OTAs and Google
Blaming Google will not lead to disruptive innovation
Online Travel Agencies’ complaints about Google are sounding very similar to the complains that travel suppliers (hotels and airlines) have expressed towards OTAs in the past.
A few years ago, Dara Khosrowshahi (then Expedia CEO and current CEO of Uber) offered the following advice to hoteliers:
You guys all criticize me for how much I charge you for guests to come to your hotel. I think you’re looking at it wrong. Look at us as the cheapest source of referrals that you could imagine. If they come through me, you pay me once, and if they come back to me again and again, shame on you. You should make them a loyal customer — Dara Khosrowshahi, CEO of Expedia
This same type of argument could be used by Google today vis a vis OTAs. OTAs should listen to Dara’s advice and apply it to themselves as they deal with the challenges of growing in a Google-centric world.
In the last few weeks, there have been spirited discussions on the impact Google had in OTA and metasearch quarterly results. I wrote last week in The Selective Scapegoating of Google that whenever results fall below Wall Street expectations, online travel executives often point to Google as the culprit. And when results are good, success is often explained as a natural consequence of optimal strategies and superb execution.
Let’s look at some recent comments:
Google has gotten more aggressive. We believe our most significant challenge remains Google pushing its own hotel products in search results and siphoning off quality traffic that would otherwise find TripAdvisor via free links and generate high margin revenue in our hotel click-based auction — Tripadvisor CEO Stephen Kaufer, Earnings transcript, November 7th.
The quarter did not play out as planned…Expedia saw incremental weakness in SEO volumes and a related shift to high-cost marketing channels — Expedia CEO Mark Okerstrom. November 7th. Earnings.
Changes in Google’s algorithm had reduced visibility of organic results, resulting in a heavier reliance on paid advertising, and that moving to paid links presented a sizable headwind for the company — Expedia CFO Alan Pickerill. Earnings.
Google acts like a vortex, sucking up all the online traffic….If we are not able to find a solution to this problem then there is the possibility of breaking up Google….Competition authorities may use this measure…There is no place for private monopolies in the long term — Guillaume Teissonnière, eDreams Odigeo General Counsel, Nov 20th, Phocuswright
The main problem that online travel companies have with Google is that they’re getting fewer free lunches
Travel companies (like TripAdvisor) that were the most successful in SEO seem to be the ones that now are hurting the most since their business model was based on a set of assumptions (such as Google being a long term provider of free traffic) and economics that are no longer valid. Conversely, companies (like Booking) that thrived and built a solid business in a paid search environment, are less affected today, as they continue to profitably acquire traffic from Google. Business as usual for them.
TripAdvisor has been one of the biggest free riders in Google free search and is now the one who’s lost the most equity value, but if you look at Booking.com, they were always a taxpayer. They were the biggest paid advertiser in Google — Altimeter Capital CEO Brad Gerstner.
Google has reduced the visibility of organic non-branded results in favor of paid results. Online travel companies that once relied on Google sending them free customers via organic results now have to find other ways of attracting traffic, such as investing in their brand (to increase direct traffic) and in performance marketing. TripAdvisor longs for the days when it ruled Google organic results, turning free traffic from Google into high margin revenue by reselling it to travel suppliers. If I owned a business that happened to be getting free prime time TV ads for years, I would also be upset if I suddenly had to pay for TV ads like any other ordinary business does.
Free lunches have not disappeared though. If I search for a specific hotel on Google, the first organic result that I see above the fold is the hotel’s website. In second position comes TripAdvisor. Both are free/organic listings, in which neither the hotel nor TripAdvisor pay Google for these visits. TripAdvisor and other online travel companies are still getting plenty of organic traffic, but possibly not as much as before. A few years ago, for a hotel branded search such as this one, TripAdvisor could consistently be positioned above the hotel itself; great for the TripAdvisor, but not necessarily what the consumer was looking for.
