Is the new crop of OTAs a threat or an opportunity for hoteliers?
11 experts shared their view
Uber became the latest player to enter the OTA space in its pursuit of the "seamless journey" with plans, which they just announced, to add flights, trains and hotels to its app, for the time being in the United Kingdom. This latest attempt to create a travel "superapp", a full-blown OTA mobile app, comes in addition to similar incursions into OTA territory by Airbnb and Hopper, both of which have already added local experiences and contracted with channel managers like SiteMinder, RateGain and RateTiger to enable them to offer hotel bookings. Some hoteliers think that these new OTA-like superapps are good for the industry since they break the duopoly of Expedia and Booking.com. Others are skeptical and believe these moves will further erode the direct online channel.
The question is, is the new crop of OTA-like superapps a threat or an opportunity for hoteliers?
Any entity that wedges itself between hotels and guests and charges a hefty premium for the privilege is a threat to hotels. However, if newer platforms help to create a competitive environment that drives commission rates down, that's a win for hotels. But we all know that's not going to happen. So it's more about distribution.
In theory, more distribution channels bring more opportunities for hotels to build awareness and attract bookings. This includes accessing traveler segments and international markets hotels can't hope to reach on their own. However, the value and profitability of bookings can vary significantly among booking channels.
So we'll have to see what these new OTAs bring to the table in terms of commissions, terms of service and business practices. Generally, I think hoteliers should embrace any new entrants that threaten to disrupt the status quo and will keep legacy OTAs on their toes. However, hotels must avoid the mistakes of the past and build new relationships that are better balanced in their favour, while at the same time strengthening direct booking strategy to ease dependency on intermediaries entirely.
As hotel distribution is dominated by Booking.com and Expedia, any new opportunities that come to market should be seen as positive, at least in the mid-term, for chipping away at the monopoly. In the long-term, however, any vertical-specific channels are likely to be consumed by Booking.com and Expedia, making no lasting change to the industry concentration.It's the non-vertical specific channels that are really interesting. The apps that are fully intertwined in people's daily lives have the greatest potential to become a super-app winner. For some people, Uber ticks this box, but it's the new breed of fintech apps that I think we should be watching. It's a small step to add hotel booking to these apps, especially as they're already intertwined with our daily payments and loyalty kickbacks. We can already see Revolut has hotel bookings available in-app and so it's safe to assume others will follow suit.
It would be amazing if a new entrant came along that would outsell existing OTAs, do so at a significantly reduced cost, and guarantee these terms forever. It also would be amazing if someone would hand me, no strings attached, a couple billion dollars in cash. But I don't expect either to happen anytime soon.
New entrants don't represent an “either/or” situation. Instead, they are an opportunity and a threat. More competition among distribution partners is almost always a good thing. Increased competition for inventory among OTAs and other distribution players typically tends to provide access to new customers, reduce costs of distribution, or both.
At the same time, new entrants also often compete for at least some of the same guests that you, Booking.com, and Expedia do. They're going to use SEO and PPC and social media and email and broadcast and on and on and on to attract those guests, which likely will increase the difficulty and cost for hoteliers competing in those marketing channels. And that's before considering whether their agreements charge excessive fees or impose onerous inventory restrictions such as LRA.
Savvy hotel owners and commercial teams understand this reality and instead look to use OTAs—existing or new—as a complement to their direct bookings investments. They use OTAs to reach guests they can't easily connect with on their own. They assess the pros and cons of each new distribution deal to make sure it fits into their overall distribution strategy. They recognize that new entrants represent both “opportunity and threat” and plan accordingly. That's the most effective approach. And like not waiting around for a bundle of cash to fall in your lap, it's grounded in reality.
According to a Little Hotelier' survey, 45% of travelers use mobile apps to book their accommodations and tours, so we're talking about a gigantic market, which is, understandably, very tempting. Moreover, remember that Uber's current CEO spent over a decade in Expedia, so I am not particularly shocked by the news.
Personally, I love closed ecosystems and one-stop-shops. The booking journey, as it is today, it's way too fragmented, and it's not uncommon for travelers to search dozens of sites before making a decision. Sure, the situation is not as dire as it used to be ten years ago. I distinctly remember a research by Samantha Shankman which highlighted how some users looked at 150 websites before booking a hotel room (sic!).
