Direct Booking vs. OTA
--
Online Travel Agency (OTA) is a website which has all the vital information a traveller needs to book a hotel, homestay, lodge or a place to stay. OTA is fully dedicated to the travel industry and some examples of OTA are TripAdvisor, Agoda, Expedia, Trivago and many more.
Some quick facts about the travel industry:
- The world’s travel industry is worth more than $2.5 trillion USD and is currently the fastest growing sector.
- There are more than 10 million searches related to travel are carried out in Google Search per month.
- Based on 10 million searches, an estimated 3 million web traffics are going into top 10 OTAs alone.
- TripAdvisor.com is the leading travel site and OTA for the industry. In 2016 year alone, it generated almost 1.1 billion visits to its site.
- Expedia spent 4.3 Billion USD in advertising alone in 2016, an increase of almost 1 billion USD from 2015.
- Priceline Group spent 3.5 Billion USD on marketing. Priceline Group consist of Booking.com, Priceline, Agoda, Kayak and many more travel related companies.
- 85% of travelers said PRICE is the most important factor when determining where to book according to a survey by Google.
The Power of OTA
Priceline Group
- Biggest online travel agency in the world.
- Started in 1997.
- $88 billion market capitalization.
- Brands include Booking.com, Agoda, Kayak, Momondo, Booking Suite.
- Dominant in Europe and Asia, controls about 62% of Europe market.
Expedia Inc
- Started in 1996 as a division of Microsoft.
- $22 billion market capitalization.
- 20 brands under its name including Hotel.com, Trivago, Travelocity, HomeAway, Expedia.com and Orbitz.
- Controls about 75% of the US market.
- In 2015 Ex-CEO of Expedia, Dara Khosrowshahi (current CEO of Uber), received $94.6 million in compensation package and is one of the highest-paid executives among all publicly traded companies in the US.
Anyone not familiar with the online travel landscape may be under the impression there are tens, if not hundreds of websites to go to when booking for hotels. The truth is many websites are owned by the same company and the two dominant companies are Priceline and Expedia. They are the two largest OTAs in the world and they have been around for 20 years.
OTA was seen as a convenient distribution channel where hotels and airlines could sell extra inventory.
In the early days, online distribution was not really a priority. Hotels sold to wholesalers, who sold to tour operators who sold to travel agents and finally to travelers. The problem with this system is the transparency, nobody knows how much was being paid. When OTA entered the industry, it gave control back to the hotel and guest how much was they were getting.
Fast forward to present, technology has shifted the pattern of how travelers made a booking while traveling and this is where OTAs shine. They have been focusing on leveraging the power of technology where it is considered too costly and complicated for small and medium hotels. OTAs help hotel and homestay owner to solve distribution problem by helping them to sell a certain percentage of rooms on their platform.
What does it Mean to the Hotels?
Let’s take a look at why a hotel should be cautious of putting too many eggs in one basket or depending too much on OTAs to bring business for you.
1. OTAs are Spending Money To Market Their Own Brand
OTAs invest heavily in digital marketing and digital advertising to lure web users to their sites. This creates a Billboard Effect that works in OTA’s favor. Most travelers search accommodation by going through the huge list of hotel and homestay collection in an OTA website - this habit is shaped by the huge marketing effort done by OTAs throughout the years. That is why OTA brands are so well-known and acknowledge by travelers because it gives them options to choose the accommodation that is most suited to them.
In short, hotel brand name is not being recognized by travelers.
2. OTA Can Change The Rule Of The Game
As the number of merchants grow and OTA became increasingly dominant, they began to alter their business model. According to Hotelogix, large hotels were offered lower booking commissions while smaller independent hotels were paying higher. The reason is larger hotels have more rooms to sell and can negotiate with an OTA to lower their commission so that they allocate more rooms to sell on an OTA. Besides that, the commission paid to an OTA by hotels will not remain forever, the higher the commission your hotel pays, the better ranking your hotel position will be in an OTA website.
This translates to lower profit margin for hotels.
3. Hotels Do Not Own Their Customer Data
OTA contracts often stipulate that hotels can’t market to customers that booked directly with the OTA. Last year, Booking.com stated that they will no longer provide hotels with customer emails. To have a piece of customer information is important for hotels as the best customer relationships come when you are able to engage with them sooner rather than later. The customer experience started long before a traveller check-in to the hotel to create a memorable holiday experience. Losing the control of the customer’s data means losing the connection and relationship that is unique to hotels.
In the end, OTAs will emerge as the winner in the online hotel booking industry.
