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A Thanksgiving Thought on the New World of Hotel Ecommerce

(PRWEB) November 22, 2011

It?s virtually time for Thanksgiving. As we prepare to commemorate the Pilgrims who in 1621 survived their 1st, devastating winter in the new globe, thoughts turn to a subject of fantastic interest to Hotel Compete: hotel ecommerce. Following last week?s PhoCusWright conference the blogosphere and twitterverse have been awash with stories about hotel companies and their relationships with their ecommerce partners. But this year a thing?s distinct. Adjust is in the air, and it portends an intriguing 2012.

As the nation winds down to the annual feast of turkey, football and ghastly travel experiences, here are a few thoughts on the changing tide in travel distribution.

What to make of Google

During a method workshop this week, a client asked the question that appears to be on so several hoteliers? minds appropriate now: ?When do you assume Google will get into the OTA business?? Considering that its acquisition of ITA Computer software, Google has begun to make its presence felt, initially by doing specifically what it said that it was going to do: using ITA?s capabilities to provide better search content and drive ad revenue. But business commentators continue to be suspicious of their aims.

Make no mistake, the Google/ITA merger is a large deal for the travel business. But it?s achievable that hotels are asking the incorrect question about the impact it will have. The question brings to thoughts an exceptional point that was produced in the course of the presentation of the Hotel Distribution Study in Nashville this summer. To paraphrase the panelist?s view: ?All of these distribution providers add some value to our enterprise. But as they try to monetize their products, distribution costs are becoming prohibitive. Our challenge is to understand how much their services are worth?.

This is precisely the problem that faces the industry proper now, and it seems to get lost in the OTA-centric industry discourse. The chain of events that takes a prospective customer from initiating an enquiry to booking a hotel room is a value chain. That value chain has been growing in sophistication, leading naturally to greater costs. But there must be a limit. As hotels approach that limit, travel intermediary margins come under higher pressure, and that?s where the entertaining begins.

The agency paradigm has dominated the travel business distribution for decades. The model survived the rise of the internet through the OTAs, but the value chain is now far more complicated than it was decades ago. It can effortlessly be argued that the task of processing reservations transactions has improved incrementally over the last 15 years, while search advertising and marketing has exploded in sophistication more than the exact same period. Maybe the services of the search engine that discovered the consumer have grown in value relative to the services of the agency that closed the deal.

Google didn?t get where it is these days as a transaction processor: its core business has usually been search advertising. And in this light, the concept of a Google OTA offer appears strategically incoherent. Google can adjust the game in hotel distribution not by competing directly with existing business models, but by altering the economics of travel distribution. In other words Google can turn into dominant in travel by growing its core business, redefining meta-search, and squeezing the margins of the established OTAs, forcing them to work ever-harder to stay relevant to customers.

The industry reaction to the Google/ITA merger also appears to foreshadow bigger changes to come. The long-anticipated IPO of leading meta-search engine Kayak.com has been put on ice. Expedia also announced plans to demerge TripAdvisor. This will create two companies about two travel mega-brands, two distinct core competencies and ? critically ? two various revenue models (agency vs ad revenue). Battle lines are being drawn in a distribution marketplace that seems destined to be dominated increasingly by the twin axes of Google and Microsoft. And note that we haven?t even mentioned Apple and Facebook, whose impact on the travel business can only be speculated upon at this point.

But what about the niche players?

A current piece by journalist Carlo Wolff discussed the prospects for two niche OTAs, each due to launch completely in 2012: My Best Hotel Rate? a collaboration between the Asian-American Hotel Owners Association (AAHOA) and Innlink and International Hotel Exchange, which is being launched by Magnuson Hotels. Each are potentially fascinating and disruptive new ventures.

Conventional wisdom suggests that it is now too late to produce yet another OTA brand. But what's various and intriguing about each AAHOA and Magnuson's ventures is that neither has to follow the conventional OTA model. Each have distinct opportunities and motives. For those unfamiliar with the US Lodging Industry, AAHOA is the most powerful ownership organization in the business right now. It may not have any history as a consumer brand in travel, but it has much more than ten,000 members, accounting for a lot more than 20,000 hotels. This is a bigger proportion of inventory than any single hotel chain.

That creates an chance: an AAHOA-backed OTA could bring its exclusive leverage to bear on suppliers of important services like search advertising, for example. As a correct representative of the largest hotel ownership block, it could define a far more hotel-friendly OTA model, and could leverage its status as a membership organization to engage its consumer base differently. AAHOA does not have to stick to the OTA playbook ? in truth it has much in typical with hotel companies' brand.com initiatives of current years.

Hotel chains have regained a lot of the share of web bookings that they lost to the OTAs years ago. This has been achieved by means of a combination of improved ecommerce capabilities, and the use of marketing and advertising funds to drive bookings to brand websites. Large chains ? unlike fledgling OTAs ? can do this since the cost savings can underwrite the huge expenses of customer acquisition. When the organization behind the new OTA has as considerably scale and as much to acquire from its success as AAHOA does, it seems unwise to dismiss its probabilities of achievement as the interviewees in the aforementioned write-up do.

The Magnuson venture is also interesting, but for diverse reasons, because it blurs the lines in between OTA and Franchisor. Magnuson is a disruptive and so far profitable new kind of chain ? a membership organization with a low-expense, simplified franchise offer. It competes for new member hotels with other chains and membership organizations. The move to distribute rooms on behalf of non-affiliated properties puts them into competition with a hotel?s own brand for reservations services. Once more, even though it?s true that it?s challenging to bring new travel brands to industry, Magnuson is at the moment successful selling its own members? hotel rooms. So why shouldn?t it be effective selling other individuals?s?

Although some powerful predictions are created in Mr. Wolff?s write-up, nobody knows how either venture will pan out. Just as no one outside the Googleplex really knows what Google will do in the travel business, much less nonetheless the greater disruptions to come from other mobile technology and social media brands.

Those 1st, tenacious Pilgrims who survived the brutal winter of 1621 in an unfamiliar land ultimately gave rise to the USA. Hotel distribution appears to be heading into new and unfamiliar territory too. Some company models will thrive in the new world, others will not. But those of us who like our business to have robust intermediaries and powerful franchisors should welcome all of these developments. They will freshen up the market, keep the established suppliers on their toes, and bring new possibilities to consumers. And for that we ought to all give thanks.

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