One key source of the economic moat for Booking Holdings Inc. lies in its network effect. The company boasts an extensive network of hotels and services, which drives an increasing user base.

Booking Holdings’ vast network in both developed and emerging markets is a big advantage for the company. In Europe and Asia, most hotels are independent and smaller in size, rather than being part of larger chains. These small hotels need travel websites like Booking to help them market and sell their rooms, as they have limited resources to do it on their own. Consequently, this makes them more likely to stay with Booking.

This means that other travel websites may find it challenging and expensive to copy Booking Holdings’ network because information about these small hotels is difficult to collect and manage. At most, these travel websites will use a metasearch model, in which they do not have control over hotel relationships, instead of directly competing with Booking's OTA model, in which they do have control.

Booking Holdings is also doing well in China, where they have partnerships with Trip.com and Meituan-Dianping.

Travellers like Booking because they could pay after their stay instead of paying upfront, and this attracted more users. More users meant more hotels joined the network, which attracted even more users. This virtuous cycle fortified Booking Holdings’ network as it drives both hotel inventory and customer traffic.

Besides that, Booking's expanding network into verticals such as renting, flights, and payments aims to make it easy for people to plan their whole trip. This strategy positions Booking well for the increasing global shift to booking via mobile applications, making Booking a popular mobile app for booking travel and used in more markets than Expedia and Airbnb, which are its main competitors.

Considering competitors like Expedia and Airbnb, Booking has better travel options than theirs. While Expedia also offers flights and car rentals, it does not have a dining or payment presence like Booking. This puts it at a disadvantage. Expedia is more popular in the U.S., but it is not as well-known in Europe and Asia, where it is harder to find and organise accommodation. Airbnb does not offer many traditional hotel and dining options, and it probably will not offer flights either. However, big companies like Google, Meta, and Amazon might try to enter the travel booking market. This could mean more competition for Booking.

The online travel industry is difficult for smaller or new competitors to enter due to the high costs needed to build relationships with travel suppliers and provide customer service, making it difficult for such competitors to match Booking's spending on personnel expenses to maintain its strong network. Additionally, heavy advertising expenses are needed to attract and retain traffic to the platform.

Booking Holdings also has the resources to invest heavily in strengthening its travel network, which allows it to understand consumer behaviour and improve the platform experience. The company's ability to attract direct traffic to the platform is an indication of the value customers find in the platform.

Despite its strong network effect, I will only rate the economic moat of Booking Holdings as narrow because the company still lacks in other areas for a wide economic moat. Furthermore, as previously mentioned under 'My Top Concern,' big players such as Google, Amazon, and Meta may have the resources to develop new technology like artificial intelligence, blockchain, and virtual reality to disrupt the industry, and their entry could double the current players and commodify the industry, affecting margins.