Does TripAdvisor send out free visits to hotels, restaurants and other travel suppliers? Not now, and not ever, to the best of my recollection. TripAdvisor charges travel providers to include their phone number and links to their own websites. TripAdvisor does not provide any organic results and contact information unless the business pays for this by signing up to a Preferred Access Business Advantage paid plan. Similarly, Expedia, eDreams and other OTAs also do not provide any free links to travel providers. Why doesn’t TripAdvisor send free traffic to travel providers and why do they expect Google to do so, particularly when both companies are for-profit media businesses? There seems to be a double standard here.
Organic results are not better for consumers than paid results
Some OTAs want more free traffic from Google and they would be happy to want turn back the clock on SERPs by a good 10 years. Organic results are better for the select few companies that have deep enough pockets and/or the sophisticated technical know-how to crack the SEO code to secure top organic positions. But not necessarily for consumers. Paid traffic is better for consumers because businesses that pay for that space have a vested interest in ensuring that the content of the ad and the landing page is relevant to the customer query. If not, the business loses money. Having skin in the game aligns paid search advertisers’ interests with what consumers are searching, This is not the case with free SEO visits.
It’s always the same trend. You have the ads first and then you have the Google Travel unit. Generic results are not visible at first sight. They are below the fold…It means today that our consumers on the internet are overwhelmed by advertising. In addition to that they are confused —Guillaume Teissonnière, eDreams Odigeo General Counsel, Nov 20th, Phocuswright
I am not sure I agree with the claim that consumers are confused by Google’s Search Engine Results Page evolution. If they were, Google would not be their overwhelmingly preferred destination for travel searches. Some other company would. In any case, if the problem is that “consumers on the internet are overwhelmed by advertising”, then it should fall on the advertisers (like eDreams) to advertise less. But, judging from the success of Google as a platform and the success of OTAs as advertisers, I don’t think that this is the issue. Going back to a SERP where organic results dominated and paid results went to a handful of dominant OTAs for the bulk majority of travel-related keywords would be bad for consumers and bad for the majority of travel providers (except a handful of OTAs). “Google Travel unit” now includes a larger number of advertisers in addition to the global OTAs, but these OTAs continue to be extremely well represented given their expertise in online marketing and strong partnerships with Google. Google’s travel growth translates into a continued growth in leads flowing to large online travel companies. OTAs excel like no one else in capturing google traffic.
Google is now largest player in the online travel industry thanks to the OTAs
If there was segment reporting on Google Travel, Google Travel would have over $10bn EBITDA, more than every other online travel company combined — Altimeter Capital CEO Brad Gerstner.
Google’s intentions in the travel sector should not come as a surprise to any player. And it’s definitely not something that has crystalized in the last quarter. Ever since it acquired ITA Software in 2010, it became clear that Google would move past the 10 blue links.
Google has become a behemoth in travel because:
a) OTAs and travel companies have financed Google’s foray in travel. Booking, Expedia, eDreams and TripAdvisor spent $10.8 billion on marketing last year. If we assume that 75% ended up in Google, that amounts to $8 billion, equivalent to 5.8% of Google’s $136 billion in advertising revenue in 2018. So, $1 of every $16 in Google advertising revenues in 2018 came from these 4 online travel companies. And $1 of every $19 came from only two companies: Booking and Expedia.
b) Google has been better than OTAs at continuously evolving and improving travel searchers’ user experience. By the year Google acquired ITA, Expedia had already been in business 14 years, TripAdvisor 10 years and eDreams 10 years. Plenty of head start.
Google has outperformed online travel agencies in the stock market, particularly those that are referring to Google as a major cause of their underperformance.
Online travel companies continue to have a large share of free traffic
Let’s see how incoming traffic channels have changed for some of these online travel companies (using data from SEMrush). I have also added newer-generation OTA Kiwi.com, Airbnb as well as e-Commerce giant Amazon in this analysis since I will make some references to these companies later on.
Since January 2017, the organic / SEO channel has indeed reduced its share in overall traffic. The largest losses come from eDreams.es (-44%) and TripAdvisor (-42%). Booking.com and Airbnb are flat while Kiwi.com has significantly increased its share. In spite of the strong decrease, it is surprising how big of a share (44%) SEO still represents of TripAdvisor’s total traffic.