So no, I don't think a super app would be bad news for the industry (well, surely not for the travelers). The question is: who may pull it off? My two cents have always been on Google Maps, but I have doubts about it as well. My concerns go in the opposite direction: with dozens of super apps being developed every month, there may be the risk of oversaturation: Hopper, Uber, and Google Maps are just the tip of the iceberg. According to Travel Agent Central, on average, U.S. leisure travelers use "7-8 apps throughout their searching, booking and in-destination travel experience." That's pretty far from the "super app utopia" we're commenting on this viewpoint.
The problem is that the whole super app concept is still, at least to a certain extent, alien to the western world, especially when you compare it to countries such as China. As of 2020, 78% of people in China were using WeChat. The same year, Uber had 93 million users, which is pretty impressive, but it's still just a little over 1% of the world population.
What most see as a duopoly still looks like over-fragmentation to me but, honestly, I doubt a super app could actually work outside of Asia.
"Western economies," Nick Cooper, Global Executive Director at Landor & Fitch recently stated, "have a long record of breaking up, or limiting the growth of, companies that become powerful. If a super app were to appear here and do incredibly well, in all likelihood it would be challenged and broken up." I agree.
So, even though I'd love to have a European WeChat-ish travel super app, I doubt the model will ever become mainstream in the West.
Can the new crop of OTA-like superapps become viable hotel booking channels? Previous attempts by Google (Book on Google), Tripadvisor (Book on Tripadvisor) and three attempts by Amazon to enter the OTA space all failed due to one simple reason: these players were not considered as credible hotel booking channels by the traveling public. Google and Tripadvisor are important information and planning channels used extensively in the Dreaming and Planning Phases of the Digital Customer Journey, but are NOT considered as booking channels in the Booking Phase by the traveling public.
Amazon is not even considered a travel related site, and naturally, not a booking channel.
Both Booking and Expedia have succeeded in becoming travel consumer's “top of mind” when booking a trip by investing billions of dollars in brand and performance marketing over the past decades. The perception of whether a site is or isn't a booking channel is crucial: “I have planned and researched my trip, I have coordinated my trip, now it is time to book.” What comes to mind. Amazon or EBay? No! Tripadvisor or Google? No! But Booking..com or Expedia? Yes, by all means!
Unlike all of the above. AirBnB, Hopper and Uber have established themselves as booking channels in the traveling public's psyche. Adding local experiences, hotels, rail, air, etc. will be accepted by travelers as a natural and convenient extension of the existing travel offerings on each of these mobile apps.
Where can Uber get inventory? Becoming an affiliate of an OTA like Expedia is one of the options, for sure (The CEO of Uber, after all, was the long time CEO of Expedia before joining Uber) or they can go the Hopper route by using channel managers like SiteMinder and RateGain to get access to hotel ARI (availability, rate, inventory).
So, can the new crop of OTA-like superapps become viable hotel booking channels? With adequate investment in brand and performance marketing (hundreds of million and billion dollars) and persistence, yes they can.
For hoteliers, this new crop of OTA-like superapps is merely an extension of their online distribution options. From opaque sites to bedbanks to metasearch and mainstream OTAs like Booking, Trip.com or Expedia, not to mention GDS sales with travel agencies, there are already numerous possibilities. Amazon even tried to enter travel distribution a few years ago, right?
And then you have these newer players, like Airbnb and Hopper, and now Uber moving into this realm. For hoteliers, more options to get their name and inventory in front of potential customers. What's there not to like? With the billboard effect still a reality, it can only lead to more sales, even direct sales in some cases, for these hoteliers. (The challenge will be to ensure these sales are incremental, not sales you could have, and should have, gotten direct)
Now, it's a different thing for OTAs. For them, I believe the emergence of these superapps is certainly a threat, specially when that app is already on your phone and used regularly. Herein lies its competitive advantage. We use Uber and UberEats regularly, certainly on a weekly basis, sometimes even daily. How often do we use Hopper? Or Airbnb? Or even Expedia, for that matter? Unless you are a very frequent traveler, these regular travel OTA-apps are used a few times of year whenever planning a getaway or trip. But Uber... (and Google, or Amazon, should they ever decide to re-enter this sphere)
Interesting times ahead, indeed.
