The battle has begun!
After a long period of peace, Online Travel Agencies and Hotels have started battling for online hotel bookings. And, it is evident from Hilton’s “Stop Clicking Around” marketing campaign and Marriott’s “It Pays to Book Direct” campaign.
Today in this post I will try to discuss this battle to get the maximum share in Online Hotel Bookings.
Let’s take a flashback first
In earlier days, hotel distribution was a complex process. The hotels used to sell their room to the wholesalers then they sell them to tour operators. Tour operator use to sell the rooms forward to agents and finally, travelers used to buy the rooms.
This distribution chain had ambiguity at every node as there was so much secrecy about who was earning how much.
Then there came OTAs, who gave a hotel industry a more transparent way for hotel room distribution. Because of OTAs the distribution chain was reduced to only Hotel, OTAs, and guests.
In 1994 a site named Travelweb.com listed some hotels around the world and then after some time they started booking the hotels.
So we can say that OTA model took birth in 1994.
Why are they fighting?
It is very obvious for us to ask the question that after coexisting harmoniously with each other for so many years, why there is a feud between hotels and OTAs.
And the answer is quite simple too.
Mostly OTAs work on either of the two business models, the “Merchant Model” or the “Agency Model”.
In Merchant Model, OTAs buy the inventory and then resell it to the travelers. By this way, OTA gets a better control of the inventory but there is always a risk of inventory underbooking.
In the other model i.e. the Agency Model, OTAs does not buy the inventory they just them on their website and charge a commission on inventory booking. This way OTAs do not have any risk of inventory underbooking.
At the starting, the commission of OTAs was approx 5% and their share in the total number of bookings was also less. But with time, the commission has now reached to 10-20% and their share in the number of bookings has also taken a gargantuan value.
This is now hurting the hotels as all this have a direct impact on their revenue.
Who is winning?
Hotels are vigorously promoting the direct booking of the hotel rooms by various marketing campaigns and loyalty programmes.
If these efforts are effective then the market trends would have shifted against the OTAs and towards the Hotels.
In July, Hitwise provided Skift with online travel agency and hotel market share data as of May 2017 that Hitwise now concedes was flawed. Hitwise recently provided us with updated data that purport to show the online travel agencies actually gained more share (2.96 percent compared with a 1.16 percent gain, as previously reported), and hotel share fell more (3.87 percent versus 2.55 percent).
Furthermore, the analysis states that from May 2016 to May 2017 hotel’s market share of all online bookings in the U.S. fell from 31.36 % to 30.56 % and that OTAs increased from 68.64% to 69.44%.
So I think we have got our winner.
Reasons behind OTAs’ triumph
Number of properties
As per the stats by Statista Wyndham Hotel Group has the highest number of properties listed which is 8140, while booking.com has more than 1,770,000 properties listed on it.
Hence, the OTAs provide a much wider range of options.
Variations in the products
OTAs have a great versatility in the types of properties. If we just take a look at booking.com accommodation then we all can see that they have listed more than 30 types of properties.
Hence, it is more convenient for the traveler to find his desired stay.
Whether on online platforms or offline platforms, marketing campaigns from OTAs are certainly surpassing that of Hotels.
If we take our daily experience of watching TV, reading a newspaper or exploring the internet, we will see definitely see an ad of any of the OTA.
In an analyst by PhocusWire, in 2017 Expedia spent a record 5.3 billion USD on marketing and its rival group The Priceline Group spent 4 billion till September 2017.
With the objective of minimizing the distribution cost and increasing the yield, Hotels are fighting back. But, this fight is going one-sided towards OTAs
The best about this fight is that it is for the maximum share in online bookings. Hence, Hotels and OTAs will do anything to attract travelers so we can expect attractive offers, cheaper rooms, and loyalty programmes.
So we can ultimately say that in this fight, the winner will be the travelers.
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