Looking only at SEO is insufficient to understand the share of free traffic. We should also take into account direct traffic (graph 2). The share of direct traffic increases across the board in this period of time, most notably in the case of TripAdvisor(+156%) and eDreams (+142%). Airbnb and Kiwi.com, the latest entrants into the travel ecosystem among this group of companies, have the highest share of direct traffic, which indicates that newer generation of online travel companies are finding ways to build brands and avoid the extent of Google dependency that some older online travel companies have.
Adding SEO and direct gives us the share of non-paid traffic (graph 3). TripAdvisor’s share has a slight decrease of 4%, but all the other travel brands have seen their free traffic share increase in this time period. These OTAs have succeeded in increasing their direct traffic in a way that has more than counterbalanced the loss of organic traffic from Google. The travel companies in the graph have between 72% (eDreams) and 90% (TripAdvisor) of their traffic coming from free channels. This is a very significant share. If the data below is directionally correct, focusing so much on Google to explain quarterly under performances is insufficient.
Travel companies could take a cue from Amazon
Amazon has showed that it is possible to beat Google. In the last three years, Amazon has surpassed Google for product searches. According to a Jumpshot report, nearly 90% of Amazon’s product views now come from its own product search and not from advertising, merchandising, or product aggregators.
Amazon could have initially blamed Google for favoring its own shopping channel results, but instead, Amazon worked at improving its product and customer experience from search to delivery in order to put itself in the position to become the biggest aggregator. Amazon focused on being better, not on asking for regulatory assistance. Some online travel companies could take a cue from Amazon.
More product searches start on Amazon than Google, not because Amazon spent its energy complaining about Google favoring its own shopping results, but because Amazon went out and delivered a better experience for users. — Ben Thompson, Stratechery: The Google Squeeze
Some online travel companies are showing the way forward
Booking Holdings was an exception in the latest round of Google finger pointing. The largest OTA talked about the need to own its own future by providing an extraordinary service and product. Booking’s new strategy of creating a Connected Trip is another step in the right direction in order to increase its direct business.
We saw some headwinds in the SEO channel that did create some modest pressure, but it’s a small channel for us…In the end, what’s most important for us to get customers to come to us directly. We’ve talked about this a lot in the past. It’s one of the things that I think is very important. For us to have our own future is to create a service that is so wonderful, so good that people just naturally will come back to us directly. And we will not be as dependent on other sources of traffic— Glenn Fogel, Booking Holdings CEO, Nov 7th, Earnings transcript
Airbnb is another good example of a travel company that has been able to own its own destiny somewhat independently from Google. It has done this by product innovation and community creation. Aggregating unique product proved to be a highly differentiated advantage that made people to head directly to Airbnb without passing through the Google funnel. This is particularly true if the supply is exclusive, which is less and less the case with Airbnb, as hosts are also advertising in other platforms (such as Booking).
Kiwi.com is a Czech OTA that has been growing at a very fast pace and with relatively lesser Google-dependency. They have done this thinking about travel from a job-to-be-done perspective: getting people from point A to point B. This strategy has led them to innovate in combining various modes of transportation (virtual interlining) in a single global platform, which brings unique customer benefits in price and convenience. With this approach, Kiwi.com also gains a unique set of inventory that differentiates them from other competitors and aggregators.
eDreams is also taking some positive steps in their attempt to get customers to come direct. They have launched a subscription program that already accounts for around 25% of bookings in the markets where it’s being tested. Subscribers are signing up and renewing at an encouraging rate, which should be reflected in lower acquisition costs for eDreams in the near future.
In How to Grow Hotel Direct Bookings I wrote about the value that OTAs bring to suppliers and to the travel ecosystem in general. OTAs share one defining element: resiliency. They have proved to find a way to reinvent themselves and grow despite tremendous obstacles. Most importantly, they have proved to bring tremendous value to customers. In a travel world that is becoming more complex both in terms of products and pricing, the value of retailers becomes more evident. Leading OTAs will grow by focusing on solving real problems for customers. And customers will reward them by going direct to them.