Why hotels are farms and OTAs becoming grocery stores

In the online world, hoteliers have always been trying to catch the train after realizing big online travel agents (OTAs) were getting more popular with mass markets.

10 years later, OTAs have gained considerable market share within the travel industry and trust among savvy travellers. If you look back the the history of OTAs websites on sites like Archive Org you will see that not a lot have changed on OTAs. They have failed to re-invent themselves. But is there a need to re-invent a working wheel?

As HeBS points out on their recent blog post, OTAs with a merchant model has taken away a lot of margin from hoteliers and can reach up to 25% commission if you choose to work with their site. HeBS mentions a leakage of $5.4B in 2010 of hotel margin lost because of merchand models.

I am not sure if we can really talk about leakage of margin if the hotels couldn't fill their room via direct distribution, but this is another subject.

Whilst reading this article, I have come to realize that hotels are farms and OTAs becoming grocery stores.

Farms are fed up with grocery stores because they are loosing their power of negotiation when it comes to allotment, net prices and therefore try to engage directly with consumers. They are buying key words on Google, they forge hotel portals together or join representation companies and more importantly they are becoming more engaging with their prospects and customers through Social Media tools like Facebook, Twitter, Google Places, YouTube and so on.

Also farms believe their produce have become comoditised and they are sharing usally the same shelves in supermarket. Whoever pays the most commission get the best visibility on OTAs website. For instance Booking.com came with a clever system where hotels bid more commission to feature higher on the ranking of the destination page.

Hotels are not on strike (yet) but they realize that they could be more in control of their disbribution more than ever before.

What have changed this year is how hotels are taclking the issue of shifting offline bookings to online bookings with more direct connections than through indirect distribution (GDS, OTAs, Travel Agents...).

My very recent experience about direct vs. indirect thought me that hotels want your booking without intermediaries. I was quoted the other day by a hotelier a 3 night stay in a resort destination with a price value of 15% less than OTAs prices. Which is probably the commission they would have paid if I made my booking through the online agent.

I have yet come across hotels who have decided to work on a direct distribution model only. B&B or small accomodation providers like chambres d'hote or guest inn have embraced that model though. But they have less room to manage.

Comments

[Steve]

On a related note, this weeks news http://www.bbc.co.uk/news/business-11330463 ( http://dorian.skoosh.com/ )

[Martin Soler - Hotel Marketer and Hotelier]

Excellent article. I just hope they don't become french farmers...
On a more serious note, independent hotels have been pretty good at leaving out the OTAs, though 2009 make a large dent in that market. I did a social media campaign and online marketing strategy for a luxury hotel in Paris that went through 2009 without yielding their rates once nor signing on any OTAs and their 2009 was better than 2008. It can totally be done, but it does require some intensive online presence.
We do work exclusively for the independent hotels to get them more direct bookings and increase their direct market share. Reducing rates on own website is one of the strategies. Getting the Tripadvisor link is another, I recently analysed that and posted an article about it.
http://hospitalitymarketingonline.wordpress.com/2010/09/20/importance-of-the-tripadvisor-link/

[Fabrice Burtin]

Great post. Very simple analysis and spot on.

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[London hotels]

Big name OTA's like Expedia and Priceline offer many value added services to their customers that individual hoteliers cannot simply afford to offer in case they sell their rooms directly to the end-customer.

These value added services include the ability to compare several hotels (and I am talking about unbiased comparisons) in a particular location such as Croydon, London. Furthermore, you can read unbiased hotel reviews by real travelers on these OTA sites. Customers won't consider such reviews as unbiased if a hotel would itself publish them on its own website. After all, you cannot expect a hotel to publish a review titled "Lousy Service and dirty rooms" on their own website.

So more and more travelers are turning to OTAs rather than booking directly at hotels. As a result of this, stock prices (and prices) of publicly listed online travel agents, like Priceline, are heading north (with some hiccups, of course) even in these days of recession.

[Anthony COSTE]

Branded hotels and independents face the same issue: millions Euros are lost in commissions.

A debate between hoteliers and marketing experts is planned at the "Equiphotel show" this November. The aim of this debate is to find ideas to limit OTAs. I have seen that many hoteliers (small and bigger branded hotels) want now to collaborate together to create their own reservation system on the web at a very low % commission.

Very difficult task for hoteliers to accomplish, need to build a team, establish a strategy etc... however it is certainly much easier for hoteliers to create their virtual supermarket than farmers creating their own grocery store. I hope that in a few years hoteliers will find the right solution to compete with the strongest OTAs.

(Equiphotel is the biggest hotel show in France, 10-14 November 2010 in Paris.)

