Are online travel agency hotel commissions reasonable?

How many times do you hear hotels complaining that selling through online travel agencies may be their most expensive channel?

A Cornell University study casts some doubt on that argument — or at least puts it in perspective.

The study, by Chris Anderson of the Cornell’s The Center for Hospitality Research, concludes that the “billboard effect” of attracting hotel website bookings because of the hotel’s listing on Expedia, “leads to an effective decrease in the cost of OTA transactions.”

The additional hotel website bookings that result from being displayed on OTAs convert a 30 percent commission paid to an OTA “to single digits,” Anderson writes in “Search OTAs and Online Booking: An Expanded Analysis of the Billboard Effect.”

Using comScore data, Cornell analyzed 1,720 reservations made on the websites of six InterContinental Hotels brands (Candlewood Suites, Crowne Plaza Hotels, Holiday Inn, Staybridge Suites, Hotel Indigo and InterContinental Hotels), and found that for each of their bookings made on Expedia, the hotel websites attracted three to nine reservations.

“Although these reservations are made through Brand.com (the individual brand’s site), they are directly created or influenced by the listing at the online travel agent,” the study says.

Interestingly, the more upscale brands — InterContinental, Crowne Plaza and Hotel Indigo — attracted fewer incremental bookings than the more moderate brands.

The study analyzed reservations in June, July and August 2008-2010, and built on an earlier Cornell study of JHM Hotels which found a similar billboard effect.

The newest study of InterContinental Hotels did not take into account consumers who may have viewed the hotel’s listing on Expedia and then phoned the hotel to book. So perhaps Cornell’s statistics underplay the billboard effect.

The study did find that nearly 62% of guests who booked on the hotel’s website visited Expedia prior to making the reservation while 21.5% who booked the hotel on Expedia did not visit another online travel agency site.

So, given the findings, Expedia’s commissions are looking a little more cost-efficient or does Cornell have it all wrong?

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Dennis Schaal

About the Writer :: Dennis Schaal

Dennis Schaal was North American editor for Tnooz.

 

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  1. Matt Elliott

    My business is a small guesthouse of only 9 rooms with ARR of $30.
    I am in Cambodia, 7km from Angkor Wat.

    We have spent most of our 3 years existance at #1 or #2 position on Trip Advisor out of 200 similar properties in our area.We are currently at #8 after 165 reviews.

    In 2011 Trip Advisor Travellers Choice Awards we were awarded #3 best guesthouse in Asia.

    We are going out of business.

    The OTA’s commission is justifiable if they actually found us new business. They do not.
    They hijak even the guests that google our name based on word of mouth reccommendtion from previous guests. Their affiliations and partnerships with all the ‘independant review’ sites, travel blog sites etc redirect guests who almost had their foot in our front door.

    At least the mafia know that you can only take so much or your protection racket will fail.

    Anyone want to buy a guesthouse with a fantastic reputation, amazing goodwill down the roads from one of the Worlds most amazing tourist sites? Please contact me.

    Yes, tears are running down my face as I type this.

    Matt

     
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    […] speaking of demand generation, the study raises questions about the billboard effect, which is the theory that a brand’s presence on OTA sites such as Expedia creates incremental […]

     
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    […] speaking of demand generation, the study raises questions about the billboard effect, which is the theory that a brand’s presence on OTA sites such as Expedia creates incremental […]

     
  4. David Urmann

    OTAs offer value to the consumer as they help us sort choices. The OTA will always be better then a search engine at this as it is specifically designed for this function. I dont have time to go to all the hotel website to comparison shop. I can do this for airline websites primarily because the number of options are limited. I am not even clear if most people would expect to find cheaper rates on the actual hotels website.

     
  5. Multi Unit Owner

    This Cornell study has been well debunked and the data from IHG hotels was used without their permission. The “bill board” effect is a construction of the OTA’s to convince us to keep paying commisions that are much higher than the value of the distribution service. We shouldn’t pay more than 5%.

     
    • Dennis Schaal

      Dennis Schaal

      Mark: The Cornell study has been “well debunked” by whom and on what basis? How is it relevant that the data was supposedly used without permission?

       
      • John Pope

        @Dennis: regarding debunking and on what basis.

        The study’s own numbers indicate a reverse billboard effect for Intercontinental Hotels and Crown Plaza brands, meaning those two brands actually did worse financially by participating on Expedia.

        Hotel Indigo received zero bookings on Expedia, another metric clearly debunking the “Billboard Effect’s” effectiveness. But those two facts are not EMPHASIZED in either the media”s coverage (headlines) or conclusions by Cornell’s Chris Anderson.

