trojan horse
12 months ago
 

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.

Who?

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?

Why?

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.

Fighting talk

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.

Taking control

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.

NB2: Trojan horse image courtesy of Flickr.

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Special Nodes

About the Writer :: Special Nodes

Special Nodes is the byline under which Tnooz publishes articles by guest authors from around the industry.

 

Comments

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  1. Martin

    [as this has been tagged TripAdvisor]

    TripAdvisor has a far wider reach on hotel websites with their widgets and the privacy policy around the usage of these widgets isn’t even clear. They only state that the widget use is governed by the TA Content ToU – where to find these and what these govern is totally unclear: https://www.tripadvisor.co.uk/Widgets-g295424-d302457-Burj_Al_Arab_Jumeirah-Dubai_Emirate_of_Dubai.html#w-tchotel

    A search only brings up the regular website ToU as well as the content api ToU.

     
    • Joey

      Hello Martin, if you can send me your tel number, perhaps you can do some work for us. We are City Center Apartments in Barcelona

       
  2. Vyara from Clock Software

    Straight. To. The point!
    This is great article with a lot of valuable comments below. It is absolutely true that everyone who cares for hoteliers and their business success has to raise awareness of the hidden traps behind this OTA strategy. In our increasingly competitive hospitality world, there is no time and space to be naive and take the dangerous decision to give an OTA so much control over your business and data. While experienced hotel PMS or just booking engine providers do everything to give a hotelier the tools to boost direct more profitable reservations, would an OTA ever do so?
    There are end-to-end hotel software solutions available and even hiring a consultant to help you choose the best for your business will be less painful than letting OTAs’ Trojans horse in.

     
  3. Travellion

    Great article Mike, we shake our head in disbelief when we see long term accommodation operators falling for the Booking Suite free website, free marketing push. It’s almost as if they are defeated and just wave the white flag, truly believing they now have the competitive advantage over their neighbours. OTA’s are great sales people!!

     
  4. A. Lloyd

    Here is the real problem (and I am generalising so don’t this personally!).

    My wife and I owned a very successful small hotel for 10 years, which we sold last year. Despite the worst recession in living memory we managed to remain profitable throughout and sold the business last year to concentrate on our other business interests.

    You may ask what is our other business interest? For the sake of satisfying your curiosity and in the interest of full disclosure, it is Website Design and Online Booking System!

    Why did we get into Web Design? Well, we always looked after our own website including SEO, then a few hotel-owning friends asked us to do it for them, then their friends asked us to do it for them too, so it started to become a business.

    Why did we get into Online Booking System? We looked for a suitable booking system for over 3 years and could not find one as nearly every system we looked at was designed by very clever engineers but very little understanding of Hotel Business. Eventually we partnered up with a development company and co-developed a system, which is still to our knowledge the only booking system that has been designed with someone who owns a hotel on the team!

    What is wrong with Hotel Business? Other than oversupply, there are some fundamental problems with hotel owners approach to business which manifests itself in many aspects of the industry.

    First the way we set rates is mad. Unlike the Airline industry that has the same cost structure as ours (mainly fixed costs and small variable cost), we have conditioned guests into buying last minute at cheaper price instead of whacking the prices up the closer we get to the arrival date. Here is my full take on this subject http://www.cognisantassociates.co.uk/hotel_rate_setting/

    Second there are many financial variables such as those who have heavy borrowing that need to keep the till ringing so “Cash is King” at the expense of profitability. Then we have the “Mortgage Free” owners (yes there are more than you realise), who really can push the prices down until the rest of us bleed and by god they do it wherever they can! Then there is the “Deperados” who are in the last throw of the dice before the bank repossess, or they shut the shop, so they are having one last go in their last season to keep the doors open. All this makes a lethal mix.

    Third point is the business experience. Many small hotels are owned by inexperienced people who have their first go at owning or running a business. They make decisions that perhaps a few years down the line they will regret and probably would not have done so with hindsight. Going over to OTAs or 1-stop-shop sounds great and easy until you wake up one day and realise you are actually working for someone else but unlike an employee you are taking all the risks.

    Finally, in case there is any hotel owner I have not upset yet, in most cases hotel owners are “Penny Wise and Pound Foolish”. They buy a vase for their reception that costs €5000 that will not bring in a single extra booking, but ask them for €1500 for a new website and you have to call the ambulance! (either for you having been punched or for them from having a hear attack). Don’t even get me on SEO as they would rather pay 20% to 30% to OTAs than spend €100-€200 per month to get real traffic to their website.

    So here we are talking about the future and subtleties of approach by OTAs, their subtext, motives, etc. whilst the real enemy is within. Hotel industry has nobody but themselves to blame for the direction that this once great industry is taking. If you were an OTA, you would stick to us too!

     
  5. Anil Varghese

    Great post – and very timely too to raise this issue. OTAs are looking for newer ways to get control of hotel’s rates and inventory. Hotels need to be aware when they fall for the free website and technology offered by OTAs. There’s more damage than they can imagine!

     
  6. Anil Kumar Prasanna

    Nice article and view. Direction seems to get into source of inventory, though they should be trying to adopt to the new landscape similar to airbnb or 1.3 million hotel accommodation listing into the system and offering a better customer experience. We need to watch for Google Hotel Ads & TripAdvisor Instant Booking impact on hotels business in competition with existing OTA and can ecosystem innovate on distribution landscape ?

     
    • Kalpesh Patel

      Google is not coming to help hotels. Google knows it is better to allow people to book via google and charge commission to hotels. Many hotels in small town were not paying for PPC so they were not generating any revenue from them but when they allow booking now they earn commission from small town hotel so it is income for them. so all about how to make more money to keep bringing growth to the company. Same with TripAdvisor.

