As OTAs Get Bigger, so Do the Challenges for Hoteliers

direct booking conversion rate

Most hoteliers already considered Expedia and Priceline a duopoly before Expedia’s $1.6 billion acquisition of Orbitz, but now there’s little doubt. The two powerhouses have been buying up the competition in waves and the trend isn’t slowing.

Perhaps in response to Expedia’s purchases of Travelocity and Orbitz, Priceline recently announced plans to raise another billion dollars to help fuel even more acquisitions. (Remember, they spent $2.4 billion on OpenTable last year.)

This doesn’t make things any easier for hotels. With every new OTA launching, there’s another unique business model that never really goes away. The complexity and breadth of channels is continuously increasing with more and more niche offerings for consumers and these unique value propositions are hard for hoteliers to keep up with and manage effectively. Some of these might otherwise go out of business or fade away, because it’s not easy to run an OTA and expensive to drive that much traffic, but consolidation creates efficiencies and pools more resources in a smaller number of companies that can dominate marketing spend through online channels.

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Expedia spent $2.8 billion on marketing last year and Priceline spent $1.8 billion, reportedly $1.5 billion on Google AdWords. How much are hotels spending? How much did all of Marriott, Starwood, or Choice spend? It has become almost impossible for hotels to match the level of technology and marketing resources Priceline and Expedia have at their disposal. In fairness, those marketing dollars are promoting more overall travel and sending business to those companies and hotels—but with a much higher commission than a direct booking would cost to acquire those guests.

Could a hotel company pull its inventory from Expedia or Priceline when its current contract is up? That occasionally used to happen, but as these two companies have gotten bigger, hotels have even less leverage. Before, you could play Orbitz, Travelocity, Expedia, Booking.com, Priceline, Hotwire, and the rest against each other. If you didn’t like the deal you got from one, you could refuse to sign a distribution agreement and hold out for better terms. That has become increasingly difficult because you’re not negotiating with Hotwire, Travelocity, Hotels.com, and Orbitz—you’re negotiating with Expedia.

This is a fundamental threat and opportunity for the industry. Digital distribution has been one of the most disruptive forces of innovation in the history of lodging. For decades, owners, brands, and managers were the main players in the value chain, but these intermediaries have gotten between hoteliers and their customers and profits are being diverted away from the traditional ecosystem.

The most successful hotels and brand companies over the next decade will be the ones that recognize this and figure out a way to survive and thrive in this new digital marketing arena.

Hoteliers must give consumers a reason to book direct. They need to improve the consumer shopping experience and enhance their loyalty programs to offer better prices and perks. They must also take advantage of the latest data and technology available to better understand and adapt to consumer behavior and rising acquisition costs.

If not, OTAs and other intermediaries will continue to take a bigger percentage of online bookings and a bigger piece of hoteliers’ profits.

About the Author
Patrick Bosworth is CEO and a co-founder of Duetto, a hotel revenue strategy technology company based in San Francisco.

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