Will last minute hotel booking players really disappear in three years?
Last-minute hotel deals via mobile devices have, to some extent, become a new distribution channel for hotels – with numerous startups created to capitalise on the model.
There are a number of established players (such as the largest independent one, HotelTonight) and other emerging players in all major regions.
Many of these players are well-funded and they are constantly expanding to new regions to offer last-minute hotel deals on mobile/website.
Tobias’ comment about fragility of the model in a recent WebInTravel article has triggered many responses.
Interestingly, HRS itself has a last-minute hotel reservation app by the name Hotels Now, which has hotels listed in 120 countries. The app has apparently been downloaded by 750,000 users.
Tnooz asked Ragge to elaborate on his recent comments. He explained to us what conditions he believe will prompt a fall from grace for the same-day booking category:
“Generally the idea of last-minute bookings is not new and it is becoming increasingly popular to book hotels on the go. Business travelers, who frequently have to react flexibly and change their travel arrangements, are increasingly booking their hotel room at the last-minute using mobile devices.
“However, the market for same-day booking apps is a niche market and therefore not profitable for stand-alone players. If you like to run apps like this, you have high acquisition costs, but only low profit margins.
“That’s why we believe only same-day booking apps will survive that are built upon established, existing systems like HRS.
“Just focusing on mobile last-minute offers will not be sufficient as most of the established OTAs also have successfully launched their mobile solutions and provide a much better infrastructure for hotels to reach customers worldwide. Also if you look at the app store ranking most of them are ranked pretty low.”
Gerry Samuels, CEO of MTT, reacting to Ragge’s comment, says:
“There is definitely a proliferation of last-minute/same day hotel booking apps and whether all of these booking models will survive is a moot point. But, the multiple offerings in the same day hotel booking space is because there is a market need to be met.
“There is a specific segment of customers who are flexible and happy to travel & book at the last-minute. These are opportunistic deal seekers as opposed to those who want to book in advance secure in the knowledge that the exact type of room they want is booked, and that they have all the extras (breakfast, view, wifi etc).
“Until recently, hotels had to go through an intermediary for their last-minute inventory taking a further cut from an already discounted room. But if hotels, can do this directly through their own last-minute channel, this is a key way for hotels to have a healthier yield on last-minute rooms and to attract new customers to fill last-minute rooms and then to leverage the relationship for future custom.”
Tnooz also spoke to Tomas Laboutka, CEO of HotelQuickly, about his view on the comment by Tobias.
“The travel space is in constant transformation, new models appear and disruptively change the landscape. Ten years ago, mass internet allowed OTAs to gain foothold across the globe. Agoda was almost bankrupt in 2004, and is now one of the big four OTAs.
“Mobile internet penetration is exploding and people are shifting away from their computers, using mobile devices for everything that they used to do online. Tailored apps with a clear unique selling proposition are here to stay.
“OTAs obviously play down the model as a hype, but looking at the fundamental drivers responsible for the success or failure of last-minute mobile bookings, we clearly disagree with their assumption.
“Travelers go mobile, book later and later, demand a more tailor-made, use-case oriented service, rather than one-fits-all solutions.
“We are happy to see rate parity finally breaking apart, allowing hotels to deploy more sophisticated distribution strategies. Price-fixing is under fire across Europe and the US, and the same trend seems to reach Asia.
“Hotels want to hedge their exposure towards OTAs via alternative channels, be it their own website, app, or packaged deals.”
In Asia, same-day-hotel-booking is still an emerging trend, unlike US and Europe where we have established brands like HotelTonight and BlinkBooking.
Among them, HotelQuickly has raised funding and now it has expanded the service to ten countries across Asia.
Ragge has a different take on the profitability of players in this model. He says,
“In my opinion, none of the last-minute stand-alone platforms are able to break even, because building up and retaining the hotel content for the small niche market of last-minute hotel bookings is not feasible, if you are a last-minute only player.”
But, Samuels explains what has already been achieved in MTT and what he hopes is in store:
“Our Eleventh Hour hotels white label app is available for 116 hotels in 75 cities across China through the Jin Jiang Hotels Group. They launched their same-day booking app with us in June. It’s called Jin Jiang Hotels Lite and is available from iTunes.
“We will also soon launch with another 34 hotels for an international hotel chain (in August) with properties across Europe, North America and the Middle East & Africa.
“Hotel chains that work with us for their same-day booking channel want to do so because it gives them more control on how they approach the last-minute market, which enables them to do more to avoid cannibalisation, that they pay less commission on and most importantly, that enables them to have ownership of the customer relationship for future custom.
“For the hotels’ end customers, they have a great, easy to use app that enables them to secure a really good rate at the last-minute.
Meanwhile Laboutka of HotelQuickly speaks about his plan for the start-up:
“In next three years, we will serve our markets in Asia Pacific and beyond. If we continue to grow at the current speed, we will see a couple of million installs and we will be present in all the popular tourism destinations.