“Hotels are overly dependent on OTAs. With each passing year, hotels pass more and more money to Expedia, Booking.com, Priceline and the others.” — Forbes
OTA vs Hotel Brand (direct online booking) ratio fell to 51:49 in the year 2016, compared to 46:54 in 2012 according to PhocusWright. They also stated that hospitality is the ONLY travel sector in which OTAs are gaining share at the expense of independent hotel brands. Direct online revenue from the airline, car rental and cruise sectors are all increasing at the expense of OTAs.
How are Major Hotel Chains Reacting?
Hilton Worldwide
Hilton Hotels made sure the message was passed to the public by putting their video advertisement in front of 25 million viewers during the 2016 Grammy Awards. The company said the “Stop Clicking Around” campaign is its biggest yet in the company’s near-100-year history.
The company said 1.6 million free nights went unearned in 2015 because of bookings made through third party sites. They aim to offer benefits such as lower price, free wifi, digital key, and points for those who book directly with them.
Marriott Hotel Chain
Marriott launched an entirely new campaign in 2016 called “It Pays To Book Direct”. The hotel chain has spent more than $1 million in 2016 in marketing this campaign, including having Youtube personality Grace Helbig to appear in their advertising video. The hotel’s ultimate aim is to influence users to book directly through their own hotel website instead of OTA to get better rates or benefits.
Starwood Hotels & Resorts
Starwood (parent company of St. Regis, Westin and Sheraton) stated in their own direct booking hotel website that the hotel will match any rates that are lower than their own website, as well as free internet and other benefits that are not offered if guest book through OTAs or third party website to maintain or increase their hotel profit margin.
How Can Small and Medium Hotels React?
1. Embrace Technology — Have Your Own Hotel Website
76% of online bookings happen through OTAs. However, 50% of the internet users will visit the official hotel website after discovering them through the OTA. This is where opportunity comes in. The cost of building a website is cheaper now and also easier to manage. Besides that, a hotel can let company like AQUA Intelligence handle the task of figuring out everything about the customer arriving at their website with the data already collected through their network.
The last thing you want to tell your loyal customers is we don’t have a website, please book online elsewhere.
2. Provide Special Benefits For Direct Booking
This method is to create an awareness to travelers by giving them an impression that booking through an official hotel website will have more benefits compared to booking through an OTA. Besides that, a guest who stayed at your hotel who received these perks will leave positive comments on social media which will again influence from other web users to book through the official website.
With AQUA Intelligence, we can use personalized offerings through AQUA RMS to incentivize your customers more accurately.
3. Plan and Optimize Your Distribution Strategy
By changing how you distribute your room inventories on OTAs (e.g. Agoda, Booking.com, Expedia) against your direct bookings will help you generate more profit. Experienced hotel revenue managers formulate strategy and distribution plans to reduce distribution cost in the long run. AQUA Intelligence can be used to formulate an optimized strategy with AQUA RMS.
4. Run Online Marketing Promotion
Major hotel chains like Marriott and Hilton have both funded marketing campaigns aimed directly at consumers to start educating them by telling them direct booking is better. Small and medium hotels should start doing the same. While small hotels with low budget cannot run advertisements on television and billboards, the cost of running digital marketing on Google is relatively cheap. Spending a few thousand USD on Google Advertisement will reduce the reliance on OTA marketing in the long run.
5. Provide Incentives for Guests
By giving special treatment for seasoned guests for your hotel, you are strengthening your relationship with a satisfied customer. Re-marketing to the same person who has already been to your hotel requires less effort and less financial spending. Since only major hotel chains have a loyalty program, small and medium hotels can provide special promo codes specifically targeting returning guests to encourage them to come back to your hotel. AQUA Intelligence can be used to help in this aspect with our digital marketing services.
6. OTA is Still Important
Even though what hotels and homestay owners ultimately desire is to not pay commissions to any intermediaries, relying on an OTA is still an acceptable option for hotels. The influence of OTAs is as strong as ever and having a listing on an OTA is still a way for less popular hotels to be discovered by travelers online.
After the guest has stayed at your hotels for the first time, probably through bookings from an OTA, the hotel will need to convert them to loyal customers. AQUA Intelligence can be used to help in this aspect as well.
About AQUA:
AQUA Intelligence is developing a data-driven platform on the blockchain that will allow consumers to monetize and validate their personal data. AQUA has planned a complete roadmap to build AQUA Intelligence and is proven in their ability to execute with a demonstrable product in service. Part of their strategy is to gather data from their current products and discrete data sources to build the industry’s first comprehensive profile system for the global market. By leveraging Artificial Intelligence along with predictive analytics, these profiles will enable enterprises to improve sales, retention, conversion and customer satisfaction, significantly. AQUA is poised to evolve in a multi-billion dollar industry with significant market potential. You can learn more about AQUA at aquaintel.io and help support our mission.
