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Trivago convicted for deceiving consumers

Back in August 2018 the Australian consumer rights watchdog ACCC filed a lawsuit against Trivago and demands fining in the millions. A verdict of the Federal Court of Australia is now following the prosecutor´s claims, the lawsuit will continue in near future and determine the extent of fine.

If looking for accommodation in Australia by using Trivago´s online services, potential guests were not suggested the cheapest hotel rooms. Instead search queries resulted in offers that would grant a higher revenue to the platform.

In claiming to offer such „best deals“, for one thing aired 400.000 times in Australian TV commercials, and then again such would-be price advantages were shown in their online offer listings. On such result webpages higher prices of other booking platforms are presented to induce rash bookings.

How does Trivago work?

Based on their proprietary meta-search engine, Trivago´s algorithms summarize online offers of travel agencies, other booking platforms, hotel chains and individual accommodation providers. Since more and more bookings began to be be made from mobile devices, Trivago got traction in the highly competitive market.

Founded in Düsseldorf as startup in 2005, the company grew rapidly, had it´s IPO on the NASDAQ stock exchange some three years ago and their majority stake is now owned by Expedia. Trivago runs 55 different platform versions and apps and can find more than three million hotels almost anywhere on the planet. Stock market value back in 2016 was about three and a half billion US dollars. By massive advertising Trivago managed to win significant market shares from competitors such as Booking.com.

The company´s main income source is not an agency commission per booking but a so called CPC (cost-per-click) fee. Every time interested customers click an online offer on their comparison site, Trivago cashes money from the vendor of a hotel room.

A verdict with industry-wide consequences?

In average Trivago gets a Hotel offered by ten different vendors under varying conditions. If doing as advertised, these offers would have had to be compared independently and end users would have been passed the cheapest offer in the process.

Instead and as proven in court, offers to customers were picked by margin for the platform. In other words - by paid advertising rather than independent comparison. Furthermore, prosecutors claim that luxury rooms were compared with standard rooms to fake savings, by doing so harming guests and hotel operators alike.

In the last three years Trivago´s share price dropped to a fraction of former worth and company founder Schrömgens left his post as CEO in November. It is hard to tell to which extent the lawsuit lowered company value.

ACCC chairman Rod Sims wants the verdict to be seen as warning to all booking platforms. Also other consumer right institutions such as our ECC Austria view questionable features in search algorithms with growing concern.

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