August 20 2018
Posted in: Hospitality Trends

Direct Booking Wars, Google, Airbnb: Is the OTA’s Position Unshakable?

Online distribution OTAs still have the majority of market share for online reservations.

When it comes to online distribution OTAs have the majority of market share for online reservations. OTAs control approximately two-thirds of all online bookings with no signs of its growth slowing down; it’s predicted that the two biggest players, the Priceline group (which includes Booking.com) and Expedia will account for 94% of all online bookings by 2020.

However, while the existing players are continuously expanding through strategic alliances, consolidations, and investments, they face growing challenges. Both Airbnb and Google made notable announcements in the early part of this year – the former opening its platform to hotel distribution and the latter rolling out updates to expand and simplify travel search. In addition to that, there has been renewed competition from hotels who have launched major campaigns encouraging consumers to book direct.

With an evolving online distribution landscape and crowded search ad auctions, is the OTA’s position in the marketplace unshakable? Let’s take a look.

Direct Bookings Campaigns – What’s the impact? As we are all more than well aware, hoteliers pay commissions as high as 30% on guests that book via travel sites, so they continue to urge people to book directly in the hope of clawing back some consumers.

More than a year ago several major hotel brand companies, such as Marriott International, Hilton etc. launched significant book direct campaigns to prod consumers to join its loyalty programs in exchange for discounted room rates when they book directly through the brands’ websites. However, according to Ed Watkins of HNN, there is little evidence that these expensive marketing campaigns have meaningfully moved the needle in the direction brand companies had hoped. In fact, while a few chains have seen substantial increases in direct bookings, most have strained to accomplish more than one-percentage-point movements in the direction of direct bookings.

Airbnb a disruptor to a disruptor? Founded in 2008, Airbnb rapidly grew and gained recognition as an online marketplace to rent short term rooms, apartments and homes – but with its recent SiteMinder partnership, Airbnb clearly intends to become a dominant player in the global hotel distribution economy.

While it seems like a natural move for the company, over the past few years competition between both the hotel industry and Airbnb has been intense. According to researchers, Airbnb’s growth through 2014 reduced hotel variable profits by up to 3.7 percent in the 10 US cities with the largest Airbnb presence – and its thought that the impact on hotels could be even greater today given Airbnb’s continuous strong growth since then. But hoteliers haven’t taken it lying down with their lobbying efforts in local and federal circles for stricter regulations governing Airbnb.

But to clear the air and start anew Airbnb is bringing an attractive offering to the table. It revealed it will be charging hotels a commission in the range of 3% to 5% per booking, a number dwarfed by OTA fees that can charge up to 30%. However, their usual guest ‘service fee’ will also be applied which is typically between 5 and 15% – so while the rates look good, hotels really won’t have any say over the final price.

Airbnb has left marks on the hotel mark industry, so it will be interesting to see how quickly they will be willing to forget.

Google-Hotel Travelopoly? More than 90% of all internet searches take place through their Google, with some 60% of travelers beginning their trip-planning on the said search engine. When it comes to travel, Google is directly involved in a couple of ways: through keyword search ads and with its own travel service, which advertises deals from hotels as well as from OTAs.

With Google Ads, anyone who’s into online marketing will know that this is where Google sells keywords through an auction process, where advertisers bid on certain terms. Much to the dismay of hoteliers (and the delight of Google), OTA’s plow huge amounts of their revenue into this type of online ad spending – because they can. It is thought that Expedia Inc and its rival online travel giant The Priceline Group exceeded a combined spend of $10.5+ billion on marketing over the course of 2017. With ad spend like this it means they have dominated over suppliers because of their larger inventory and larger scale campaigns which drive critical mass. Even in branded search (searches that include a hotel name), OTAs also have had a very prominent position – well, until now that is.

The market has become saturated and additional dollars have become less effective. So much so, OTA’s are beginning to question whether their allocated online ad spend is misguided. CEO Mark Okerstrom has spoken of, “multiple layers of competition where, if you take ourselves [Expedia] versus Booking.com, … they’ve got Kayak and we’ve got Trivago. We’re bidding in Kayak versus them. They’re bidding in Trivago versus them. And then Trivago is bidding in Google versus both of us. And TripAdvisor — we’re all in TripAdvisor, they’re bidding [against all of us as well]. It’s everyone bidding against everyone.”

Not only that but in an attempt to combat the OTA dominance and regain some control over their online inventory, hotels have inserted terms in their global agreements with large OTAs that prohibit the agencies from bidding on keyword ads that include their brands or trademarks. As these agreements aren’t necessarily binding on small OTAs, after receiving complaints from hotels, Google began to pressure small OTAs to submit to hotel demands. A spokesperson for Google says the company doesn’t restrict keyword ad bids, but according to the Wall Street Journal, Google applies rules in a way that restricts trademarks in their hotel ad titles and URLs.

One of the remaining alternatives for OTAs to draw Google traffic is its meta-search. Google’s meta-search allows users to search for hotels across various OTA and hotel websites but they also charge a 10% to 15% commission on net revenues from reservations booked through its meta-search. So Google is playing OTA’s at their own game by gobbling up most of the profits that OTAs earn from hotel commissions without incurring substantial overhead costs.

What does all this mean? Are the OTA’s under strain? While direct booking campaigns are admirable, they are certainly not going to shift OTA’s off their perch. Airbnb may have some impact but it’s Google who adds an interesting mix to the equation. It has an unrivaled advantage when it comes to traffic and it has a certain amount to power on setting the rules and directing users online.

Ultimately though, for now, online travel agencies will remain; they will not be removed from their position easily. They continue to diversity; they have grown through strategic alliances, consolidations, and investments, expanded their product set, and even now are evaluating and tailoring their substantial marketing spend for maximum booking potential.

We could be all wrong… what do you think?

…I think they’ve had a great long run, and I think their business may be changing and may become — I don’t want to say obsolete, because they’re brilliant in what they do and they have spent a ton of money. They’re not going to give it up so fast, but you’d be surprised how quickly things change, and there may be an opportunity for other companies to make money and for our costs to go down.” Dream Hotel Group CEO Jay Stein