More than burgeoning Internet technologies helped online travel agencies rise to prominence in the early part of this decade. In the post-9/11 travel slump, hotels were looking for a place to unload their empty rooms at a great price. And it was in that environment that InterActive Corp. Chairman Barry Diller acquired Expedia.com, along with fellow travel discounters Hotels.com and Hotwire.
But by 2005, the travel industry was back in full swing, and hotels were less apt to offer such deals. In an effort to let the rest of IAC's business get out from under the "shadow of travel," as he said in an employee memo, Diller responded by spinning the travel sites off as a separate business.
The newly public company, Expedia (EXPE), got started without the best relations with its suppliers. "Hotels.com in particular had taken a relatively aggressive stance with hotel suppliers during this time," says Paul Brown, president of Expedia North America, who joined the company just after the spinoff. Expedia adopted some of these practices, too. If the hotel companies didn't pay higher margins, they wouldn't get equal treatment on the site itself. That left "extremely strained supplier relationships," Brown recalls.
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Source - BusinessWeek
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