Industry Update
Opinion Article12 December 2013

Game on: OTAs still have the edge but for how long?

In the battle for share of travel bookings, OTAs remain strong contenders but there is no room for complacency, writes Ritesh Gupta

By Ritesh Gupta

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Year after year there is talk of supplier brand websites and travel meta-search engines posing a stronger challenge than ever to online travel agencies (OTAs).

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But OTAs, especially the established ones, still have an edge in this competitive game. Even suppliers have to acknowledge this. "Although renewed interest in meta-search, social media and more accessible technology provide great opportunity to tilt balance, the OTAs still wield disproportionate power in the overall distribution landscape. Bigger chains and groups are more successful and wresting some control back but they represent relatively smaller numbers from the whole," says Chetan Patel, VP, Strategic Marketing & E-Commerce, Onyx Hospitality Group.

A mixed bag

As Patel points out, the online business or the e-commerce category means different things to different hotels. "For many it is the high yield segment. For others it is replacing the traditional lower rate segments like groups and tour series. And there are others where it is the bread and butter, meaning pretty much all of their business. It is not a level playing field and hotels are competing for business on a variety of levels on OTAs," he says.

Frankly put, if a hotel is generating very insignificant amount of business directly on their own website, the channel is practically non-existent for them. "They are simply competing with other hotels on OTAs when they undercut their direct channel because that is where the action is. These hotels seem to think if they can get the business with such tactics in the short term, they should be able to get them in the long term as well. Continued business growth from OTAs is reason for optimism," argues Patel.

What hotels may not realise, however, is that they are doing disservice to guests and hotel owners. More money taken by OTAs means less is available for service, amenities, future upgrades and investment. And if hotels are still able to command high average daily rates because they are in a high demand destinations, guests are paying more to cover OTA costs and getting lower value while thinking they are getting a great deal.

Importantly, Patel says not focusing on your direct channel or undercutting it deliberately is a zero sum game. "If the hotels continue to do this, just wait for others who are smart enough in balancing the equation to surpass them in medium to long term. Profitability of either side of equation will be very different and as the proportion of online business grows, such imbalances will come back to haunt them," he says.

No room for complacency

In an interview with Todd Henrich, SVP, Corporate Development at Priceline.com, he acknowledged relatively big OTAs' strengths but also mentioned that there is no room for complacency. "Our plate is full just keeping up with the current trends: more internet penetration around the world, more mobile commerce, more interactivity in the area of social media," he says, pointing a number of trends.

  • Beyond commoditisation: There has been a lot of talk of going beyond commoditisation and instead inspiring customers to plan their next journey. Henrich says OTAs have been designed to help customers find and book reservations. "But inspiration and research are very different activities from booking and it's not entirely clear that they are linked in the customers' mind either. Certainly, there are many OTAs moving aggressively in that direction, but they may or may not be the best suited to deliver that functionality. We will see down the road if this is a good road to follow," he says.
  • Technology: Senior hotel distribution executives refer to the prowess of OTAs when it comes to dealing with rapid change in technology and also in keeping up with new devices, social networks, apps etc. Are OTAs still better placed than any other intermediary in hotel distribution? "Some OTAs might not be. Again, we think it is a mistake to make broad generalisations. Larger OTAs have advantages such as more capital to apply to R&D, more specialised personnel in technology etc. However, some of the large hotel groups are probably better positioned than some of the smaller OTAs," says Henrich.
  • Digital data: OTAs certainly have access to a great deal of data, and technology has made it cheaper and easier to store and analyse data, but it's as much an art as a science and everyone needs to make sure they are respecting consumers' privacy. "I think, in general, people are getting better at understanding data, but it is a gradual process," says Henrich.
  • Generating demand: Hotels at times are critical of OTAs. They say the big difference between suppliers and OTAs here is that OTAs are predominantly interested in capturing the existing demand. "Not sure I agree with that and I am not sure our hotels do either. Do supermarkets generate demand for food? Not directly because people need to eat and will eat with without supermarkets. But, supermarkets do increase demand by making it easy for customers to find and purchase food. We all eat a lot more because supermarkets exist. We create demand in the same way. A big difference between us and a supermarket, however, is that we have almost unlimited virtual shelf space, so we can bring the customer more variety than just the top selling brands – which really does create demand for that product which otherwise couldn't be distributed to the customer," explains Henrich.

Growing competition

There are areas where OTAs are being challenged.

  • The rise of meta-searchers: The industry has seen travel meta-search going from strength to strength. There is an increasing blurring of the line between meta-search and fulfillment. One can expect to see more and more meta-search companies becoming transaction agents. Taking this a step further, OTAs need to keep any eye on the online (specifically search) experience that travel meta-search can deliver. "I have to say that today meta-searchers are doing a better job in terms of personalisation and user preferences of search results. Meta-search engines only need to perform the search and don't have to deal with the booking process or operational procedures involved with booking a flight. This allows them to focus all their resources on the search results," Philipp Brinkmann, CEO, tripsta.com told EyeforTravel in a recent interview.
  • Experience that suppliers can offer: A booking might take place via an intermediary, but hotel companies acknowledge that the onus is on them to take control from there on. If the guest is satisfied, then the trick lies in taking this association beyond the stay. For instance, strengthening ties with a guest who can enrol in a loyalty programme. Suppliers are getting savvy when it comes to relying on analytics to come up with special offers based on status or the level of points, rather than just focusing on award offers without segmentation.
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Ritesh Gupta

Ritesh joined EyeforTravel in October 2004. Based in New Delhi, he conceptualises and manages the daily news section. He also focuses on bringing synergy between EyeforTravel.com's editorial strategy and company's conferences across the globe. For this, he contributes through his coverage pertaining to the event and analysis/interviews.

    More from Ritesh Gupta

    About EyeforTravel

    EyeforTravel is an online travel intelligence provider to hotels, airlines, online travel agents, cruise, car hire firms and more. Established in 1997 by Tim Gunstone, right at the inception of online travel, the group offers a diverse product portfolio including industry analysis, insights, research, webinars, reports and conferences. From major hotel brands to new startups, EyeforTravel helps its 80,000 strong customer base make better decisions, build better brands, close the most lucrative deals and ultimately sell more of their product.

    For more information visit www.eyefortravel.com.

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