OTAs Auctioning Search Results Bad News for Hotels
NB: This is an article by Patrick Bosworth, CEO and co-founder of Duetto
Just weeks after I wondered whether the OTAs lost some ground to hotel groups in the industry’s balance of power, Expedia Inc. disclosed a restructuring of its business model, in which hotels now can bid their way up the sort order of listings. Their executives framed it as a “marketplace” where a little incremental spending can give hotels a “boost” to secure a booking.
While this clearly is a sound monetization strategy for Expedia, it’s not good news for hotels. “Boost” or not, the bids hoteliers need in order to remain competitive on Expedia mean a net increase to hotels’ marketing and customer acquisition costs on the channel. While I’m sure it’s tempting to opt out of this new pay-to-play layer of the OTAs relationship and pull inventory from Expedia, I’d caution that hotels can’t just take their ball and go home.
But it is an opportunity for hotels to refocus on their value proposition to the customer and to re-examine their business mix.
Before Expedia’s change, hotels had a fairly predictable lever for satisfying the OTAs algorithm and moving up in the sort order on a search results page. Competitive prices were key. Of course, other factors played and still play in to any OTAs formula—including commissions, room allotments, photography provided for listings, or preferential relationships—but hotels usually could steer their rankings upward with the right discount on a room rate.
That pressure to cut room rates isn’t going away, and now hoteliers will face higher booking costs if they need to bid up their placements on Expedia. The immediate losers in all of this would be the hotels, especially the ones competing in value-conscious segments. If they’re less able to invest in service and improving their real estate assets, they become commoditized and have an even harder time standing out to consumers. Inevitably, guests also lose when service levels drop off.
This move should be a rallying cry for the hotel industry to double down on owning its value proposition. There already was a sense of urgency around adopting new loyalty programs and investing in technology platforms that can integrate them to the hotel’s management systems. Those have escalated from being a high priority to being an absolute necessity in light of Expedia’s move.