Way back in the swinging sixties of the internet age (about five years ago), the roles of the major players in the travel industry were quite simple. Google was for search, TripAdvisor was for reviews, and Expedia and Priceline were for shopping for hotel rooms.
Today, as these companies look for new ways to satisfy shareholders' insatiable appetite for growth, they are increasingly delving into each other's territories, and traditional roles are changing.
The question is, will travelers follow? And how can hotels adapt to the new playing field?
It's not always easy to determine where the big players are heading, but comments made by executives during quarterly earnings calls, when they must explain financial performance and reassure investors, are often revealing.
Growth of Alternative Accommodations One of the most ominous signs for the hotel industry is the proliferation of the so-called sharing economy, which turns people's homes into miniature hotels.
After years of tremendous growth, Expedia and Priceline have experienced a slowdown in hotel room bookings and are turning to alternative accommodations as a source of growth.
Last year, Expedia purchased vacation rental site HomeAway, which owns VRBO, and announced plans to "expand aggressively" in this market. During Priceline's first quarter 2016 earnings call, interim CEO Jeffery Boyd reported that the company lists over 400,000 alternative accommodations. "We couldn't be more enthusiastic for these types of accommodations," he said.
And let's not forget about Airbnb, whose listings make up an estimated 8 to 15% of hotel room supply in major cities in the U.S., according to a study from Bank of America Merrill Lynch late last year. (qz.com.)
The growth in alternative accommodations has been made possible by a combination of technology, which allows travelers to shop, compare and book offerings online as easily as hotels, and by guest reviews, which remove a lot of the risk and worry out of staying in a stranger's home.
As the comfort level increases, the non-hotel sector will continue to expand beyond leisure travelers and vacation destinations to business travelers and urban destinations. The next great frontier? Group travel.
How big is the threat? Think about it. If every traveler rented out their home while on the road, there would be little need for hotels. Hotels may lament the commission they pay to OTAs, but it's better than no booking at all.
The hotel industry may not feel the pain of a few points in lost occupancy when travel is on an upswing, but when things slow down everything falls under greater scrutiny, and that's when people lose jobs and brands lose contracts.
The Push for Direct Bookings Ironically, the move toward alternative accommodations by OTAs has been partly propelled by hotels. The big brands have finally found the cojones to stand up to OTAs and use loyalty clubs as a workaround for rate parity restrictions.
Marriott, Hilton, Hyatt and other brands now offer incentives to travelers to join their loyalty programs and book direct, including lower rates than those found on OTAs, free Wi-Fi, loyalty points and online check-in. They are spending millions in advertising to teach travelers that the best deals are found by booking direct. The campaigns have even hit mainstream media.
A Google survey found that the top reasons travelers book on OTAs include lower prices or better deals, past positive experience or recommendations, familiarity with the brand name, better tools and options, loyalty and rewards programs, and "It's what came up at the top of a search engine results". (The 2014 Traveler's Road to Decision.)
If hotels want to attract more direct bookings, these are the areas where they need to compete.
A New Booking Model Meanwhile, TripAdvisor and Google are trying to change traveler behavior too by allowing travelers to book a room without leaving the site. The booking is passed on to the hotel for completion, and the hotel pays a commission of approximately 12% to 15% of room revenue.
The new model isn't quite an OTA and is definitely not metasearch; some call it "Assisted Booking" or "Facilitated Booking." Whatever you call it, it's a brilliant move on the part of TripAdvisor and Google, who collect a sizeable commission without having to worry about managing inventory or providing customer service.
While Google has been slower to roll out its "Book on Google" product, TripAdvisor has signed up virtually every major hotel brand as well as Booking.com. During the quarterly earnings call this month, TripAdvisor CEO Stephen Kaufer described the company's objective as "establishing our brand as a preferred booking site — getting users back to our site to book time and time again."
This new focus on transactions marks a substantial shift for TripAdvisor, but will travelers follow?
Google Destinations and Trips It seems that all of these companies are vying to be the one-stop-shop for travel planning. This challenges Google's predominance as the gateway to online travel planning and could jeopardize the monumental revenues it receives for charging toll fees at the gate.
But Google isn't about to go down without a fight. The company recently launched Google Destinations, a mobile travel planning tool that integrates Search, Maps, Flights and Hotels. The company is reportedly preparing to launch Google Trips, a travel planning app like TripIt that integrates data from Google Now, Gmail and Google Calendar.
During Virtuoso in Cape Town in April, Google's partnerships director Dave Pavelko said, "Our goal is to facilitate the transaction. We are reacting to what we've seen in the marketplace, and we are testing more hotel offers to drive more clicks and conversions." (Travel Market Report.)
Hotel Strategies Where do all these changes leave hotels? First, to truly change traveler behavior, all hotels, independent and branded alike, must play their part in fulfilling the promise that the best deals – or comparable deals, at least – are found by booking direct.
At the same time, hotels have never been in a better position to negotiate more favorable terms with OTAs. I would start by insisting that they stop bidding on hotel brand names in search results. A true "partner" would never do that.
Hotels must diversify too to ensure they are not overly dependent on a handful of distribution channels. Explore new options like instant booking on TripAdvisor and Google and Accor's new booking platform for independent hotels. Measure and compare costs on each channel, and allocate resources to the most profitable.
Oh, and if you haven't stayed at an Airbnb yet, do it. Only by experiencing firsthand Airbnb's slick user experience, two-way feedback system and value proposition will you truly understand what it will take to compete.
Above all, hotels should focus on the one area where the big players can't compete: guest service. Online travel companies spend their money on advertising and technology; they're not interested in customer service because it can't be scaled or monetized—though some are looking for ways to automate it.
Better service creates closer relationships with guests, leading to greater loyalty, advocacy, direct bookings and profitable relationships. This is the combination that will help hotels be successful regardless of the battles taking place among the giants in the industry.
