Many Australians would be familiar with Trivago. Simple but memorable marketing campaigns have encouraged consumers to think "Hotel? Trivago" when planning their travel. However, the Trivago brand may be on track to be memorable for a very different reason. Last week, the Federal Court of Australia found that hotel comparison website had contravened the Australian Consumer Law for engaging in misleading and deceptive conduct.
Put simply, Trivago is an online tool to be used by prospective travellers to compare prices on hotel rooms. The website functions like a search engine, whereby a consumer enters the city they wish to travel to, along with the date ranges they are travelling and the type of room they are seeking, and the Trivago website returns a series of results showing different hotels, a star rating, and reviews for each of those hotels. This itself is nothing unique, however where Trivago distinguishes itself from online booking sites is that it aggregates prices from multiple other providers to allow the user to compare prices and pick the best deal for the hotel room.
How does Trivago work?
In a nutshell, consumers are invited to use Trivago to identify the best deal for a hotel room, rather than browsing online providers such as a hotel's own website, Wotif, Expedia, Booking.com, TripAdvisor and the like.
By way of example, in the judgment of Moshinsky J of the Federal Court of Australia, his Honour includes a number of typical screenshots of Trivago's website, including the following:
The way Trivago displays its results has slightly changed (including that the red text is no longer struck-through), however, for present purposes this is a typical example of Trivago's results that the Court considered.
In the left column, we can see the hotel details, location, and review score. In the middle column, we see a list of deals for what can be reasonably inferred to be the same room. Then in the final column on the right, we can see a prominent price in red and in strike-through text, and another prominent price below it in green for a specific online booking service. This column on the right is described as the "Top Position" offer.
What did the ACCC allege?
The ACCC commenced proceedings in the Federal Court of Australia alleging that Trivago was engaging in misleading and deceptive conduct. Essentially, the ACCC alleged that Trivago was making the following representations (expressly or implicitly) through their marketing and their website and they were misleading:
- Trivago quickly and easily identifies the best price for a hotel.
- The Top Position offer is the cheapest and most attractive offer for the hotel.
- The struck-through (or red) price is the price for the same room (or an equivalent) at the hotel as the green Top Position price (that is, the green and red prices are different prices for the same class of room).
How does Trivago make money?
Trivago is, of course, a business that is seeking to return a profit. Any user of Trivago would be familiar with the fact that they do not pay to use the service. So who pays Trivago?
Trivago's business model is one where it generates revenue from the hotels or online booking sites in exchange for "clicks" through to their website. Trivago gets paid irrespective of whether the consumer purchases a hotel room or not. Online booking sites essentially pay a cost per click (CPC) to Trivago.
Each booking website enters a CPC "bid" to Trivago to have their website listed. If their website does not meet a minimum threshold (which Trivago does not disclose to the website), then their offers are not listed. The CPC threshold can also vary between online booking sites. So, it is possible for an online booking site to have the cheapest rate available for a given room, and put in a bid to Trivago, but because it did not bid highly enough it is not listed (in the Top Position or otherwise).
As to what offer makes it into the Top Position, one would think that Trivago is listing the cheapest price. However, expert evidence was adduced as to the process. The upshot is that price is a factor that the algorithm takes into account, however, a "very significant factor" is the CPC amount. That is, how much the online booking site is bidding per click to have their deal displayed. The court accepted expert evidence that at least 66% of the time, the price in the Top Position offer was not the best price.
What did the Court find?
It is perhaps unsurprising that the Court found that this business model may mislead and deceive consumers.
In relation to each of the three representations, the Court made the following findings:
- Trivago was representing that it was impartial, objective, and transparent as a price comparison tool. In the Court's words, the "whole point" of Trivago is to quickly and easily identify the cheapest rates for a hotel room. Because Trivago did not display an offer if the offer did not exceed the CPC threshold, and because at least 66% of the time the Top Position offer was not the cheapest offer, consumers may be led into error when using Trivago.
- Trivago was representing that the Top Position offer was the cheapest offer for a given room at a hotel. However, for the same reasons above, consumers may be led into error when considering the Top Position offer.
- Trivago was representing the strike through or red text was a higher price for the same room as the green Top Position offer. In reality, this higher price was often for a different category of room, and accordingly was not comparing apples with apples. Consumers may be led into error when comparing the high price with the lower price.
The Court has not yet made orders as to orders to make against Trivago, including any fines. Penalties for breaches of the Act found against Trivago can be as high as $10,000,000, three times the benefit gained, or 10% of the annual turnover of the company.
What does this mean to me?
This is a stern reminder of the strong consumer protections we have in Australia. Businesses must exercise caution and seek legal advise that the services they provide, and the representations they make (through marketing or otherwise) do not fall afoul of these strict protections and come to the attention of the ACCC.
Time will tell how high the penalty will be from the Court, and whether this result leads to a change in consumer perception of Trivago in Australia.