E-commerce giant Amazon.com, Inc. (AMZN) is throwing in the towel on a wildly lucrative market worth an estimated $157 billion as of 2013, the company said.
In case you were wondering, that enormous market is online travel. Which is why Priceline Group Inc (PCLN), Expedia (EXPE) and Tripadvisor (TRIP) won’t be mourning the e-tailer’s exit. These three companies happily dominate that industry today.
Seeing AMZN abandon such a large market so quickly — six months after it entered, to be precise — says quite a bit about the difficult economics of the industry. Granted, the economics aren’t so difficult for PCLN, EXPE and TRIP, which are the major beneficiaries of the oligopolistic system today.
But why is AMZN quitting so early on? Let’s take a look.
R.I.P. Amazon Destinations
First, a little background on the service that AMZN shuttered on Tuesday. Launched back in April, Amazon Destinations rolled out in several major markets like Seattle, L.A., New York, and the Boston Metro area.
Frankly, it wasn’t expected to be much of a threat to PCLN and its peers in the online booking area, since it focused on offering local weekend getaways within driving distance of consumers.
One can see how this service might be useful, but its far more niche than what PCLN, Expedia and Tripadvisor do. Each of these sites offers travel plans — not just hotel reservations but flights, restaurant reservations, car rentals, and more — across the globe.
An AMZN spokesperson was quoted by TechCrunch as simply saying, “We have learned a lot and have decided to discontinue Amazon Destinations.” I expect one thing AMZN learned was that its niche focus simply wasn’t economical … and that scaling up to compete against PCLN and others wasn’t, either.
Priceline and Expedia’s Industry Dominance
As of 2013, Expedia, PCLN, Orbitz Worldwide, and Travelocity commanded a combined 95% market share in the U.S. market. Expedia acquired Orbitz earlier this year for $1.6 billion in an all-cash deal, just days after snapping up Travelocity. Now, the market is essentially just three companies: PCLN, Expedia, and Tripadvisor.
I suspect those three companies have such a grip on the booking industry — and likely some sort of exclusive relationships with hotels — that AMZN simply couldn’t make meaningful inroads in the market.
With AMZN exiting the online travel biz pretty much entirely — it also stopped doing flash-sales on hotel rooms via its local discount service Amazon Local — the experiment is over. Amazon clearly never snapped up much of the market, so I’m sure PCLN, EXPE and Tripadvisor won’t really reap any windfalls in their financials.
They will, however, enjoy not having to go head-to-head against one of the most notoriously ruthless competitors in the world of business today. I’d encourage investors not to discount the death of a potential threat in AMZN, especially in a consolidating, highly lucrative industry such as this.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