       
  7. Peter from Springnest

    Thanks for sharing this Mike,

    “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.”

    For a big chunk of the market we find that this is extremely accurate. Either denial or misguidance. If a particular property makes use of a single OTA tech solution, they need to understand why, and what the implications or alternatives are. Educating the industry is key.

     
  8. Dude

    OTA’s days are numbered. At a certain point hoteliers will realize that they are handing OTAs a large chunk of margins. These margins could be put to better use by local DMOs to promote visits to a certain area during slow times or by lodge to build their own brand. Any hotel giving inventory to an OTA during peak times when the hotel or region has high occupancy is STUPID. So many of the lodges in my area are completely adicted to booking.com. During the recession in USA, it was hard to fill hotels and booking.com took advantage of these hard times to woo hotels to give up inventory. What hotels failed to realize is that booking.com has used the commission proceeds to block guests from finding the hotel’s own website and phone number.
    Hotel’s need to learn to hold back inventory during peak times since they will fill up anyway. Booking.com realizes this and therefore booking.com doesn’t provide direct contact details of lodge (phone, email, website). Instead booking.com masquerades as the primary website of a lodging by buying up adwords keywords of the hotel.
    Now let’s say Lodge XYZ holds back inventory from booking.com on a busy weekend. (zero inventory on booking.com) Now customer’s searching for Lodge XYZ in google click on booking.com’s Lodge XYZ adwords ad. The customer sees “no rooms available” on booking.com’s Lodge XYZ page. Its unlikely that the customer will go to Lodge XYZ’s own website and find the room availability and book direct since Booking.com has ‘cock blocked’ the user from contacting Lodge XYZ directly. Thus Booking.com has lodge owners by the balls. It takes a long period of time for a lodge owner to wean themselves from the teet of booking.com. They first have to have a good website and nice booking engine that works on mobile. They then have to commit themselves to giving ZERO inventory to booking.com (even if that causes less reservations for a short period). The best tactic is to do this during a slow time of year. And Lodge XYZ should place an adwords ad which clearly says, “Book Lodge XYZ Direct for Best Price” and “Official Site – Free WIFI”.
    Eventually booking.com will stop paying for adwords for Lodge XYZ and the lodge’s own website will be the primary face of the lodge on the internet and direct bookings will start rolling in. During transition, lodge XYZ could lower the price by 5-20% to encourage direct bookings. Their is nothing more satisfying to a small lodge owner than going into a busy holiday weekend with the town full up and being able to raise prices by 30-80% since I’m the only one with inventory. You can’t do this as well with OTA distribution because it will be hard for guests to find your inventory. Booking.com may take your inventory and mark it up and capture the lodge’s rightful margins. Oh well. Great article. Now hoteliers need to go out and take back their margins!

     
  9. Evan from Booking Factory

    Great article and it’s something we have come up against so many times! Hoteliers beware that we still have a chance today to turn the tides but if you take up the tools from the OTA’s you will be locked in forever.

     
    • Mike Ford

      Hi Evan, I think while there are risks its important also to note that the choice of technology a hotel uses depends on their circumstances. It may actually be true that in some segments of the market, giving over all your business, including tech and points of sale, to one provider makes sense to the person running the hotel. For example maybe the hotelier’s drive is to have a better personal quality of life and they are not in it for the profit margins. Maybe they are just looking to outsource everything and only focus their time on guests. Its likely that this is not the right strategy for majority of hotels in the world that want to maximise their performance and profit, but there may be pockets of hotels that have their own drivers where aligning to one provider across the whole stack makes sense to them.

       
  10. Alex

    Makes very much common sense, hotels need to know better or figure out too late the claws…thanks for taking the lead and sharing.
    as a non professional observer , yet isn’it more a planned invasion than a trojan horse? it seems the ota s power & money versus fragmented tech providers is a bit unbalanced, reminds me of the old chinese wall between investment & advice services of the same bank, yeah right…I wonder why hotel brands don’t acquire or invest in these techs directly or what could be a good outcome for this.

     
  11. Drew Meyers

    Smart strategy by the OTAs 🙂
    I used to work at Zillow in the real estate industry, and their strategy has played out the same way. Figure out more and more tools to power/run the businesses of their clients/advertisers, with the goal of being an indispensable part of their business. It’s much harder to rip out the entire technology stack than it is to rip out one piece of it. There are certainly efficiency, time, and likely cost savings to operating that way — but those businesses are sacrificing long term strategic flexibility by doing so.

     
  12. Gauatm Lulla

    A much needed piece. Good stuff Mike. Everyone who has the hotel’s best interests at heart, needs to be publicizing and educating the industry about the risks here. We’ve written about the same issue in the past and will do so again and again and again…

     
  13. Damian

    Interesting and terribly true… and that is why at Lybra.tech we suggest to our clients to not sell their business and their numbers to any OTAs…

     
  14. Ashwin Kamlani

    Hi Mike, this issue is definitely becoming more and more concerning by the day. I also think there is a real danger of the OTAs abusing their access to hotels’ websites and booking engines to tag visitors and re-target them with OTA advertising since they now know the customers’ intent. Take a look:
    https://www.hotel-online.com/press_releases/release/booking.com-and-bookingsuite-whats-really-going-on-here

     
    • Mike Ford

      Hi Ashwin, I think the fact that the technology provider is the same entity as the inventory seller creates a number of possibilities that hotels need to take into Account.

       
      • Ashwin Kamlani

        Yes. There is a huge conflict of interest here which will inevitably breed an abuse of the hotel’s business intelligence and customer data.

         
 
 

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