.  Compare this fiscal 2010, when it earned a net income of US$528-million on revenue of US$3.08-billion.

OpenTable, meanwhile, dominates the North American online restaurant reservation sector with a market share of over 50%.  It seats more than 50 million diners at over 30,000 restaurants each quarter, and there is plenty of room for expansion.  These days, about 25% of restaurant reservations in the U.S. are made online, and that number drops below 10% in nearly every international market.

With Priceline’s dominant presence in the U.S. secure, it is now looking at China.  Last year, it invested US$500-million in Ctrip through a purchase of convertible bonds, providing Priceline the option to own up to 10% of Ctrip.  Darren Huston, the CEO of Priceline, famously said last year that the deal makes Ctrip a second cousin to Priceline, meaning they are getting to know one another better.  Both companies appear happy with the deal.  They share inventories with one another, providing Priceline’s English customers with access to Ctrip’s massive library of 3 million restaurants, 650,000 hotels, 100,000 destinations, 2 million flight routes and 30 million authentic reviews.

Mobile now accounts for 70% of Ctrip’s online hotel transactions, and 55% of online air ticket transactions, and the company is well-equipped to deal with mobile.  Its app has more than 600 million downloads.

Jenny Wu, Ctrip’s chief strategy officer, recently said by phone that of the 600 million downloads of the mobile app, 200 million are active users.  She also predicts Ctrip’s margins will increase from its current -2% to a range of between 20% and 30% by 2020 because of its large market share in China.  The company generated a net income of US$14.76-million on revenue of US$1.25-billion in its fiscal 2014. Despite having a negative margin, the company was able to turn a profit through interest income and other income.