Increased digitization, mobile adoption, international expansion and better analytics are key drivers.

Ecommerce discussions often exclude online travel because this segment is relatively more mature with a lot of the growth coming from international expansion and continued to shift from offline to online channels. Moreover, the market is highly fragmented with just a few big players in a position to make a difference.

But the many small players mean that there is stiff competition and rapid innovation that also drives up their costs. This in turn makes it difficult for them to operate, increasingly driving them toward acquisitions in order to take their technology and expertise to scale.

The main drivers of the market are increased digitization, mobile adoption and international expansion. The stronger economy and higher spending levels provide the perfect backdrop for growth, but currency will remain a headwind this year.

Travel

The US Commerce Department expects international travel to the US to continue increasing over the next few years. In 2014, visitor volume increased 7%, well over the expected range of 3.7-4.2% a year from 2013 to 2017. Visits from 16 of the top 20 countries grew, of which 8 grew double-digits.

The Travel and Tourism industry remains one of the countrys strongest. According to the BEA, the industry spending grew 2.0% in the first quarter of 2015, a deceleration from 4.9% growth in the previous quarter although it compared favorably with the real GDP decline of 0.7%.

Transportation-related commodities and food services amp; drinking places were the points of weakness, growing just 1.9% and 2%, respectively in the last quarter. Spending on passenger air transportation improved to 3.9%. Traveler accommodation also grew. Overall pricing weakened sequentially.

According to the TravelClick North American Hospitality Review (NAHR), stronger average daily rates (ADRs) will drive first-quarter and full-year 2015 revenues in North America. Based on bookings and commitments up to the report date (Jan 28), the research firm sees a 4.5% increase in ADRs offsetting a 0.2% decline in occupancy. ADRs for the full year are expected to increase 4.5% with occupancy increasing 2.8%.

According to the TravelClick North American Distribution Review for the first quarter, digital channels comprising OTAs, hotel websites and GDS continued to gain in popularity. The OTA channel grew 15.1% from a year ago, hotel websites grew 7.1% and GDS 1.1%. Direct-to-hotel and CRO declined 8.4% and 6.1%, respectively.

Based on current booking trends, growth projections for the seasonally strong second and third quarters are a respective 4.3% and 5.9%.

But with rapid technology-driven international expansion, collaborations and acquisitions/consolidations, global travel trends have become an important consideration for domestic operators. As a result, the rising middle class, increased digital sophistication and Internet connectivity in emerging high-growth markets are now important drivers.

STR Global data for May 2015 shows that while occupancy is increasing across regions, this is coming at the cost of prices in emerging regions. Europe on the other hand is seeing currency headwinds while in the Americas the increased demand is being absorbed in higher prices.

eMarketer is not very optimistic about global digital travel sales growth. According to the research firm, this is a more mature segment, so growth rates are decelerating compared to retail ecommerce where they are growing faster. As a result, it expects travels 34.1% share of US ecommerce sales in 2013 to drop to 26.2% by 2018.

However, mobile travel sales are expected to increase share of total mcommerce sales from 31.1% in 2014 to 32.8% in 2018. Overall, desktop travel sales will see continued declines over the forecast period with mobile travel sales decelerating but continuing to grow at double-digit rates.

Further, Mexico, India, Spain, Italy and Norway are expected to have the highest shares of digital travel sales in the next five years, with Brazil, China, India, Mexico and Italy being the fastest growers.

A recent PhoCusWright report mentions the top seven technology trends influencing the travel market. Accordingly, it appears that video is essential to draw customers and content marketing, guides, travel information and ROI tracking can all benefit from it.

Trend two was with respect to search engines. The report says that Googles (GOOGL – Analyst Report) algorithms are now favoring site design rather than keywords, making SEO somewhat redundant. So site design and navigability are becoming essential to capture search traffic. Social media has increased the availability of reviews, so companies are increasing focus on the overall travel experience.

Trend three is increasing mobile usage, which the report says will account for 27% of online travel revenue by 2015.

The fourth trend is in wearables, with Virgin Mobile and a tourism board in Florida already using Google Glass effectively for customer interaction and advertising, respectively. Using big data analytics and social media marketing are the sixth and seventh major trends, respectively.

The top travel booking sites are Booking.com, Expedia.com, Hotels.com, Priceline.com, Kayak.com (acquired by Priceline), Travelocity.com, Orbitz.com and Hotwire.com. Since Booking.com and Kayak are part of Priceline (PCLN – Analyst Report) and the others a part of Expedia (EXPE – Analyst Report), this narrows down the top companies in the segment to Priceline and Expedia. However, there are several others worth considering that include Ctrip International, MakeMyTrip and Qunar, which floated its IPO this year.

TripAdvisor (TRIP – Analyst Report) is also leveraging its strength in referrals to enter the crowded travel booking space.

Digital Advertising

The US digital advertising market has seen some very strong growth in the past few years, such that the discussion has shifted to its most effective channel, which is mobile. eMarketer estimates that while the total digital ad market will grow 47.6% from 2013 to 2017, mobile will grow 271.0%, with desktop declining 17.5%.

Total growth rates are expected to continue declining: 10.3% in 2015, 9.2% in 2016 and 7.1% in 2017. Retail, financial services, consumer packaged goods (CPG) and travel in that order, are expected to be the growth drivers. The mobile platform will remain particularly strong, growing 41.8% in 2015, 33.1% in 2016 and 26.0% in 2017. Spending on mobile ads is expected to increase as a percentage of total spending on digital as well as total media ads in each of the years.

The underlying drivers of growth are the continued increase in the number of netizens, greater propensity of users to consume online, a growing inventory of advertisements that serve to lower advertisement prices and the need to create brand awareness online.

But the market is getting increasingly competitive and pushing players to investment and innovation. The increasing propensity to use programmatic buying techniques (automating the inventory buying process) hurts pricing at market leader Google and rivals Yahoo (YHOO – Analyst Report) and Microsoft (MSFT – Analyst Report).

Facebooks (FB – Analyst Report) large and growing user base and trove of personal data is driving prices on the platform. A lot of other networking companies, such as LinkedIn, Twitter, and Pintertest are also entering the digital advertising space.

International expansion (where rates are lower) and transition to mobile (where conversion tends to be lower) are near-term negatives for these players.

Digital advertising spend continues to move beyond search to social networks and content sites like Facebook, Netflix and Pandora, so the analytics side has been racing to catch up. Most of these players are acquiring or developing their own analytics capabilities, but content providers still have a preference for third-party solutions from companies like Nielsen (NLSN – Analyst Report), comScore and WPP.

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