OTAs have learnt from hotels and now applying these lessons
At industry events experts often talk about what hotels learned from working with OTAs and how vacation rental owners and managers can leverage this hindsight to gain an advantage and not repeat mistakes. They explain that hoteliers gave up needless percentage points, began paying and offering deeper discounts for higher placement, and became unnecessarily reliant on OTAs for bookings.
What is not often examined, however, is what lessons OTAs learned from working with hoteliers.
With short-term rentals, OTAs are getting somewhat of a “do-over.” These online giants have had a chance to reexamine how they aggregated, distributed, and monetized hotel inventory, and they are applying the lessons learned to short-term rental inventory.
Five Lessons OTAs Learned from Working with Hotels
#1: The Agency model is preferable to the merchant model …. in all ways but one
First, let’s look at the difference between a merchant model and an agency model.
With the merchant model, hotels give OTAs a net rate, to which a mark-up is applied to determine the sell rate to consumers. Consumers pay the OTA, and the OTA pays the hotel the net rate after check-in. With the agency model, the OTA charges the hotel a percentage “commission,” the guest pays the hotel, and the hotel pays the OTA their commission after check-in.
The hotel industry, especially in international markets, reacted better to the agency model, giving Priceline Group Inc a competitive advantage over Expedia Inc.
However, OTAs preferred carrying the money between the booking date and the arrival date.
When Airbnb came along, it decided to take the best of both worlds, adding an agency-style commission—split between the guest and the supplier. It also became the merchant of record, taking payments, carrying the money, and remitting net payment to the supplier 24 hours after check-in. TripAdvisor followed suit in 2015 for its performance-based listings, and Expedia-owned HomeAway (which also owns VRBO.com) now uses this model for its PPB listings.
#2: Once Suppliers Are Reliant on an OTA, the OTA can make changes to monetize supply.
OTAs learned that once hoteliers were reliant on the channel, the OTA could adapt policies to further monetize the platform. As a result, Airbnb, HomeAway, and Booking.com have found ways with their core supplier base to facilitate reliance with massive online ad spends, delivering a number of bookings to the vacation rental supplier without which they cannot operate.