Remember this? Steve Ballmer suggested in this interview back in 2007 that no-one would pay 500$ for a phone or that business people will not buy one, as the iPhone did not have a keypad. We all know how that prediction turned out?
Well, Max Starkov who is a leading voice within our industry wrote a recent article. He shares why “Book on Google” and “Book on Tripadvisor” will be a nightmare for the hospitality industry and it reminded me of Steve Ballmer´s infamous interview.
Max´s basic argument is that “book on Google” and “book on TripAdvisor” is three-fold:
1) Will increase OTA dependency
2) Lose control in creating demand
3) Worsening ROI.
He also recommended that hotels continue with meta search marketing ads as well investing in online marketing techniques to aid direct sales.
Let’s take these 3 points in hand.
– OTA dependency – Poorly managed hotels have high OTA dependency; They have allowed the likes of booking.com and Expedia to dominate their inventory. In a recent survey we conducted with European hotels, nearly 70% said that 60% or more of their online reservations come from OTA´s. So there already is high OTA dependency currently and two new major players in the market will only provide added competition. Google and Trip Advisor entering the market could result in lower OTA commissions if the market works as it should. It does not automatically follow that two more players will increase OTA dependency from where it is today. Where Max is totally correct though is the need for hotels to invest in ensuring a higher % of reservations come directly. There are plenty of new technologies that if implemented correctly and with buy-in from the staff, offer many ways of increasing direct online reservations.
– Lose Control in Creating demand – Using Metasearch to create demand is a good idea, but is just too costly and risky for many hotels. They just do not have the budgets to compete with the OTA´s. The independent hotel ROI model is different from an OTA’s ROI model. In meta search advertising, it is David versus Goliath, except this time Goliath wins ninety-nine times out of a hundred. If a hotel has, as Max suggests a robust marketing budget and meets some requirements to make it competitive against OTA’s, this can be a good way for hotels promote themselves during low and distressed periods. The reality though is that it is just not practical for the vast majority. Let’s also take it a stage further, if the metasearch model was working, then why are Tripadvisor and Google moving away from their respective programs that have been in BETA for many months?
– Worsening ROI – Now here, Max explains that reservations that come from OTA´s have a higher cost of sale rather than ones that are reserved directly from meta search advertisements. They also impose restrictions like rate parity and LRA. I believe that the cost of sale will be pushed down by this added competition. In Europe where we already see that hotels are now not legally obliged to offer rate parity to OTA´s. We will see revenue managers increase their pricing where the cost of sale is higher. Likewise with these two major players entering the market and especially with Google´s dominance in mobile search this is likely force other players to reduce their % to maintain market share.
Max´s article is about Meta Search ads vs. OTA´s, the reality is, and our survey demonstrates this. Tripadvisor´s Tripconnect was a non-starter for hotels, with Instant Booking being far more acceptable. Google & Tripadvisor are just responding to the realities of the marketplace. Maybe to run meta search campaigns is financially beneficial for marketing agencies. However, for the majority of hotels, this is just not going to be an activity that makes sense commercially.
By no means am I an OTA fan. I did not achieve obtaining over 60% of my online reservations during my time as a hotel sales director by allowing them to take control of my inventory. What I do see though is that they are necessary for attracting clients to your hotel. The real trick is siphoning traffic from OTA’s and getting them to book on your website. Personally, this is where hotels have a major opportunity for getting some payback after years of feeding the OTA beast.