How much could consumer brands like Priceline disrupt the hotel technology market?
This month, Priceline Group has been dropping several pieces into the business-to-business (B2B) puzzle.
Might a hotel booking engine be next?
Several experts Tnooz interviewed say a major online travel agency (OTA) could succeed in breaking into the B2B market.
It might even be a logical next step for the major OTAs.
It has been speculated that Priceline’s acquisition of Buuteeq this month brings that company right behind the hotel front desk.
Opening acts of a B2B show
So either via acquisition or by in-house work, Priceline Group seems to be intent on creating trade services for small hotel owners and independents.
It may be essentially saying to hotels: “We can provide you with the marketing tools (Buuteeq), a reservation system (Hotel Ninjas), or an enhanced white-label solution.”
A move toward “CRS lite”?
Might these moves only be a stalking horse of the revolution to come?
One possibility: Booking.com, or other rival OTAs, might upend the internet booking engine (IBE) market.
IBE sales are a major slice of the CRS revenues of industry stalwarts.
Historically third-party booking engines, such as SynXis, are neutral pieces of technology.
A hotel enters a contract and then feeds inventory and rates into the back-end, and then third-parties connect to it.
It would require a big leap for a Booking.com-type company to start offering a “CRS lite,” in which other third-parties, such as Expedia, could write to it and submit inventory and rates.
A big leap, yes. But not an impossible one, say experts.
Other major online travel companies worldwide could get into the act as well.
Expedia Inc, in particular, also long expressed interest in the B2B side. It’s Egencia division for corporate travel is just one arm.
Targeting “long-tail” properties
An OTA (or other similar established distribution channel) might succeed in creating a booking engine that serves smaller independents — clients that may not want or need the additional distribution channels.
But it would be exceedingly difficult for an OTA to penetrate that set for chains and larger independents, who need the GDS and multiple channel distribution as well as feature rich rate and revenue management functions and systems integrations offered by the full CRS capability of SynXis, Pegasus, Trust, etc.
You see this with the Amadeus LinkHotel system which offers a full service system integrating CRS and PMS, Booking engine and distribution.
It is fairly successful with independents in EMEA, but has not had the same impact in the US market or with chains.
Growth by acquisition?
To expand, additional acquisitions by Priceline Group — and matching ones by its rival Expedia Inc. — could be likely.
Notes Guilain Denisselle, a hospitality consultant in Nice, France, notes:
Pricing model may need to adjust
The commission structure, in which OTAs charge per booking at rates varying from 5% to 30%, may not be a good fit for the hotel services market.
“If the OTAs are going to play with that same commission model, say 3% to 15% per booking, hotels would be crazy to pay that for technology only.”
To justify its relatively higher cost model, OTAs may have to sweeten the deal, such as by providing detailed data analytics about feeder markets to the hotel.
Would hotels fear deeper ties to OTAs?
Some hotel owners might be wary, notes Patrick Landman, CEO of Xotels, a Barcelona-based consultancy for hotel asset and revenue management.
“If I owned a hotel, I would not want a third-party distributor controlling my direct sales channel.
I would diversify which partner companies I work with to avoid to be financially and business over-dependent on any one conduit.’
Yet, if the company segregated its B2C operations from this B2B offering, it might be a win-win.
Charles De Gaspe Beaubien, of Gloucester, MA-based Groupize says:
As much as there is traditional conflict between OTAs and Hotels, I think in some cases it can be a win/win.
It would reduce the hotels technology costs by working with the OTA channel that can give them both licensing and distribution in one system.
The chains might feel they are letting a fox in the hen house, but at the right economics for distribution and licensing, I feel some hotels will consider it.
One-size-fits-all approach might not work
Denisselle says that for an OTA is to succeed in plying trade services to hotels, it would have to tailor its efforts to the quirks of each nation’s market rather than have a one-size-fits-all product and pricing model.
UK hotels might see no problem using a channel manager that’s manufactured/owned by an OTA’s subsidiary.
Yet French hotels will have a problem with that. German hotels and Italian hotels probably, too.
Potential synergies between licensing and distribution
More positively, Chestler says that the barriers to entry for an OTA to enter the channel manager market aren’t too high:
If all the OTA is adding a widget, that’s not going to fly.
But if it comes with a fire hose of demand, there’s ways it can play that space. If the channel is bringing eyeballs and conversions, that’s what matters.
As for creating a CRS-lite, the barriers to entry aren’t too high. If it’s just comparative technologies, then it’s who ever has best technology is going to win.
The metrics the OTA will be held up to is if the feature and functions are more robust. Does it reliably get better rates and availability?
If an OTA builds world-class tech and adds to it the ability to bring eyeballs, and the skill to boost conversion through digital marketing, then it may have something.
But it will take time, say seven years, to build the portfolio. It took Sabre SynXis a long time to get where it is. Same for the other players.
De Gaspe Beaubien notes the potential win for an OTA in offering these trade services.
In exchange for licensing trade solutions hotels, a major OTA like Booking.com could gain access to their mind share, their systems, and inventory.
It could then use that information to provide analytics to them do revenue management for all aspects of their business.
A divided appeal, between hotel brands and hotel owners
The appeal of direct channel and marketing services from an OTA would depend on the financial perspective of various stakeholders. Says Denisselle:
Consider the OTA competitors. Will Expedia, say, build a strong relationship with a channel manager that is owned by, say, Booking.com?
The answer depends on the market: Expedia might say okay for secondary markets but not for its primary markets.
Similarly, receptivity by hotels will vary by the stakeholder’s financial position.
A small regional European hotel chain might be more than happy to work with an OTA on B2B’s help in building the direct channel, to avoid having to join an expensive brand such as Accor, IHG, or Hilton.
Similarly, in some countries the hotel “business” part has no value and investors are only looking for a good rent that is a percentage of the turnover.
These building owners would be more than happy to use an OTA’s B2B distribution technologies if it brings more revenue and therefore more rent.
On the other side, a hotelier who owns the business but does not own the building — a common structure in France — will have a problem with an OTA B2B solution, simply because they fear OTA dependency.
OTAs may reach out to B2B with another tentacle
We don’t know if Priceline Group, Expedia Inc., or another online travel company is working on a neutral booking engine to power hotel websites.
But in time, a major OTA or two may help hotels draw direct bookings as well as commissionable ones without needing a separate channel switch.
Channel management, website design, and outsourced call center help may not be far behind.
The remaking of hotel tech services
Priceline Group comes across more and more not just as a consumer-facing intermediary channel but also as a hotel trade services partner.
Investment research firm Morningstar comments:
“Priceline Group is set to overtake Expedia Inc as the world’s largest OTA company in 2014. but its global market share of all travel bookings will be less than 4%.”
Given its B2B plans, the world’s ultimate travel middleman seems to be dead set on getting into the middle of a whole lot more.
NB: Image courtesy parksjd/Flickr/Creative Commons
Sean O’Neill had roles as a reporter and editor-in-chief at Tnooz between July 2012 and January 2017.