[shalmanese]

I think that's one of those decisions that only look better with hindsight though. The merchant model had absolutely monster margins compared to the agency model (especially with bundle deals that provided a defensive moat) and Expedia was in a strong negotiation position vis a vis hotels that they didn't want to lose.

I think a lot of people were surprised at just how much inventory was out there and how much the merchant model hindered going after that extreme long tail.

[kiyanforoughi]

Fair. However, nothing stopped them from testing a hybrid (agency/merchant) as the agency model made way more sense to consolidate international hotel inventory as it is way more fragmented than in the US.

[shalmanese]

I think a hybrid would have been the worst of both world because you lose your negotiation leverage without getting in a superior strategic position.

I think Expedia was hoping the hotel industry would modernize and consolidate way faster than it actually did (remember, this was the gogo 90s where the entire world was hopping onto the information superhighway). What they eventually discovered was that it's hard to underestimate just how much hoteliers hate technology, even when you take into account this effect.

Little known fact: Expedia was actually close to buying out Booking.com and switching them over to an merchant model buy Booking.com got cold feet and got bought by Priceline for a pittance just a few years later. If Expedia had owned the biggest merchant provider in the US + Europe, there's a fair chance today no agency competitor could have stood up against them and the entire world would be still on the merchant model.

[kiyanforoughi]

All good points. I just don't think a merchant model would've worked in anywhere but the US. The market is just too fragmented elsewhere (especially Asia & Europe).