As the traditional online travel agencies grow, several new entrants have emerged in the wide world of hotel distribution. Some expert sources help sort through the crowded field to offer insights.
REPORT FROM THE U.S.—If there has been one constant in the universe of hotel distribution over the past few years, it’s been change.
As brands make aggressive pushes to lure more guests to direct channels, new third-party intermediaries emerge and existing platforms merge or change, it’s important for hoteliers to remain focused on their core job of taking care of guests while recognizing different distribution channels offer different opportunities and challenges, experts said.
Courtney Russell, regional director of revenue management at Schulte Hospitality Group, said he is taken aback when he thinks about how much things have changed over the past two decades.
“I had three independent hotels on Miami Beach 20 years ago, and I can remember (a representative from Expedia) going door to door begging for business,” he said. “We’ve been in touch over the years, and we laugh about it. It’s such a different platform now.”
The power of OTAs
Russell and other sources pointed to online travel agencies like Expedia, Priceline and Booking.com as still the most impactful of the third-party intermediaries in the world of distribution. But with those booking engines now all under the umbrellas of two companies—Expedia Group and Booking Holdings—a couple of powerful entities are positioned between hotels and their guests.
Sloan Dean, COO of Remington Hotels and a former revenue manager himself, said the so-called “duopoly” of those two companies has been “very impactful” for hotels.
“The consolidation is raising big concerns in the industry, and there needs to be further regulation to eliminate deceptive practices and inform customers,” he said. “The (Federal Trade Commission) needs to do more.”
The industry decried the idea of Expedia and Booking controlling the entire OTA space after Expedia purchased Orbitz in 2015. The company acquired home-sharing site HomeAway later that year.
Those two companies now represent a massive stable of OTA brands—including Expedia, Orbitz, Booking.com, Priceline and Travelocity.
Even though they hold a massive amount of market share in the U.S. and Europe, those aren’t the only OTAs. Two Chinese companies are looking to make inroads in the space, as Ctrip is looking to expand abroad and e-commerce giant Alibaba’s travel platform Fliggy looks to grow, as well.
Russell noted that OTAs—which he referred to as a “necessary evil”—still have their place for hotels, as long as hoteliers can grasp when and where to use them best.
“There is a place for it when you look at your mix of rooms; there is room for OTAs,” he said. “A bigger chunk should be corporate accounts and group, but if you price your retail rates appropriately and your advance purchase appropriately, most hotels will do well.”
But Robert Cole, senior research analyst for Phocuswright and founder of RockCheetah, said the continued reliance—and perhaps overreliance—on business from OTAs stems from the fact that hoteliers view it as low risk.
“They’re only paid on delivered business, so you didn’t have to go to a GM or EVP of marketing and sales saying you’re banking on radio ads or banner ads and hoping it worked,” Cole said. “People lost their jobs when (traditional advertising) didn’t work.”
Other third parties rising
Cole said that beyond the traditional OTAs, there are a number of different third-party players, making it increasingly complicated to understand who is responsible for what booking and how that is tracked.
“There are lots of other distribution channels and models,” he said. “Retargeting is a huge one.”
One of the spaces that has seen significant growth in recent history is metasearch, which offers a consumer experience sometimes similar to that of the OTAs but ultimately funnels back to hotels for the final booking. While some of Expedia and Booking’s efforts reside in the metasearch space, it’s also had some high-profile entrants, including TripAdvisor and Google.
Cole said it will be interesting to watch how Google continues to reinvent its presence in the hotel and travel spaces beyond its current Google Hotels metasearch engine, but he doesn’t believe that company will go so far as to encroach on the OTAs because they are massive advertisers on the platform.
“I don’t ever want to bet against Google,” he said. “They’re very smart and have interesting challenges. I’m sure they could provide a far superior metasearch platform if it didn’t have such significant income coming from the online travel agencies.”
Russell said metasearch has grown into “a big deal” in recent years and serves as a wake-up call for the brands in what they offer to their owners and operators.
“It’s a pain in the side for brands but allows us to keep up and not become complacent,” he said.
Dean said he appreciates that metasearch allows “hoteliers to become more competitive with OTAs by allowing us to improve direct bookings through our websites” and hopes to see more metasearch functionality allowed by traditional OTAs.
