At The Phocuswright Conference last month, I heard plenty of chatter from hoteliers about the major online travel agencies reporting rough quarterly results and the subsequent drops in share prices.
Maybe it was relief I heard on their part. Either way, I hope leaders of the hospitality industry aren’t learning the wrong lesson from recent events.
A momentary setback for Expedia, Priceline and TripAdvisor shouldn’t be a wake-up call for only the OTAs. It should also be a moment of reckoning for hoteliers.
Hotel brands, owners and asset managers have been losing the long-term strategy game to OTAs for years.
One short-term beat for Expedia and Priceline won’t reverse that. While there is momentum for hoteliers now, they must capitalize on it by making sure their company is aligned around a holistic strategy focused on reducing reliance on OTAs and driving more directand profitable bookings.
Otherwise, they’ll just cede more of their business to the OTAs — since, I can assure you, the OTAs will come roaring back.
When that happens, hotel companies without a new approach will see their pricing power deteriorate even further, along with their profitability.
Long-term strategy for OTAs remains the same
In the immediate aftermath of Q3 earnings calls, more than $20 billion in the OTAs’ collective market capitalization evaporated.
Investors indicated that those distribution giants are under pressure from Airbnb and the successful direct-booking campaigns of the biggest hotel chains.
Compared with the OTAs’ share prices, hotel stocks weathered the third quarter just fine.
But we can’t forget that Priceline Group’s market capitalizationalone is greater than the combined value of Marriott, Hilton and Hyatt.
Combined with Expedia’s value, the OTA duopoly is worth more than $100 billion, and that’s without owning any real estate assets or operating any hotels (yet).
The OTAs’ core business model won’t change.They make more money by selling more room nights, which they get from hotels.
They surely will pursue that inventory more aggressively in response to the effect hotel marketing campaigns have had the past couple years.
Expedia and Priceline signaled as much during the Phocuswright Conference, indicating that they still have a position of strength from which to innovate and diversify.
CEOs of both companies said the ongoing transition to online bookings and expansion into international markets still leaves them plenty of runway for growth.
Expedia is experimenting with lending consumers credit to stretch out their payments for trips.To diversify their business models and grab more share of your wallet, both OTA giants are aggressively pushing business services like web development and revenue management.
The OTAs are offering such services at really attractive prices, in some cases at no cost, but hotels should have their guards up.
Intermediaries should continue to be a sensible avenue for acquiring new guests, but hotels partnering with Expedia, Priceline or others should always maintain a healthy sense of skepticism.
Remember, the OTAs’ goals aren’t always aligned with yours.
The time of revenue strategy is right now
If hotels over-rely on OTAs for their base business, they’re going to get burned.
Distributors make more money by getting a greater share of hotels’ room nights or increasing their commissions per booking.
And when the hotel market finally dips into recession, hoteliers can bet OTAs will be there to increase their share of business like they did during the last downturn.
While many hotel channel-mix strategies are working fine right now, they won’t be enough in the long run.
Thankfully, successful marketing campaigns have given hotels a strong case for driving a harder bargain with OTAs.
The goal should be for hotels to ensure they have all the leverage they can get over the long term, and that requires not only driving more consumers to their direct channels, but also maximizing conversion of that traffic into bookings.
Hospitality companies should be exploring ways to differentiate their loyalty programs with more individualized pricing and using consumer shopping history and behavior to serve up contextualized and personalized offers that drive conversion.
That’s the heart of a holistic Revenue Strategy. It’s all aboutaligning an entire organization, from sales and marketing and ecommerce to revenue management and operations, around the common goal of driving more profitable revenue.
And it must include optimizing your hotel’s direct channels and pricing power to tame the runaway costs and complexity of distribution.
The fact that distribution will only get more complex and more expensive is one of the only things hoteliers can count on as a given.
Another is that OTAs will always need what hotels have — rooms — in order to have a product to sell.
If hotels don’t keep trying to innovate the way they sell their product, the OTAs will keep racing right past them and become the only way consumers shop for travel accommodations.Hotels don’t want to see their future if they let that happen.
Ask Sears and the other big-box retailers how things have worked out in the era of Amazon.