NB: This is a guest article by Tom White, an analyst on internet and interactive entertainment for equity research at Macquarie Capital.
As we now know, Google is testing a version of its Comparison Ads format for online hotels.
These ads are currently only visible to a subset of Google search users in response to relevant queries such as “Las Vegas hotels”, and appear as the first ad at the top of the search engine results page.
Notably, the ads are integrated with GOOG’s recently launched Hotel Finder service via a “Book hotels” button.
Test shows Google is prioritizing its own hotel service
It is no secret that Google has been ramping up its focus on the travel vertical over the past year, following the acquisition of ITA Software, the launch of Google’s Flight Search and Hotel Finder products, and various innovations in how it displays organic listings for flight and hotel queries (displaying flight times, showing hotel rates, integration with Google Maps, etc)
This latest test of Comparison Ads is noteworthy because it provides a clue into how Google may change how it prioritizes/organizes paid search listings for hotels.
The most striking takeaway from these test ads is that Google is placing its own service/listings above all other content on the page, including other paid search listings from advertisers.
Latest, but likely not the last, Google innovation in travel search
It’s important to note that this is just a test. Google often tests new ad formats against a sub-set of its user base, and it’s unclear whether this Comparison Ad format for Hotels will be more widely adopted.
If deployed more widely, this type of ad unit could pose risks to the major OTAs (such as Priceline, Expedia and Orbitz, in the US alone) primarily in two key areas:
- Higher ad pricing
- Potential eventual disintermediation.
The first point is an issue of online “real estate”: if Google favors/prioritizes its own services, listings for the OTAs will be less prominently displayed.
In order to remain visible, OTAs may be required to bid more aggressively to ensure they rank highly in Google’s paid listings (reducing their advertising ROI, all else equal).
On the second point, Google’s Hotel Finder does not process hotel bookings itself and currently provides links to both OTA’s and hotel direct websites for actual bookings.
If Google changes its approach here and opts to either process bookings or bypass the OTAs and connect users directly with the hotels (as Google has starting doing with Flights, see discussion below), Google’s decision to prioritize its own travel listings would be a real threat.
Disintermediator or Lead Generator?
The key question is whether Google will remain a high-volume source of qualified leads for OTAs or whether it will dis-intermediate them?
Asked another way, will Google look to connect/integrate more directly with travel suppliers (particularly hotels) in order to improve its search results/ads and, more importantly, close the loop on a given travel transaction?
By funneling more transactions directly to travel suppliers, Google could disintermediate the OTAs.
This strategy would be, in some ways, analogous to what Google has pursued with e-tailers via tools such as Merchant Center, which risks disintermediating “middle men” like comparison shopping websites.
On one hand, building out/integrating a global network of hotels would take time (particularly in the fragmented International hotel space) and would not likely be popular with either regulators or Google’s travel advertisers.
On the other hand, Google is one of the few companies with the resources and will to tackle large projects such as this. Additionally, we would not be surprised to see a CPA-based ad offering evolve from Google’s various innovations in travel search.
Success defined by conversion rates – Priceline better positioned
Given Google’s importance in the online travel ecosystem (a recent Google/Compete survey estimated that around 25% of online hotel shoppers were referred by a Google search), this is clearly an area to monitor.
The company has repeatedly stated that it does not intend to process travel bookings itself, but it’s important to note that Google’s Flight Search metasearch service currently excludes OTAs from participating and links directly to airline sites for bookings.
Pursuing a similar strategy for hotels would not be easy for Google (for the reasons cited above) and would not be assured of success in our view, either (for either consumers or travel suppliers).
Evaluating success will come down to which channel can “convert” travel shoppers better, the supplier-direct channel or OTAs, and we believe that, particularly for International hotels, the OTAs will remain the optimal monetization channel for quite some time.
Nonetheless, we expect OTA investors to remain focused on this potential risk.
Within this context, we view Priceline as relatively better protected given its lower exposure to the US hotel market (which has a more sophisticated supplier-direct online channel than International markets) and Booking.com’s leading international brand and rapidly growing footprint of 170,000 direct hotel relationships.
NB: This is a guest article by Tom White, an analyst on internet and interactive entertainment for equity research at Macquarie Capital.
NB2: Image via Shutterstock.
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A rather gutsy move for a company the FTC alleges is abusing its online search leadership to “unfairly channel users to its own growing network of services at the expense of rivals.”
Potentially disintermediating the OTAs is all the more interesting given that, according to a Kantar Media analysis, two of Google’s 10 largest advertisers are OTAs — Expedia and Priceline.
It will take some years for hotel sites to convert better than OTA’s.
I doubt that Google will do anything that will impact its relationship with one of its biggest advertisers. Since they keep testing things it will be interesting to see what they finally settle on and how it is going to impact the industry.
Great article Tom. Add to it what is happening in Mobile where search will be more about making a recommendation rather than showing a long list of possibilities. That’s what Apple SIRI is all about too.
According to Mobile Marketer:
“Google’s recent purchase of the recommendation service Clever Sense makes it clear that the company is building its repertoire to become a heavy hitter in mobile recommendations.
Mobile experts agree that the Clever Sense deal is meant to help boost its mobile search and commerce strategy. The deal also has implications for marketers that are thinking of using mobile advertising but are not completely sold on it.”
continue at: http://www.mobilemarketer.com/cms/news/software-technology/11710.html
What if google simply bought Pegasus?
Once GG becomes biased on travel, it will be obsolete for travel, GG knows that. But as the age of search engines is over, GG is looking for future opportunities to generate additional revenue streams and user solutions. The big thing in 2012 will be “answers”, not the search interface itself. I am thinking Siri and its children here. The prime interface for “answer engines” will be mobiles, not desktop devices.
This is a huge opportunity for hotels and smart and flexible small OTAS to gain new momentum. For the big guys it doesn’t look too good, I agree.
As far as OTAs can sell at lower rates than supplier direct sites (both airlines and especially hotels), it doesn’t make any sense for Google to exclude aggregators in search results. What they’re doing for flight search right now it’s just a temporary first step.
Moving as far as disintermediating the hotel industry will never happen. Individual hotels don’t get PPC – it’s become too complex and time consuming to get ROI at small scale. Only large chains, OTAs, or agencies have time for serious PPC. Google should focus on having the best comparison tool for consumers, and let OTA’s bid up for PPC placements.
While OTAs are likely to complain and maybe suffer from this move, this move is good for travellers and hotels, which are the service providers and customers, so I think in general it is a good service. By allowing customers to go to an OTA (I saw a few when looking at New York hotels) or directly to the hotel website, this for me is a better service than the one provided by OTAs.
At the moment hotel owners are competing on a place on google ads with OTAs who are putting ads against hotel names and specific brand names. So I do not see this hurting the hotels.
One thing mentioned in the comments is the prices offered by hotels on their websites compared to OTA are higher in many cases and hotels are not converting as much on their on website. Maybe this will give the push for hotel owners to work on their websites to get better conversion.
Once GG becomes biased on travel, it will be obsolete for travel, GG knows that. But as the age of search engines is over, GG is looking for future opportunities to generate additional revenue streams and user solutions. The big thing in 2012 will be “answers”, not the search interface itself. I am thinking Siri and its children here. The prime interface for “answer engines” will be mobiles, not desktop devices.
This is a huge opportunity for hotels and smart and flexible small OTAS to gain new momentum. For the big guys it doesn’t look too good, I agree.