“Most people are not aware but (OTAs) prevent certain practices/advertising by hotels within meta,” he said. “There should no meta restrictions in OTA agreements, so the consumer has full transparency.”
Dean said companies like Google and Amazon will ultimately be able to carve out a huge piece of the online hotel distribution space.
“There will be a day when it makes more sense for Google to cannibalize Expedia and Booking’s business versus merely profiting from their advertising,” he said.
Perhaps one of the most surprising recent entrants into the hotel distribution space is Airbnb, which now allows hotels to list rooms alongside the company’s other accommodations like apartments and spare rooms.
While some could be interested in a different and seemingly lower commission structure offered by Airbnb, sources said there are still reasons to be wary.
Russell said he still largely views Airbnb as the competition and is hesitant to partner with them.
“I would not encourage anybody to do it because I personally don’ think it’d be a good idea,” he said. “We’ve got to keep it separate.”
Dean said this move is needed for Airbnb to boost growth and justify its valuation. He added the company “will continue to evolve more toward a traditional booking platform.”
“Their listing of hotels has yet to have a ‘big’ impact in most our markets, but maybe it will,” he said. “(I’m) unsure. Maybe they can be a third OTA option to Expedia and Booking in the near to midterm?”
Cole said working on the Airbnb platform could introduce some functional problems with things like rate parity. He noted that guests who book on that site pay a fee above the advertised rate to Airbnb, so even though the commission might be lower for the hotel, they might be in a position where they have to lower their rate to truly provide guests value compared to other channels.
“You can’t give the same rate to everybody or Airbnb will be 12% more” to guests, he said.
Cole noted partnering with Airbnb can make sense in some circumstances, but it’d have to be confined to areas of the hotel industry where hoteliers could “provide the appropriately unique, localized experience.”
The direct-booking push
As the world of intermediaries grows ever more complicated, hotel brands have been pushing hard to get more consumers to come directly to their websites and other channels, offering incentives like lower loyalty membership rates to entice them.
Dean said from his perspective the direct booking campaigns have been cost-effective but he questions whether they’ve moved the needle to a meaningful degree.
“I think the challenges remain with the OTAs dominating the market and a hotel’s abilities to drive direct bookings,” he said, noting the brands will be able to make more ground by pushing for a better presence in metasearch with a lower cost per click.
Dean noted he’s still unsure what the ultimate impact of commission changes for third-party group bookings will be for Hilton and Marriott International.
Russell, meanwhile, said things like membership discounts have been useful because they help connect brands with consumers more closely.
“I think it is effective because people like to feel like they belong,” he said, noting the discounts haven’t been significant enough to erode rates.
“It’s been a great initiative, especially since it’s not just one brand doing it,” he said. “Even if it’s not as effective as brands might hope, it’s a really good step in the right direction.”
Cole said managing the costs of those book-direct campaigns will be key in order to make sure they don’t ultimately become more expensive than OTA partnerships.
“You have points of diminishing returns on every marketing expenditure,” he said.
Cole also noted it can sometimes be hard to gauge just how much progress those discounts make or whether they’re just cutting rate for guests who already would have booked directly with the brands.
Other changes on the horizon
Dean said hoteliers should be mindful that voice search has an ever-increasing presence in hotel distribution.
“I’m curious to see how travel will evolve as voice search becomes a bigger influence, almost how mobile has changed the consumer,” he said.
Cole noted it’s still worthwhile for hoteliers to keep their eyes on the global distribution systems, as they still give a valuable service.
“It’s often maligned but still provides an outrageously beneficial force in the industry,” he said.
He said there isn’t really anything on the horizon that will replace the GDSes.
“Maybe blockchain can down the road, but that’s a long row to hoe,” Cole said.
Advice for hoteliers
Experts provided some advice for hoteliers looking to sift their way through the sea of distribution.
Ultimately, Dean said “channel and customer diversification is critical.”
“For example, you never want 40% plus of your business coming from merely Expedia.com, because good luck negotiating (your) next contract cycle,” he said.
Russell said it’s key to keep your eye on the ball on the services hotels are supposed to provide because ultimately that’s the best way to convert any guest you lured via a third party to be a direct, repeat customer.
“It all goes back to giving good customer service and sticking to the business of running the hotel,” he said. “It’s all about offering a really good product with good service.”