Booking.com and TripAdvisor’s strategic plays in Tours & Activities
The acquisition of Fareharbor by Booking.com and Bokun by TripAdvisor underlines what most of us in the industry have known for many years: that if you want to be a major seller of activities you need to have access to real time rates and availability. It’s simply too difficult to manage suppliers with extranets and it leads to too many cancellations and operational costs to sell activities at scale. So these two purchases are major statements of intent by two of the largest global travel brands out there.
Honestly, I was most surprised by the acquisition of Fareharbor by Booking.com. This was a big move by a business that had done little more than dip its toe with the sale of activities by running some pilots with visitor attractions. Added to that is Fareharbor’s position as an almost exclusively US business, away from Booking’s traditional base of Europe. However, Fareharbor has grown rapidly in the US and in a unitary market of that size, it offers Booking the opportunity to build supply easily and gradually cross sell activities with its hotel partners.
Bokun is a smaller business than Fareharbor and highly concentrated on the Icelandic market. To me it appears to be a recognition by TripAdvisor that it was lacking tools to manage suppliers and, in particular, feed its product listings with live availability. We’ve been close to Hjalti and his team for a number of years and we congratulate them on a successful exit.
The impact on our business
I guess as a CEO of TrekkSoft, a rival business, the first thing I’ve got to ask is: What does this mean for my business?
On the face of it, it’s concerning two of the largest Online Travel Agencies (‘OTAs’) in the business taking over two of my competitors with one already signaling that they will cut prices significantly. But upon some reflection, honestly, I’m not overly concerned. I actually think it’s great for the industry and focusses us even more on what our mission has always been: To provide the best software for tour and activity businesses to sell and manage their products and ultimately grow their businesses. To do that, we’ve got to be independent and focussed on our customers’ business challenges not online travel agencies.
Our merchants are focussed on building their web presence, managing non-API resellers, linking sales channels (offline, online and partners) and reducing the overhead of managing the growing number of online travel agencies (TripAdvisor/Viator, GetYourGuide, Expedia, Hotelbeds, Musement, Civitatis).
For them, independence of their technology partner is vital. They do not want to be dependent on one distribution channel and hire a technology partner to ensure their interests come first, and not that of their channel partners.
The reality is that despite all the hoopla, online travel agencies make up around 5% of the global booking volume in activities. Now we have no doubt that this will change and we already see volumes building, but it is still not where most of our customers get their bookings. If we look at vacation rentals, Airbnb dominates the long tail. Casual or non-professional hosts use it to manage and sell their available inventory. But increasingly, the professional hosts who manage multiple units treat it as but one distribution channel and use companies such as Lodgify to manage direct and partner bookings.
I think the trajectory of tours and activities will be similar, smaller and sometimes part-time business owners will depend on maybe 1–2 distribution channels and will struggle to generate direct business. They will be price takers from large online sellers, but on the partner sales channels and not their own websites. At the moment the primary channels are TripAdvisor, Expedia and increasingly Airbnb’s Experiences (I may have got that one wrong :) ). Booking Holdings acquisition of Fareharbor could add them to that list, of course.
Some may point to the other OTAs in the market such as GetYourGuide, however they are now in a high stakes game with some of the deepest pockets in travel. Their mobile proposition is strong, so perhaps that is where they will differentiate themselves. However, suppliers should not dismiss smaller channels altogether. Even if the large channels represent 50–60% of total OTA bookings, more competitive commissions from smaller channels may prove equally attractive, particularly if you use a channel manager and it doesn’t cost you additional time.
What happened in the hotel industry
Looking back at the hotel industry, OTA dominance was built during periods when hotels were on their knees, deeply discounting and struggling to meet their fixed costs in the aftermath of 9/11 and the 2008 financial crisis. On both occasions hotels turned to OTAs to boost occupancy. In 2001, just 1.4% of rooms were booked through intermediaries, shortly after 9/11 that percentage rose to close to 6%. There it plateaued until the financial crisis hit where it jumped again and accelerated to its current share of a whopping 40% of hotel bookings.
Enforcing rate parity also enhanced the economies of scale and brand awareness of the OTAs, giving hotels no capacity to compete on price with them. Rate parity is a legal agreement between the OTA and a supplier ensuring they provide the same rates for the same product on all distribution channels. In essence, this means that when you sell a price on your website, you must offer it as the same price that you contract to sell it on the OTA, despite the fact you pay the OTA a hefty commission. France has already outlawed these agreements.
In activities, the online distribution landscape is still more 2001 than 2018 when compared to hotels, but with some of the online giants entering the fray, why would we expect them to alter their playbooks which were so spectacularly successful in hotels?
If this happens, it’s important to remember that OTAs have the reach and economies of scale to get your business in front of a global audience, but it’s also healthy to keep them on their toes and allow the market to remain competitive and innovative.
You can do this by continuing to invest in your direct channel and by opening up to a wider range of OTAs and third party sellers.
Where to next
For our part, we will remain focussed on the merchant side of the business. We will certainly continue to engage with OTAs and other channels as we are firm believers of the marketing capabilities they offer, but we also will work hard to create more open standards to increase competition in the sector and allow equal access for smaller and as yet unthought of OTAs.
As Stephen Joyce outlined, this market is large with lots of vertical differentiation. A one size fits all strategy will not address everyone’s needs.
We commit to being our customers technical partner, focussing on our areas of competitive advantage, direct bookings and channel management, and partnering with other great technology companies to deliver the right products to our customers.
Exciting times ahead. We look forward to the challenge.
