Do Not Buy A Dog With A Bomb On Its Back.

The Uber buying Expedia rumour, I have a look-see thinking about industry implications and strategic risks:

The talk of a potential Uber-Expedia partnership excites many folks in the travel and tech sectors. Uber’s global mobility dominance combined with Expedia’s online travel agency clout hints at transformative synergies. However, such a merger, while promising, comes with massive risks, especially from AI’s evolving role. I discussed that last Saturday with this article?https://www.dhirubhai.net/pulse/future-travel-otas-decline-value-peter-syme--50hze/. This Saturday morning, I explore the impact of Expedia and Uber's potential deal. However, what I am deeply studying this weekend is dogs, bombs and AI, all of which I have a passion for. It's not a subject that will resonate with many, but I have added a quick summary at the end for those mad enough to be

The Case for an Uber-Expedia Deal ( Uber being the buyer)

Combining Uber’s local transportation, food delivery, and freight services with Expedia’s global travel booking empire could establish an end-to-end travel ecosystem. Imagine the seamlessness of customers who book their hotel and flights and then have their local transport sorted upon arrival—all under one platform. This is the holy grail of travel experience, and a potential Uber-Expedia merger could make it a reality.

Live example. I just booked flights to San Francisco this morning. My "travel GPT" found them, but I still had to go to a website to book them. Another website for accommodation, and on arrival, I will be using the Uber App to go from the airport to the accommodation.

Far beyond customer convenience lies the strategic value: together, they could amass a larger pool of user data, heightening personalisation and creating targeted offerings that cater to individual preferences with precision. Data feeds or data that is important to the individual will increase in value. Commodity data will decrease in value as it spreads wide and far in an AI world.

The Pendulum Shift: From Super Apps to Fragmented Services

Super apps might work in some parts of the world, but in Western markets, the demand leans toward targeted solutions that get specific jobs done efficiently. People want results – fast and without extra clicks. In many ways, Uber and Expedia remain at the forefront of these fragmented, feature-rich offerings. With Uber’s scale in transport services and Expedia’s stronghold in global travel bookings, this merger would let each company leverage its niche strengths without overwhelming the customer. Everything in one app leads to a super app, but that assumes there is no service above that driven by AI, which I think there will be. The super app will not be travel apps but AI agents and the fragmentation of those will be massive.

Economic Moats: Combining Powers, But at What Cost?

From a moat perspective, Uber’s network effects and data collection on ride-sharing and user demand offer invaluable insights. Meanwhile, Expedia’s vast travel inventory, brand portfolio, and extensive supplier relationships enhance its appeal. But while combining these moats might seem to deepen each company’s strengths, there’s a risk of overvaluation and a dilution of focus. Here’s why.

Uber’s Economic Moats

1. Network Effects—Uber’s ride-hailing model thrives on a two-sided ecosystem: more drivers mean faster pick-ups, which attract more riders. Adding travel bookings, however, demands a deeper integration with local suppliers.

2. Brand Recognition and Innovation – Uber is synonymous with fast, reliable transport in Western markets, but travel comes with its own set of customer expectations.

3. Cost Advantages – Uber’s asset-light model is attractive; however, expanding beyond the gig economy raises operational costs. When combined with the people heavy travel industry, Uber risks financial strain.

Expedia’s Economic Moats

1. Scale and Supplier Relationships – Expedia’s market reach offers economies of scale, but travel industry competition limits its pricing power.

2. Technological Platforms – Expedia’s efficient interfaces and data-driven personalisation are substantial assets, yet integrating them with Uber’s services will be technically complex and challenging to match the user experience of ride-hailing.

Potential Combined Moats

Integrating Uber and Expedia could enhance the customer journey, from travel planning to last-mile transportation. However, the risk lies in execution: the moat might be sustainable in theory, but there are ample chances of eroding customer trust and stretching core competencies too thin.

AI’s Potential to Undermine the Partnership

While AI could bring operational efficiency and customer personalisation to new heights, it also threatens to upend the entire OTA model that Expedia relies on. In a world where AI agents like ChatGPT and Google Gemini facilitate direct, user-tailored bookings without an OTA interface, platforms like Expedia could become redundant. This is a strategic risk that could kill any potential deal. You want to buy companies riding a wave, not ones in a storm of disruption.

Consider the new purchase funnel in a travel context:

1. AI-Driven Data Feeds – Customers increasingly rely on AI to filter options and book directly, bypassing traditional OTA interfaces.

2. Reduced Relevance of User Interface (UI) – If AI can book travel on a user’s behalf, Expedia’s heavily invested UI assets diminish in value.

3. Direct Supplier Bookings—Suppliers now have strong incentives to cater directly to AI agents, further reducing OTA relevance. AI agents are trained to find the best rates or most flexible options, and suppliers will learn this. Of course, OTAs will fight back, but that means margin reduction.

