Are Online Travel Agencies (OTAs) As Bad As We Think?
By Dean Minett, Director and Founder of Minett Consulting
If you ask a hotel manager to compare an online travel agency to another life form, the response will generally not be flattering. Lianas in a tropical rainforest, for example. These are the woody vines that climb trees and slowly strangle them, using the trunk and branches as a scaffolding to position their own leaves in the sun. What better analogy for a group of massive sales firms that collectively own the majority of global hotel bookings, and take 15-30% commission on every room they book?
As time has passed, OTA bookings have become the staple instead of the supplement. Many properties depend on them for a third or more of their business. On top of that, increased commissions have tightened the stranglehold. Hotels have found themselves locked in a cycle of dependency as OTAs get fatter. Managers and stockholders are hungry to control more of their own bookings and claim more of the total profit for the services and amenities they provide but it is a tough battle.
As a result, many properties have continued listing on OTAs while encouraging guests to book direct. If you think of it like a chess game, this is a natural move. OTAs need hotel listings in order to stay relevant - and while parity agreements may prevent hotels from advertising lower direct prices in many countries, travelers can still be offered hidden discounts or other perks when they book direct.
A few years ago, Expedia responded with a practice known as 'dimming,' wherein hotels that actively pursued direct bookings were pushed further down the search rankings. This, too, seemed like a natural move to make. After all, OTAs make a living on booking fees. It's not a charity or a free public service. Expedia shareholders were not about to sit back and watch their empire erode.
But there's another player with skin in the game - the traveler. It turns out people don't like it when OTAs filter and manage search results according to their own business criteria. The paying public want OTAs to be objective and transparent. A practice like 'dimming' undermines that legitimacy. It makes people question whether they're actually getting the best deal. In 2016, under pressure from hotels and the travelers, Expedia announced that it would stop punishing hotels this way.
This may be what restores balance to the symbiotic relationship between hotels and OTAs. Essentially, the OTA works best when travelers are given the maximum number of options and the greatest amount of transparency. If OTAs want to optimize the end-user experience, they need hotels, whether or not those properties encourage direct bookings. Hotels, on the other hand, owe little (if anything) to OTAs. If a hotel is treated unfairly for looking after its own business interests, the credibility of the OTA is called into question.
This may seem like a small or even irrelevant victory. After all, OTAs are growing stronger here in Australia and throughout the world. Meanwhile, direct bookings have dipped. In the US, big companies like Hilton have been able to scare up more direct bookings on the strength of clever ad campaigns, but the average hotel finds it nearly impossible to break the stranglehold.
For hotels looking to break free of this oppressive relationship and enter the promised land of direct bookings, there are countless blogs with specific advice. I'm not going to re-hash that information here - but I do want to pose a question in closing:
What is the cost of a direct booking?
Driving guests to your own booking platform, and/or incentivising them with discounts and upgrades, comes at a price. Pay-per-click advertising costs money. Offering lower rates costs money. It would be nice of there were a way to exponentially increase direct bookings at no cost, but that's not how the virtual ecosystem works. Funnily enough, not many hotels really dig down to check how much each booking channel costs.
As OTAs and hotels continue to feed off each other and find their symbiosis, hotels need to think more clearly about what a direct booking costs - and whether OTAs really are the strangling invaders they're made out to be.
Director - Minett Consulting