Why OTA commissions are actually a steal of a deal

In the past six months I’ve written about increasing hotel brand fees (Hotel Loyalty Rate Analysis) and increasing loyalty fees (The Great Loyalty Rate Debate).

Both articles prompted some very interesting and much needed industry debate about how best to proactively manage hotel online distribution.

In what was a sea of negative OTA sentiment, I opted to take a deep dive into the issue and explore some of the lesser seen and even lesser understood facets of the hotel online distribution conundrum, in particular, the notion that direct bookings are always cheaper.

Thankfully in more recent times OTA disdain has been waning and my feeling is that it will continue to diminish over the next few years for several reasons.

Firstly, Airbnb seems to be emerging as the hotel industry’s next big disruptor, making it a convenient target for the sector’s woes.

Consumer adoption is accelerating, with one-in-five travelers already using peer-to-peer sites for business travel, and nearly half of those surveyed indicated that they have substituted what would previously probably have been a hotel stay with a homestay.

With such a large threat looming on the horizon, and a new potentially potent enemy to battle, the sector’s prior gripes about unfair OTA competition look likely to pale into insignificance.

In fact, facing a common enemy, OTAs and hotel brands are increasingly working together to unlock new potential and keep the hotel industry competitive against alternative accommodations.

OTAs are also starting to provide value in some interesting ways that the industry is not seeing from search engines, meta sites, or even chain brands. For example, Booking.com’s BookingSuite is powering brand direct sites, and thus in effect competing against itself.

Expedia’s Rev+ is making big data consumable for hoteliers, helping make revenue management practices smarter and more efficient than they’ve ever been before.

Now hoteliers have free tools to drive rate when the market supports it or occupancy with promotions and discounts when they need it most. Expedia is also signing up its customers into chain loyalty programs as well as sending qualified travelers directly to book direct channels.

And perhaps most interesting, after being an initial proponent of the anti-OTA book direct campaigns, Marriott International is itself now leveraging Expedia’s packaging technology to provide additional functionality and drive a totally new customer to their portfolio of brand.com sites.

It seems that when the chips are down, the enemy of my enemy is actually my friend.

Incremental customers?

Supporting this shift in sentiment is the fact that OTAs are typically an incremental source of customers for the travel industry.

According to Expedia, less than 0.5% of their customers search for a particular hotel brand when performing a hotel search.

A recent BDRC survey of US lodging loyalty members indicates that OTA loyalty programs have a 71% higher proportion of millennial leisure travelers and a 44% higher proportion of millennial business travelers than chain loyalty programs.

OTA program members also have a higher proportion of international travelers and frequent travelers (11+ nights per year) than hotel loyalty members. Despite hotel chain’s efforts, these customers are displaying loyalty to the OTA, not the hotel brand, but can be exploited by hotels smart enough to build synergistic relationships with their OTA partners.

With such renewed cooperation, perhaps it’s time to put another age-old fallacy to bed, that OTAs are making vast profits on the sale of hotel rooms off the back of hardworking hoteliers!.....

And many others have tried, promising innovative low cost, ‘hotel-friendly’ business models with much fanfare, but all have fallen by the wayside once their initial funding ran out.

Thus, while OTA costs might to some appear high, those who really understand the realities of the hotel distribution and online marketing game are increasingly realizing that, comparatively speaking, they in fact represent outstandingly good value for the money.

By leveraging their economies of scale and global reach, they provide hotels with a cost-effective way to generate incremental bookings in a highly competitive market, all on a pay-per-performance basis.

So when are we going to stop kidding ourselves that focusing solely on direct booking is a better strategy for the hotel industry?