The Cost of the Crown
Hypothetically, Dean believes OTAs could be good partners for hoteliers. But they’re not there yet in his eyes because of the high price of acquiring guests, which averages around a 16–19 percent merchant commission. “There are a lot of large institutional owners who feel like the cost to OTAs that we paid the last five or six years was not very partnering. They’re very formidable organizations, but have earned massive market caps on the backs of hotel owners,” he explains.
After the most recent recession, consumer acquisition costs skyrocketed, leading to what Dean sees as poor distribution strategies up through 2010. It was a wakeup call for the industry. Now, he says, large institutional owners like Ashford are taking a more active role in distribution management, and some hotel companies have gone so far as to create owner advisory councils focused on distribution to prevent such missteps from happening again. High acquisition costs are unsustainable, Dean says. But awareness is spreading thanks to the American Hotel & Lodging Association’s 2012 Distribution Channel Analysis: A Guide for Hotels, co-authored by Kalibri Lab’s CEO and cofounder, Cindy Estis Green.
The study, which is getting a refresh this year, examines the hotel industry at a high level, discussing the distribution landscape and the impact channel mixing has on the bottom line. The fact that the report requires an update says it all: This topic will remain hot so long as OTAs continue to gain market share. This changing landscape could pull the rug out from OTAs, too, particularly if behemoths like Google and Facebook get serious about booking. In late 2015, Google quietly launched an instant booking feature, and industry executives (including Expedia’s CEO Dara Khosrowshahi) are waiting for the other shoe to drop with Facebook. “They’re weaving their way further down the funnel into the travel experience. At some point, they will not merely be a customer acquisition opportunity for the OTAs but rather a competitor for them,” Dean says.
Until hoteliers feel they can form a more productive partnership with OTAs, perhaps to join forces against bigger booking foes, they will continue to push direct booking, primarily through technology that speaks to the younger set—the oft-coveted millennial segment. Brands like Hilton are allowing potential guests to choose their own rooms, select upgrades, and use mobile check-in technology—as long as the guest books direct. “The brands are realizing that mobile technology in particular is a point of differentiation, especially with millennials,” Dean says. “So they’re saying, ‘Let’s use technology to enhance the book-direct message.’”
A Threat on the Horizon?
It is too early in the game to predict how brands’ direct-booking push will pay off, or if Google will become as big of a player in the distribution space as some fear. In the meantime, Dean has another concern—particularly, the rarely mentioned group segment bookers. “Group is a lot harder, more complex. It involves meeting space and food and beverage. It’s a little harder to intermediate with technology,” Dean explains.
Vista Equities, a large private equity company, owns Star Site and Cvent—essentially a pure monopoly on group RFP technology. These event sites make all of their money off of hoteliers’ advertising, as hoteliers have no choice but to let intermediaries sell group. This could become the next great battle in the distribution space, if Vista Equities trades in its media platform to become a commissionable group RFP business. “I think the reason it doesn’t get a lot of attention is because the media and politicians are all individual travelers. But it will have real implications for consumers as well as owners,” Dean says. “I’m just as concerned, if not more concerned, about group intermediation cost than the commissions we pay to OTAs. It is definitely an industry issue that owners need to wake up on like the OTAs.”
