Have we seen peak OTA?

April 6th, 2019 - Read time 5 mins

These are questions to seriously consider as pressure grows on the ruling duopoly of Booking Holdings and Expedia to allow their hotel “partners” pricing freedom and end deceptive consumer marketing practices.

Several factors are at play. Room night growth is slowing, regulators are acting, serious new competition looms in the shape of Google, and savvy operators are investing in their brand to increase direct bookings and save on OTA commissions.

The landscape is continually shifting and there’s a feeling among some in the industry, backed by recent events, that the tide has turned.

Have we seen peak OTA?

One Billion Nights and Counting

Between them Booking Holdings and Expedia sold more than one billion room nights in 2018.

Expedia did US$100 billion in gross travel bookings while Booking Holdings was close behind on US$92.7 billion. Staggering.

In terms of accommodation, Booking Holdings led the way with 760 million room nights, more than twice as many as Expedia at 312 million room nights.

Both businesses grew room nights by 13%. Impressive, yet less than 2017, an extraordinary year featuring the kind of growth it is doubtful either company will see again – 21% at Booking Holdings and 16% at Expedia.

Contrast this with the performance of the world’s biggest hotel companies, pedestrian by comparison. Accor’s revenue last year rose at 8.8% to €3.6 billion while IHG ‘s revenue increased 6.4% to US$4.3 billion. Ho hum.

With great power comes great responsibility

French writer Voltaire first said ‘with great power comes great responsibility’ back in the 1700s, but you may have heard it uttered more recently by Peter Parker’s Uncle Ben in Spiderman.

Either way, it remains true to this day.

Unfortunately Booking Holdings and Expedia only abide by that maxim when it suits.

Sure, they say all the right things but when it comes to business, evidence suggests they are ruthless and feel no sense of responsibility to anything other than themselves.

High commission rates, restrictive contracts, a “my way or the highway, take it or leave it” attitude – these are among the common gripes heard from accommodation operators tired of playing the docile partner in what they consider a one-sided relationship.

Then there’s creation of damaging new products Booking.basic (Booking) and Add-on Advantage (Expedia), which have been specifically created to source and sell super-cheap uncontracted or wholesale supplier rates on the open market without the permission of operators.

OTAs In The Spotlight

Now the complaints of industry and consumers complaints are being heard by governments around the world, which are increasingly putting OTA behavior under the spotlight with market regulators regularly finding their actions unscrupulous.

A good example is the action taken by the Competition and Markets Authority in the United Kingdom, which had “serious concerns” about the business practices of OTAs.

“Expedia, Booking.com, Agoda, Hotels.com, ebookers and trivago have been the subject of enforcement action around issues like pressure selling, misleading discount claims, the effect that commission has on how hotels are ordered on sites, and hidden charges.”

CMA Chairman, Andrew Tyrie, says all six websites have given firm undertakings to stop these practices, which may “potentially break consumer protection law”.

Days of Price Parity Numbered

Meanwhile, the exceptionally contentious practice of “price parity” – whereby OTA contracts prevent hotels from offering lower rates than them online – is under extreme pressure.

Italy, Germany, France, Austria and the UK have already outlawed price parity while in Australia the opposition Labor Party has vowed to end it if elected in the upcoming Federal Election.

There’s no doubt this stance will win the Labor Party votes – price parity is the biggest issue by far for operators, closely followed by last room availability (being compelled to make all their inventory available) and high commission rates.

“The fact that any operator of accommodation is unable to sell a lower rate online is an outrage and does not pass any fair test,” says Richard Munro, Chief Executive Officer of the Accommodation Association of Australia.

“Effectively this means that our industry, should the Labor Party win office, will be able to finally offer the best rate directly to our customers without fear of being darkened or threatened by these big multinational OTAs.”

The Dick Smith Moment

The opportunistic Labour Party promise follows what revenue management consultant Tamie Matthews calls ‘The Dick Smith Moment’.

Last September Dick Smith – the self-described saviour of the Aussie battler – attacked the commission and price parity policies of Booking.com and Expedia.

He urged consumers to book directly with hotels to save operators paying 15% or more in commission to foreign corporates, who take this money offshore.

The video struck a nerve and went viral – registering more than 2 million hits before it was taken off the air.

Matthews says her clients have noticed an increase in direct bookings since then and regional hoteliers are increasingly questioning the value of OTAs.

“In some of these places there are two hotels – where else are you going to stay, why do you need to pay an OTA?” says Matthews, who is advising clients to sell direct whenever possible.

Google – The Ultimate Fremeny

Google is the ultimate frenemy of the OTAs, which spend billions of dollars in advertising every year with the search giant.

And yet Google is their biggest threat because it controls the primary travel marketplace – itself – and can change the rules anytime, something that happens frequently, especially with search page layout.

Google is also constantly experimenting with new, potentially competitive products such as Google Hotels.

It’s a concept Google has been toying with for a few years and now formalised with a dedicated search page – https://www.google.com/travel/hotels – and tools.

The Google Hotels model at this point is advertising, much like a meta-search site such as HotelsCombined, TripAdvisor or trivago, providing paid leads to OTAs or hotels.

So while at this point Google Hotels is nothing special – if it started taking bookings directly, then that’s a whole other story.

Conclusion

The past 20 years have witnessed incredible change for the tourism industry, thanks to the twin forces of globalisation and the internet.

In that time vast online empires have been created, few more powerful than Booking Holdings and Expedia.

Up until this point, they’ve had a clear run. But times are changing. Smart operators are now making moves to lessen their OTA dependence as governments work to better protect the interests of consumers and accommodation operators.

Meanwhile the abolition of price parity in key markets gives hoteliers the ability to properly compete with the OTAs on price and customers in mature understand there are benefits to booking direct.

Given the evidence then, there is very strong argument that we have seen peak OTA.

Under this scenario, they will still grow, but not at the same rate, their power over accommodation operators will diminish, new competitors will emerge and there is a chance that, over time, governments will decide they are too powerful and need to be dismantled.

The same conversation is happening around Google and Facebook, why not travel?

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