[Thomas]

Sorry to post in french, but i am sure a lot of french speaking person reads this blog.. and my english is not confident enought to post in English.. but for the English speaking person, I totally agree with Guillaume and I am fighting to give back hotelkeeper their distribution control

Cela fait plusieurs années que je répète que les hôteliers sont dans la même situation que l'agro alimentaire il y a une 15ene d'années. Le poids de plus en plus important que prennent les centrales d'achats. Aujourd'hui les producteurs sont pieds et poings liés a ces centrales d'achats qui font la pluie et le beau temps sur le pricing, sur le référencement, sur la visibilité du produit, sur les marges arrières, etc... ces centrales d'achats ont pratiquement un droit de vie ou de mort sur les producteurs.

L'hôtellerie est en train de vivre la même chose avec la prépondérance des centrales de réservation et, on le voit bien dans les commentaires, ci dessus, les hôteliers sont de plus en plus pieds et poings liés. Un des commentateurs avait envie de l'envoyer ch** mais il ne l'a pas fait car ce distributeur a trop de poids dans son établissement...
Et que va t il se passer lorsque booking et ses copains vont décider de passer la commission de 15 ou 20% a 40 ou 50 % !
Les hôteliers sont en train de perdre leur maîtrise commerciale.... ceux qui ne réagiront pas vont devenir des "sous traitant" de ces centrales d'achats... Il faut impérativement remettre la distribution direct au cœur de la stratégie marketing de l'hôtel... mais les hôteliers font très peu d'efforts commerciales, ils attendent le plus souvent le client comme le montre l'étude publiée par le comité Modernisation Hôtellerie (sept 2010). Un client réservant par bookings, expedia, etc n'est pas votre client, il appartient a ces centrales, vous avez son nom, c'est tout juste si vous avez son email.. mais le reste....
Je "lutte" pour que l'hôtelier soit indépendant par rapport a ces centrales de résa. Je ne dis pas qu'il faut s'en séparer, elles font un bon job, mais cher, il faut juste les utiliser avec parcimonie. Je milite pour une distribution électronique en direct sur le site web de l'hôtel, il faut impérativement que je site internet de l'hôtel soit agréable, accueillant et vende des chambres... Souvent avant d'aller acheter un grille pain chez Darty (distributeur) les internautes vont consulter le site de Seb, Moulinex (producteurs) etc... pour avoir de l'info et si le grille pain y était a vendre il y a fort a parier qu'ils l'achèteraient en ligne (du moins une partie des internautes). C'est pareil avec l'hôtellerie. Ayez un site qui vend mais surtout un site visible que l'on trouve facilement.... ca vous allègera déjà le poids que les centrale de réservations ont dans votre établissement et en plus c'est pas si compliqué !

[John @ Playa Del Carmen Mexico]

I think we'll see more hotels offering a best price guarantee by booking directly with the hotel website. This has happened in the airline industry and now airline commissions are super slim.

[Anthony Green]

Hotels need to more about this...for years they have been scared to do anything that threatens their relationship with wholesalers, but current technology allows them to connect directly with guests and reduce their reliance on channels such as OTAs and wholesale.

[Anthony COSTE]

I have had an argument with my distributor a few month ago, I was right and my distributor was definitively wrong but what could I do: I would have liked so much to tell him to F*** off but I said nothing because this OTA has too much power and I need them today.

However the good point of this argument is that it has pushed me a lot to improve my business. My mission is to improve the hotel and to reduce OTA business.

Some Farmers have understood that it was better to sell less but to sell direct but for doing that you must make quality products like high level quality organic food and so on.

[Madeline Colonna]

Interesting perspective. I think it's worthwhile for hotels to ramp up their own websites to develop special packages like Deals of the Week, etc. However, I do think many hotels will continue to use OTAs to sell unused inventory on short notice. Although there is a fee/commission involved, the booking process is certainly streamlined on the hotel's end.

[Hotelmine]

This is the perfect example why we created Hotelmine. A new online leisure travel site that serves as a direct connect between the consumer and the hotel.

Hotels display their guest room rate, and create promotions like Deals of the Week, Packages, Last Minute Deals, and Hot Dates & Rates.

When a customer see something that suits his tastes or budget, he books directly with the hotel by call the hotel's reservation number or through the hotel's website booking engine.

No commissions & no GDS fees. Watch for the soft launch of Hotelmine on Monday, September 27.

[Udaipur hotels]

thanks for info

[Gatwick Hilton Valet]

With certain things resellers can provide things cheaper, specificly relevant; airport parking, where often brokers will buy up large amounts of parking space at very low rates.

Going back to hotel rates, if you book with the Gatwick Hilton for a stay, you can bundle it with a deal for your airport parking and make signifigant savings.

Though, that isn't buying through a straight reseller.