Hotel brands boosted in OTA battle

Two developments in the online travel space have demonstrated how incumbents in the sector have chosen now, the great travel reset, to test potentially fundamental operational changes.  

Google has promised to provide free links for hotels, encouraging direct booking from organic listings on its search engine. And, in a switch that many have wondered might happen, online booking platform Kayak has opened its first hotel.  

The search engine giant explained in a blog: “For many years, we’ve helped travellers choose the right hotel by providing a list of relevant properties, along with information like reviews, photos, and hotel amenities. We’ve seen that users find these hotel booking links to be highly useful, and partners find them to be a valuable source of potential customers.  

Now, we’re improving this experience by making it free for hotels and travel companies around the world to appear in hotel booking links. Today’s update is part of our larger effort to ensure people have access to all offers available to them by providing free and easy ways for businesses to connect with people on Google.” 

“Google is doing this because it’s good for Google,” commented Peter O’Connor, professor of strategic management at University of South Australia Business School, and an expert in online marketing. “The result of this will be a lot of good PR – but they will generate more from bid inflation. It’s a very smart move.” The move will also be likely to damage meta search engines, he expects.  

O’Connor noted that costs for the top two ad positions on a Google search page are increasing, with those positions likely to be won in bidding from OTAs. And, with the OTAs having slashed marketing budgets during the pandemic business downturn, so ad revenues have fallen. Airbnb, for example has recently slashed so-called “performance marketing” or bidding for online prospects, in favour of instead increasing brand promotion. “That’s a lot of money to lose. Google has to get its revenue from somewhere.”  

“Consumers are getting a lot more savvy, their digital journey has changed,” said Michael De Jongh, chief commercial officer at online specialist Avvio. More aware of what they are doing online, they have also faced issues through the pandemic around handling cancellations, and uncertainty of availability. “At the same time, hotels have become more conscious about the value of direct.”  

And, with many accommodation providers restricted to searching for business from closer to home,”the key point is that for a hotelier, you don’t need an OTA for your local market. There’s definitely a channel shift for the staycation market.” 

While De Jongh called the Google move “really positive,” he noted “however, the caveat is, you can book through multiple channels.” When full marketing budgets return, he expects the OTAs to be bidding once more for the top advertising spots, which in any case appear above organic listings.  

Avvio, meantime, has spent lockdown sharing its digital academy sessions, which have had more than 2,000 participants, and further developing its own AI, which ensures returning website visitors are served up a tailored offer, to increase the likelihood of booking, and upsells. 

And in a twist that many have long wondered about, an online brand has launched its own hotel. Kayak, part of the Booking group, has taken over a property in Miami Beach, and says it will look for further US and European properties, too. Working alongside partner Life House, the company plans to use the property as a testbed for technology, including digital room keys, alerts to events, check-in and restaurant bookings. “We are really good at consumer software and when we looked at the hotel industry we thought there were places for improvement,” said Kayak CEO Steve Hafner. 

Meanwhile, there are those in the OTA space that still expect business patterns to return to largely where they were before the pandemic. Speaking to Bloomberg, Expedia CEO Peter Kern commented that he is already seeing a resurgence in activity: “I have zero doubt in my mind that hotels will be back,” with evidence of strong bookings already in some parts of the US. “This summer, if you want to go to a beach that you love, you will be hard pressed to find opportunities in homes or hotels.”  

He also dismissed Airbnb as a threat to the OTAs: “In all of our largest markets, we’ve grown share against Airbnb.” He added that hosts listing on Expedia make substantially more than Airbnb hosts: “We’re all about the whole home experience [and there’s been huge demand for it.” 

HA Perspective [by Andrew Sangster]: For leisure customers, OTAs win against hotels in three key areas: choice; efficiency of websites; and [the perception of] being better value. With a recovery that is being driven by leisure demand, a market segment that OTAs usually dominate against hotels, then OTAs are going to come out on top. Only they aren’t. 

The recovery from the pandemic has so far proved a difficult period for OTAs and an increasingly positive one for big hotel brands and their direct booking offers. 

A comprehensive look at this question was undertaken by analysts at Bernstein in an 82-page report published on 16th March called: “The long view: Hotels vs OTAs – America’s next top (business) model”. 

Bernstein noted that “the last few years has seen slowing intermediary share gains of hotels bookings, with this trend suggesting a reversal of direct winning more of the online pie”. The analysts produce a table showing hotel share versus OTA as 45% to 55% in 2013 changing to 40% to 60% by this year. But going forward, OTAs are forecast to stop gaining market share until by 2030 the split is 41% to 59%. 

It is important to note that this is not a conclusive win for hotel brands. They still have the smaller share of what is a growing online pie. But they have stopped the decline. 

The success in doing this is related to how they have tackled the lead OTAs have held in three key areas. Probably the least success has been with websites. While hoteliers have invested in website technology, they still lag their OTA rivals.  

Bernstein did a speed test on websites and found most OTAs scoring above 75 out of 100. The worst major chain, Hilton, scored just eight out of 100. Premier Inn and Accor were the best,, coming in at 64 and 63 respectively, ahead of some OTAs such as Expedia.com and Airbnb. App scores for hotel brands are also generally worse than for OTAs. 

It is unlikely that hoteliers will ever completely close the gap with OTAs given the disparity in technology spending between the two types of businesses. But hoteliers can close the gap, in some cases are and in other cases should. 

It is the other two areas of choice and perception of better value where changes by Google are critical. Google remains the first place travellers start looking for hotels. If hotel brands are helped to position themselves better on the search platform, then this helps rebalancing. 

Of course, the threat is always that what Google gives, it can also take away. But it is in the search giant’s interest to ensure there is not a duopoly among buyers. The more fragmented the market place, the more Google stands to make. It seems probable that Google will continue to tilt the table slightly in favour of the weaker players, particular as the two OTA giants rein in their paid search spending.  

Expedia and Booking slashed spending on sales and marketing in 2020 to USD4.7bn, down from USD11bn in 2019. As lockdowns begin to lift and travel restarts, this spending will climb again but both companies are telling shareholders that it will be less than before. Google will have noted. 

Maybe the biggest wins for hotel brands is coming with the perception of better value. They are achieving this by actually delivering better value than OTAs. Bernstein found that it is 2% to 5% cheaper to book direct with bigger discounts at the weekend which see more leisure travellers. 

There is still progress to be made with consumers in France, the US and China all believing OTAs are best on price (the UK was an exception). Bernstein did find, however, that travellers do trust booking direct more in all territories, an important factor in the current uncertain lockdown environment. 

Bernstein’s conclusions are that hotel brand companies have the bigger market opportunity. For OTAs the future is one of slower growth and / or diminishing margins. It maybe that Booking has decided to get into the hotel brand game itself. 

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