Why TripAdvisor has a chance to eat the lunch of Booking.com
By Pedro Colaco, CEO at GuestCentric Systems
Hoteliers feel trapped
There is a mounting sentiment among hoteliers that hotel booking intermediaries like Booking.com and Expedia are getting stronger by the day.
Online travel agencies are massively outspending hotels in online marketing and customer acquisition, and their aggressive online and TV campaigns are driving consumer traffic to their websites, away from hotel's official websites.
Booking.com is by far the most assertive player marketing hotels to consumers, having racked up significant advantage in all online promotion techniques like Google Adwords and other foms of PPC (pay per click) or re-targeting and re-marketing.
This marketing has turned Booking.com into the dominant hotel OTA in Europe and is already making significant dents in North America (see Alexa ranks of OTAs below). Hence, the attention of many hoteliers is on Booking.com and how to decrease their dependency on them.
Commission checks have doubled and continue to rise
Specialized hotel OTAs do not only outspend hoteliers, they also seem to be outsmarting hoteliers with strategies to drive prices down and commissions up.
Prices are kept low by increasing available accommodation inventory with speciality lodging (bed and breakfasts, serviced apartments, hostels) and even thousands of individual apartments that can be rented on a daily basis.
Commissions are kept high by having as many players as possible bidding "to be on page 1", where a massive percentage (some say 80-90%) of all transactions happen.
According to a spot check at some of our customers, we estimate that over the last two to three years average commissions paid by hotels to OTAs in markets like London, Barcelona or Lisbon have gone up from 20% to 30%.
These changes, tied to a stronger dominance of OTAs, represent an almost doubling of the commission checks that hotels pay to OTAs on a monthly basis.
Even "prime beef" is fair game now
In secondary markets the rise of the OTAs sales channel, and massive OTA spend in online advertising has created significant value: an increase in sales opportunities and therefore increased occupancy.
In primary markets or seasons where occupancy is guaranteed to be high, the rise of the OTA sales channel has had a negative impact in hotel operations profitability.
There have been little strategies that hotels could run to protect their "prime beef" from being partially taken over by the OTAs, especially with clauses like "price parity" and "last room availability".
The metasearch promise
The rise of hotel OTAs as vertical search engines for hotels is also due to the fact that consumers are getting tired of a messy hotel search experience.
Numerous studies by Google show that travelers visit tens of sites before booking accommodation.
Entrepreneurs, seeing the opportunity to improve the same search experience, launched specialized search sites that compare prices on several OTAs to guide consumers to the best possible deal, including the one on the hotel's website (Meta-search).
Some of these sites, like Trivago, have experienced massive success due to an aggressive TV ad campaign to drive traffic to its website.
While growingly important contenders, these sites still attract relatively little traffic when compared to hotel OTAs (see figure 1).
Enter TripAdvisor Tripconnect
When TripAdvisor launched Tripconnect it was positioned as a service that "allows TripAdvisor Business Listings subscribers to participate in Hotel Price Comparison and to drive direct bookings from TripAdvisor to their own property's website".
So, nothing different than Trivago or RoomKey, right? Wrong.
TripAdvisor is the first truly viable platform to generate a massive amount of direct bookings.
TripAdvisor can help hotel brands compete with the OTAs for their bookings mainly due to two factors:
- The massive volume of users it already services on a monthly basis. According to TripAdvisor, over 260 million unique users plan travel on TripAdvisor each month. That's over 6,000 unique users looking at hotel reviews every second of every day.
- The target audience is already highly engaged with your brand. They are already looking at your hotel's reviews!
To provide some market context on the opportunity, take a look at Figure 3. TripAdvisor is truly the #2 website for hoteliers.
It is the only one that gets close to Booking.com in terms of traffic (ranks #208 vs. booking.com's #125), it outranks Expedia (#519) and blows fellow meta-search Trivago or RoomKey out of the water by 50 times! This is the sort of sales opportunity that hotel brands should participate in.
If this is PPC, won't the OTAs just outspend hotels again?
So, TripConnect allows hoteliers to bid on their own page. But OTAs are already listed on TripAdvisor's PPC programs, and have gained significant experience on bidding over the years.
Moreover, TripAdvisor's business listing is considered expensive for many hotels. Managing PPC also adds to the list of tasks and budget line items in already cash- and resource-strapped independent hotels.
TripAdvisor has been running special pricing programs for hotels that sign up now. And bid management has been made very simple by TripAdvisor.
So, all-in-all, if you want to cut your dependency on booking intermediaries, this is as good as it gets for now. And driving direct traffic is just the beginning.
This is just the beginning
With TripConnect, hotels now have a tool that allows them to be creative and compete with the OTAs based on total value offered to the consumers. I foresee that most price parity and last room availability clauses will be questioned.
Hotels will drive special deals (e.g. free WiFi, 10% discount for Club sign-ups) that will test price parity clauses to the limit. And for high season, some hotels will be able to close out OTA sales and keep TripConnect open – and only their direct website prices will appear on TripConnect.
So, expect some backlash from the OTAs. But now you may have someone with clout on your side – TripAdvisor.
Is it going to be just TripAdvisor and Booking.com?
The point of this article is to regain control of your distribution, not to move your reservations from Booking.com to TripAdvisor. In addition, Google has slowly (but surely) been incorporating smarter hotel meta-search into its products.
It started with Google Hotel Finder, migrated to Google Local Business and is now being increasingly displayed in native Google Search (the hotel carousel is just one example of such integration).
Expect Google to become a more significant player in Meta-search in the coming 12 months.
To regain control of your distribution I believe you need to divide and conquer: ie. you need to make sure you have a balanced distribution strategy, with a few OTAs, a few metasearch players and a lot of direct bookings.
To do so should require little extra work, as you can leverage reasonably priced technology solutions that provide seamless integration with these channels.
2014 is the year of meta-search due to TripAdvisor's TripConnect. TripAdvisor, due to its scale, is the first viable alternative to drive significant bookings away from the OTAs.
By being able to participate in the travel planning process of 260,000,000 travel planners every month, hoteliers will be able to start balancing OTA vs. direct bookings and begin to get control of their online distribution channel back.
But it's not magic: it has annual fees, marketing costs, and requires smart revenue management.
Nothing you cannot deal with.
President and CEO GUESTCENTRIC