The hotel tech Trojan horse
Oh yes, a horse is on its way to Troy as you read this. Or, has it arrived?
NB: This is a viewpoint by Mike Ford, managing director of SiteMinder.
As most hotel industry folk know, there are a number of major OTAs moving aggressively to provide hotels with technology to manage their inventory and bookings – internet booking engines, rate comparison tools and websites.
Until this point, this has been an area occupied by technology companies that have specialised in supplying the same, albeit partnering with these very OTAs to extend a hotel’s online reach.
This continues to be a point of discussion within media and the broader industry, and I suspect it won’t be going away any time soon.
We know the Priceline Group has been building up its B2B portfolio BookingSuite. HomeAway and Airbnb also provide technology to the private rentals segment, as does Hostelworld in the backpacker segment. Then there is Trivago, majority owned by Expedia Inc, which has recently acquired hotel technology provider Base7Booking.
All of which begs the question: what would inspire such giants in travel to make an entry into the highly-competitive and fragmented hotel technology sector and what are the possible implications for hoteliers?
Looking at the travel and hospitality sector more broadly, it would seem there are juicier targets for these companies to focus on, as evidenced by Priceline Group’s acquisition of OpenTable to dominate the restaurant booking industry. There is also the vacation rental business to conquer, which is very closely aligned to Priceline Group’s core strength of dominating accommodation search through effective and efficient deployment of online media tactics. No one is better at this.
So, what would make these booking giants want to get into the area of hotel technology development – which, for some of them, isn’t a core strength or capability?
The strategy of acquiring technology, rather than building it, suggests that either they are not adept at building product or they are attempting to enter the hotel technology space with urgency.
One story pitched to me by an OTA getting into this space is that they are doing it to “help” hoteliers get online. This same OTA also pointed out it is just a new revenue stream for them.
What’s the point?
At the risk of sounding cynical, the fact is there are already many better technologies on the market for hotels to choose from. Additionally, if you’re an OTA earning many millions or even billions in revenue, the challenging (and very costly) business of building and selling hotel technology is not something you do to delight your shareholders from a revenue perspective.
Would it therefore be reasonable to assert that the motives behind these companies’ entry into the technology space are strategic in nature rather than economic?
Perhaps the ultimate strategy OTAs have in providing sales, marketing and distribution technology directly to hotels is that they are attempting to gain greater control of the supply chain from the hotelier level, by isolating the inventory feed to themselves and therefore controlling price parity.
Let’s picture the OTAs for a minute as a bunch of gunslingers holding guns that need ammo. The more ammo they have, and the more they can keep the ammo away from other gunslingers or control how much access those other gunslingers have to ammo, the more likely the OTAs are to win the gunfight. Of course, the other gunslingers in this picture are not just competing OTAs, but the hotels themselves who are holding the gun of direct bookings.
If you are not following my gunslinger analogy, let’s look at the practical example of the OTAs selling (or supposedly giving away) internet booking engines for hotels’ own websites. What is the game plan here? Could it be to supply the inventory for a hotel’s own booking site directly from the relevant OTA’s inventory and pricing store? Let’s remember that connecting a hotel’s booking engine to its property management system is a completely feasible and effective solution, but, of course, this way doesn’t guarantee that the OTA would get the hotel’s rates and room inventory.
And let’s go a step further. There are even instances today where an OTA is supplying a hotel with the hotel’s own property management system as well as their booking engine, and this way ensures of course that that OTA gets all of the rates and availability within the major data source for most hotels – their property management system.
What else is wrong with this picture from a hotelier’s perspective? Needless to say, it guarantees that any hotel that uses this OTA’s direct booking technology on their own website will not (easily) be able to offer lower, or different, rates from that OTA. What better way to secure rate parity against a backdrop of regulatory intervention that is challenging OTAs’ rights to include pricing parity covenants in their contracts with hotels.
Short of enforcement through contracts, this is the next best practical method for an OTA to ensure unique supply and prevent a hotel having better rates on their own website. With the OTA providing the hotel technology, they gain ongoing and in-depth access to the hotel’s data on room inventory, pricing, revenue and, yes, guests.
What, then, motivates a hotelier to ever implement direct booking technology from an OTA when it has the potential to strip them of their pricing, inventory and business intelligence independence? Perhaps this strategy by the relevant OTAs is built on the premise that a segment of hoteliers are naïve and may not even recognise this as an issue. Perhaps many hoteliers don’t even have the time to care because they are focussed on looking after their guests and, often, it seems an easier and more convenient option to settle for an all-in-one solution from a big OTA rather than deal with multiple other vendors.
Is it really free?
I have noticed recently that the technology arm of one OTA is promoting a “free forever rate intelligence tool”. The issue here is the tool appears only to show the hotel rates of their competitors on that particular OTA, not on other OTAs. It also doesn’t show the hotel how the rates on their own website compares to that on the OTA. So, how “intelligent” is this free rate intelligence tool, really? Well, it’s certainly intelligent for the OTA to offer this, but perhaps not the most intelligent choice for a hotelier.
If the OTA can get hotels using this ‘free’ tool, then naturally it makes hotels less likely to adopt the other independent rate intelligence tools out there which show a hotel’s rates against their competitors across many OTAs. Most importantly, other tools also give a hotel a view of its own website rates versus the OTAs so they can ensure OTAs are not undercutting them to win business away.
Arguably, the more an OTA can keep this technology out of the hands of the hoteliers, the better for them. So, it’s worth them bearing the cost of giving away a tool for ‘free’ if it means they can be effective in limiting the hotel’s access to information that strengthens their direct booking (and therefore commission-free) capability.
The provision of hotel technology by OTAs, on a mass scale, is the perfect Trojan horse that facilitates more direct control of industry supply and pricing by OTAs. This is a smart move provided the intended hotel buyers don’t wake to the conflicts of interest here.
The real question, as to how this play impacts the industry’s supply and demand dynamics, will depend on how widely hoteliers give all their technology business to the OTAs. The day a hotel succumbs to getting a website, booking engine and rate tools from an OTA, they should be prepared to pay commissions on every booking from that day forth and make less profit per booking. If a hotelier really wants to maximise profit, they need to have visibility over the whole range of distribution channels and, most importantly, they need to be in control of what rates and availability they offer directly to the market without tying this to one particular point-of-sale.
Finding the balance
In full disclosure, my company SiteMinder is a provider of sales, marketing and distribution technology to the hotel industry. On the distribution side, we have great partnerships with OTAs and work closely with them to supply as much inventory access as possible through our connections with PMS and CRS systems.
OTAs are a very valuable, and vital, part of the hotel sales and marketing ecosystem – that is not in question – but whether hotels should get their technology from them is an important consideration. The potential implications of this decision are things I believe all hotels need to think through in their technology acquisition decisions. It’s crucial they think through the profitability, control and risk perspectives of aligning to one point of sale.
Has the Trojan horse arrived? You can decide that for yourself, but it is clear the future battle lines are being drawn now, and a major new battleground for the booking giants in the hotel sector is and will always be: supply.
NB: This is a viewpoint by Mike Ford, managing director of SiteMinder.
Special Nodes is the byline under which Tnooz publishes articles by guest authors from around the industry.