“Traveling rates across APAC is growing at previously unheard of rates and absolute volumes will soon reach the current levels of travel in the West.
“Already now, as travelers in the region are less used to OTAs, travelers go from zero to mobile. As first movers in the mobile last-minute travel space, we are in the best position to capitalise on this trend.
“Having said that, we will never replace OTAs. We offer a highly focused product for a very specific niche market; of course we see OTAs as competitors, but the market is big enough for multiple concepts and in the end, the customer will chose his or her preferred channel.”
Laoutka highlights an interesting point about the dark hand of OTAs in the last-minute hotel deals model.
Quite a lot of OTAs in Asia (and also the global players) already have last-minute hotel deals on their websites. In India, for example, the leading OTAs like MakeMyTrip and Cleartrip sell last-minute hotel inventory.
When asked Ragge whether the last-minute hotel deals service in OTAs will also become obsolete, he says:
“Not at all. Last-minute hotel offers will always be complimentary to the regular hotel offers, because it is a good opportunity for hotels to increase booking volume in the off-peak seasons and increase efficiency.”
A crowded marketplace is perhaps one sign to support Ragge’s view that many last-minute hotel deals players will vanish in three years.
For example, Mobile Travel Technologies can be seen in some respects as a competitor to the likes of Hot Hotels (TLabs here), HotelTonight, BlinkBooking, HotelQuickly or CheckInTonight whose core business model is collecting product from individual brands into a single booking platform.
We asked Samuels whether the core players in this space will impact on MTT’s white label business:
“Our approach is different to these players. We provide a direct route to market for same-day bookings which is more profitable for hotels. We enable hotel chains to have a dedicated app for the last-minute market in their own brand that they completely control in terms of the inventory, what discounts it offers and how it is promoted.
“It means that hotels don’t need to comply with intermediaries’ and specialist same-day booking apps’ business models.
“Moreover, having the direct relationship with these last-minute bookers for future business via the last-minute channel or otherwise is a key benefit of using the direct channel. This is a message that is resonating with the hotel chains we speak to.
“Evidently, when a hotel sells through an intermediary there is less control and many hotels want to focus on optimizing their own distribution channels.
“Different hotel chains have different requirements and approaches to their mobile strategy. For those who want to have their own dedicated mobile channel for same-day bookings, the Eleventh Hour Hotels solutions meets this requirement.”
Laboutka responds why businesses like HotelQuickly won’t be affected by MTT:
“This is a great idea and certainly the way to go for big chains. We motivate hotels to explore the mobile space and leverage these alternative distribution channels.
“However, we don’t think that boutique hotels or smaller chains will be able to attract enough users with their own app, as travelers don’t want to install 30-40 apps for all their travel destinations.
“Hence, aggregation makes sense for these hotels, and with the fencing of HotelQuickly as well as the curation of the offers, brands are protected and rate parity does not apply.
“Furthermore, HotelQuickly has an outstanding team of IT developers that will continuously develop the app to the highest market standards. Customized apps dedicated to one hotel chain will face issues in this and will likely carry hidden costs.”
Hotel Tonight responds
Tnooz talked in person with Sam Shank, CEO of Hotel Tonight, who is sanguine about his start-up:
“Our research finds that more same-day bookings are happening through Hotel Tonight than through any of the major OTAs’ explicitly same-day apps or any of the clones from other start-ups.
“Regarding the clones, yes, building a same-day booking app is easy. It only took us 10 weeks to go from having wireframes to having code we could ship, and we didn’t have any models to copy.
“I think a lot of the clones are discovering that executing a last-minute hotel booking business is very, very difficult. We’ve worked really hard to learn all of the nuances of last-minute inventory.
“As for the OTAs, we’re not yet impressed that they’ve executed well in their same day apps. It’s totally an Innovator’s Dilemma-type thing for major companies to tackle a project like this.
“Hotel Tonight is going to be the next household brand name for travel. We’re going to go public.
“We’re meeting our benchmarks on our product road map, which was an aggressive road map. We have a 3x annualized growth rate in bookings, by dollar and unit volume. Our repeat usage rates are high for our comp set. Our average commissions are where they need to be.
“We’re scaling at a pace our advisors say is appropriate and sustainable. Our board is happy. Our investors are happy.
“I don’t by any means want to sound over-confident or, on the other hand, defensive, which I might if these quotes are taken out of context. The context here is that I’m responding to doubts that the business model is viable and scalable. The model is definitely valid.
“In response to critiques that say this business model is just a fad, I disagree. The doubts seem to only be coming from established players. Make of that what you will.
“We’ve made our share of mistakes. We still have a lot we have to learn. But what happens to us is going to be about how well we execute, not about the validity or scalability of the model.”
NB: Image via Shutterstock.
Karthick was general manager for Tnooz in Asia until September 2014.