Online Travel Agents: Can we live without them? Part 3

Finally, the last part of this trilogy. So we ask: Why do OTAs dominate the top of the visitor report by so much? Why have hotel brands not been as successful?

OTAs innovated and have created many "firsts" in the online travel marketplace. Priceline's "Name your own price" boosted the whole opaque distribution model. A number of the large OTAs with direct access to GDS and feeds introduced the calendar availability to consumers; now calendar availability is expected. Traveler reviews: TripAdvisor is the "gold standard" in the travel sector though epinions.com was the first consumer review site ever.). True dynamic packaging is not yet available, but OTAs have long allowed you to buy airline ticket, book hotel rooms and buy parking at the airport. Affiliate model... Hotels.com in the US circa 2002-2003 ('nuff said). Those affiliates tend to be small sites that go after niches and locality, hence basic "niche marketing". And ...umm.... they are "independent"... uh--huh... sure.

But honestly, they did bring consumers online. The OTAs spent a LOT of money brand building and getting consumers to start booking online and be comfortable with giving their credit cards online. Would the online travel industry be where it is without OTAs?


Why have Hotel Brands not been as successful online as OTAs? Because the hotel industry ADAPTS slower than OTAs INNOVATE.

A painfully true comment... And all of you hoteliers are nodding your heads. And you OTAs are smirking, but you can't blame us. The hotel's core business is running a hotel, while OTA's core business is to sell hotel rooms (and other travel products.). A hotel's major investment is in the infrastructure, the rooms, and the building, while the OTA's major investment is in technology and innovation. OTA's, which grew out of the dotcom era, are naturally and instinctively tech savvy, adaptable (technology and business models), and hungry.

And OTAs are now on the defensive since a couple of years ago...

I had a bit to trouble cobbling this data together but managed to fine some stuff regarding share of online bookings between Hotel Direct (Blue line above) and OTAs (red line above). In 1999, it was 55% or so for the Blue Team and 45% for the Red team. As you see by the bubbles at the bottom, the next few years had companies IPO, being founded or spun off (Expedia, Priceline, TripAdvistor, hotels.com); the share of the Red Team rose to 48% or so. But with the dotcom bust and Wall Street getting shy, we started to see consolidation in end 2002/beginning 2003 onwards. At the same time, the Blue Team (at least the Michael Jordans, Shaquille O'Neils, and Yao Mings in the team) started getting their act together and investing in technology and people to catch up. By end 2005, it was more like 54-46 for the Blue Team. And in 2006, the star players on the Blue Team are saying they are at over 80% while the second stringers ( ahem...smaller hotel chains) and free agents (independent hotels) are bringing in the rear. So the trend for the next few years is to increase that average score to 64-36 by 2010 according to Merrill Lynch. I am not so sure about that, because us second stringers and independents need the OTAs because we do not have the brand clout and spread of hotels. We need them as part of our distribution strategy.

Meanwhile, OTA's will continue to innovate faster than most of us can follow (except perhaps the star players.)
TripAdvisor is in Facebook (which is now worth USD 15billion dollars by the way) with "Where have you traveled" application. Travelocity increase its CRM efforts with Farewatcher Plus.

And Orbitz combines social networking with information like departure and arrival times in Traveler Update. So a traveler can update (a la twitter) about the bad restaurant in Terminal 1 in O'Hare or the long security checkpoint at Gate 1. Would a hotel group do something like this? Not very likely as the ROI on such a venture would not be worth it. Orbitz does it because it is part of their "service" to customers as well as brand awareness and position.

So OTAs have their place, and they will have a share of the online marketplace. What share will depend on which hotel group, on which destination and on which property. Some properties will depend more on OTAs than others just as some hotels will naturally depend on one channel over another.

So as I ended my presentation:

"OTAs. You can't live with them, but... You can't kill them."

The End.