Competitive Landscape: Can They Sustain Value?

A combined Uber-Expedia faces challenges from competitors poised to capitalise on direct-to-consumer trends. Direct bookings and AI-enabled personalisation could lure customers away, diminishing the added value Uber and Expedia might hope to capture. Besides this, they risk direct channel competition, where suppliers incentivise direct bookings with discounts and perks, leaving OTAs out of the equation.

A fragmented service model, appealing to most consumers today, thrives on choice. But there’s a deeper issue: legacy models that the OTA industry, including Expedia, has historically relied upon could prove challenging to adapt to the fast-paced AI-driven ecosystem.

Risks and Challenges: Why Uber Should Reconsider

Integration and Cultural Differences

Uber’s agile, fast-paced culture contrasts sharply with Expedia’s more traditional setup. This creates a significant integration risk, which has often led to clashes and disengagement from key talent in past tech mergers. Obviously, the CEO of Uber is ex-Expedia, which is why folks pay attention to this rumour. He may be able to handle these challenges better than anyone else on the planet.

Regulatory Challenges

The likelihood of regulatory hurdles and antitrust concerns is high. A merger of two giants operating in multiple regions, especially in sensitive industries like transport and travel, will draw scrutiny from regulators wary of excessive market power. Big deals are just not happening much anymore. The regulators are trying to stop big companies from becoming bigger. Unfortunately, they did not study the law regarding unintended consequences. When you stop big companies from acquiring others, they have to find value in other ways, and that means going deeper into verticals that they may not have wanted to.

Financial Burden and Capital Allocation

Expedia’s acquisition would require Uber to raise substantial capital, likely involving debt financing or shareholder dilution. If revenue synergies fall short or integration costs escalate, Uber’s financial stability could be jeopardised. Additionally, Uber might benefit more by investing in autonomous technology partnerships and expanding its core business rather than diversifying into new, purchase capital-heavy sectors.

Technological Disruption and AI Dependency

AI-enabled platforms increasingly facilitate direct bookings, undermining traditional OTA business models. Voice assistants and personalised AI agents will streamline the booking process without visiting an OTA. Additionally, legacy systems at Expedia could struggle to integrate with Uber’s more flexible platform, requiring costly updates and creating a dependency on AI technology that could dilute value further.

The Future of Data: The Shift from OTA to AI-Driven Platforms

A major shift is happening in data’s role in travel, with data driving all facets of customer interaction and personalisation. This trend might initially benefit OTAs with rich databases, like Expedia. However, the data needed to fuel these AI agents is easily commoditised, raising questions about the value of Expedia’s vast data repositories. It’s plausible that Uber’s direct customer data might even offer greater long-term value.

AI-driven platforms will bypass traditional OTAs, going straight to the source, focusing on immediate, real-time customer preferences and price sensitivity. OTAs face declining value, as customers won’t care who provides the booking if the price and experience fit their needs.

Strategic Alternatives to a Full Acquisition

Rather than a full acquisition, Uber could benefit from a strategic alliance with Expedia. The partnership would enable Uber to integrate Expedia’s travel services without enduring the complexities and high costs of a merger. Here are some practical alternatives:

1. Strategic Partnership – Allows Uber to enhance its services by tapping into Expedia’s travel data without regulatory or financial complications.

2. Building Internal Capabilities – Uber could consider building its booking functionality, aligning with its strengths in mobile platforms and personalisation.

3. Exploring Niche Travel Acquisitions – Smaller, targeted acquisitions may bolster specific areas without risking a full merger’s cultural and operational impact.

Will it happen, or will it not?

If this had been three or four years ago, I would have been a lot more optimistic about the potential of this deal happening. Today, it still offers intriguing possibilities, but the risks are substantial. Uber and Expedia’s different business models, the high acquisition cost, regulatory hurdles, and AI’s disruptive potential create significant barriers, adding up to a firm no from me.

A more strategic approach would be for Uber to explore partnerships that retain its focus on mobility and delivery while adding value to the customer journey in a lighter-touch way. However, they are testing Uber Travel in the UK just now, and the test results, which I do not know of, will significantly impact this deal and Uber's deepening or exiting the more comprehensive travel system.

Now that this is being considered, will others who may be much more suited to taking on Expedia be sniffing around? A company valued at $20B is not a small purchase by any means, but to put it in context, Expedia is only the 973rd most valuable company in the world as of Oct 2024. Compare that to Booking, valued at $145B and the world's 110th most valuable company. Airbnb $85B and 209th. In that context, you can understand why Expedia may be of interest to several potential purchasers.

Tripadvisor's financial disaster is trading at just $2.1B right now for anyone brave enough to take it on. Imagine having all that traffic. What would you do with it to create value that they do not? That could be for another article.

Pete

Back to Dogs With Bombs On Their Back

Read the article at the link https://arxiv.org/pdf/2410.13691 in the credit if you are interested in risk and AI