        As an academic, Chris Anderson has a vested interest in protecting his reputation and validating his previous “academic” research, a.k.a backing up Billboard 1.0’s conclusions. In the words of Marshall McLuhan, “The medium is the message.”

        I’ve met Chris Anderson several times and listened to many of his presentations, he might be the most likeable guy in travel and very intelligent. That doesn’t mean his conclusions, in this instance, aren’t wrong or possibly have an unintentional bias (i.e. validating previous research).

        Also, over 80% of the bookings in the study were associated with the Holiday Inn brand, arguably a much stronger and trusted brand than Expedia. Amongst other reasons, consumers may have more confidence booking directly with Holiday Inn because it is a more familiar and trusted brand. To suggest or conclude that consumers booked at the HolidayInn.com site ONLY because they previously visited Expedia is not only a bit of a stretch, it’s completely laughable. But that is exactly the evidence Chris relies on to draw his conclusions.

        Since the study is so heavily weighted by the shear number of Holiday Inn bookings, you cannot then generalize and conclude that Expedia’s “Billboard Effect” is any more real than the Tooth Fairy.

        There are literally an infinite number of reasons why consumers may choose to book on brand.com rather than OTAs (i.e. loyalty programs, brand familiarity, trust, better T&Cs, more attractive room categories, more attractive rate categories or 1000s of other intrinsic anomalies). But to explain it in this way doesn’t make for very good headlines or sound bite conclusions.

        Finally, why haven’t other OTA brands been used in the study? Priceline for example has more than three times the market cap of Expedia. I’m sure Priceline would also love to try and prove similar Billboard Effect conclusions for their brand. That would justify their value to hoteliers as well. Something doesn’t smell right there, surely, objective research would utilise unrelated data sets and variables compared to the original study. The comScore data doesn’t differentiate it enough.

        So my conclusion from your original query – Yes, Cornell dose have it wrong, horribly wrong.

        Maybe Tnooz could do an informal, anecdotal study and ask hoteliers themselves “What is the value of Expedia to you? – I suspect you’ll find a result something like this “Unfortunately, Expedia is a necessary evil we must deal with… for now.”

        Love to hear your thoughts.

         
  6. Madigan Pratt

    Hotels know how much they pay travel agents because they write checks. Since hotels give OTAs net rates they never see how much they cost – all they see are the lump sum check they receive each month. “Wow! Look how much money Expedia sent me this month!” It can be addictive.

    Rarely do hoteliers calculate how much money it costs them to get that revenue – how much money they could have had to market their hotel more effectively. For some hotels the the figure can be staggering.

    The Hotel-OTA Hidden Cost Calculator will help hoteliers see how much the OTAs are costing. Find it at: http://madiganpratt.com/calculator/

     
  7. Ashwin Kamlani

    Are you suggesting that if the OTAs went away tomorrow, people would stop traveling?

     
  8. Alan Van Order

    You’re now at 40% occupancy on the weekends and off season…now what?

     
  9. Ashwin Kamlani

    What happened to SEO and PR? Or how about Booking.com that only charges 15%?

     
  10. Alan Van order

    That other means is SEM or display advaertising. Both are more costly than the expense of only paying ‘outrageous commissions’ for a booked room. If you need rooms filled you need to market. Airlines depend less on OTAs because they can ground planes and adjust routes to better match demand, no?

     
  11. Ashwin Kamlani

    The truth is that many customers prefer booking directly rather than booking through Expedia for whatever reason. Could be the fear of cancellation or modification fees, or a perceived lack of customer service. Whatever the reason, the term “billboard effect” is a nice way of saying that for many customers Expedia has become more of an information search engine rather than a travel agent. But let’s not attribute responsibility to Expedia for direct bookings where it isn’t due. If Expedia disappeared tomorrow, those customers would still find the brand.com website through some other means. In my opinion the term “billboard effect” was created to capitalize on an inevitable trend in order to try and justify outrageous commission levels.

     
  12. Oz Har Adir

    I think that the question should not be ‘are current rates justified’ but more: ‘how do we channel more bookings to our own site?’ (as airlines have).

    When hotels improve their reservation tools and stop discriminating the fares on their websites (or front desks) – visitors would have more incentive to look for these, and the hotels need for Expedia to close a deal would mostly be removed.

    Then they’d have to deal with discovery, and I think that travel search engines are perfectly positioned to do that bit. Some chains are already doing that well (IHG is one of them) and that would eventually be what reduces the agencies booking fee.

     
 
 

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