Just like other technological advances in the industry, the emergence of OTA-like superapps have both upsides and downsides for hoteliers. On the positive side, it's always a good thing to have additional competition in the market for OTAs, as it provides another channel for consumers to discover your property during the research phase and book travel. On the other end of the spectrum, a more fractured market can make it harder for hotels with smaller or more limited budgets to break through the noise and compete against the hotels that can afford more prominent listings.
Moving forward, the goal for hotels is to find the right distribution mix, which will likely include allocating additional resources to maintain visibility on the key channels that drive guest research and bookings – like OTAs and their superapps. At the same time, the main goal should (as always) be a continued focus on driving direct bookings through your own website, which is typically the most cost-effective channel due to the absence of commission fees.
One of the best ways for hoteliers to have the right balance and increase direct bookings through their website is to build up their own first-party data centrally with either a CRM or CDP (customer data platform) and integrate that with their website and other marketing channels to create more personalized communications and experiences at every touchpoint throughout the guest journey. By understanding who your guests are, how they spend, and what they want out of their travel experience, you can curate offers targeted to specific segments and drive ancillary spend by offering the upsell opportunities that directly reflect that guest's preferences and interests. While it can demand an initial investment at the outset, the pivot to personalization can be the most cost-effective long-term strategy for competing with hotels that have the larger marketing budgets and more reach on OTA channels.
Hopper is one to watch, but may align more with the demographics of select arms of larger players, like HotelTonite and Kayak. Since they are leaning into social, they seem to target a younger audience. Per PhocusWire in March 2022, "Hopper was the fastest-growing app in 2021, growing 494% and overtaking Airbnb as the leader in market share by monthly active users beginning in June 2021." But, it is hard to tell if people are using mainly for airfare. In the same article, while Uber tries to expand its offerings, it has other competition to watch including Didi, Bolt and Grab. While I would like to see some healthy competition for Expedia and Booking, my concern is they will soon go through an M&A.
Success in the platform spaces is highly dependent on scale, particularly on offering an extensive and relevant selection of products for sale. Few of the companies entering the travel space are likely to invest the time, money and other resources necessary to build direct relationships with suppliers (at least initially) and thus will need to source supply from existing players on some sort of white-label, revenue sharing, basis. And who has the most comprehensive supply? The major OTAs by a long shot!
Thus while these developments might increase the perception of choice on the demand side, if they are to scale beyond the experimental stage in specific markets, they will reinforce, not challenge, the power of the OTAs who will undoubtedly act as the back end powering such initiatives.
The age-old question that will always remain unanswered until hotel CEOs, CMO, and CROs take their destiny into their own hands. As long as hotel companies continue to invest below 2% of their turnover, in marketing, technological and digital development, data management, data privacy & CRM, they will remain eternally subject to the dictates of OTAs and their outrageous commissions. It is so much easier to pay a commission every month, no matter how high it is, and have outside providers do the work in your place, rather than working hard to understand and manage your direct consumers. It requires considerable investments, competent and knowledgeable teams, paid at their real value, and a real digital strategy and leadership! Why bother?
We are even in a time where hotel leaders are paying a fortune to consult expensive experts to build their OTA strategy while reducing their direct marketing budgets. Are we falling on our heads?
Don't get me wrong, I have always seen the OTA as an opportunity for our industry. They help us to acquire and diversify our consumer base. They do not help us to drive retention and loyalty and this is where the industry needs to invest heavily! How would you ask? Disrupt significantly the way your brand engages with its most valuable customers, how they build one-to-one hyper-personalization giving back the control of personal data to the end consumer, deliver exceptional value-for-money services and products, follow and entertain these customers throughout their journey from search to post-stay. Make these customers yours.
There is light at the end of the tunnel: the new consumer behaviors. They trust more and more the end-provider of the service or the product and realize that 3rd parties do not always bring value to their journey. Capitalize on this and build the right technology!
I agree with Max that Uber, Airbnb, Hopper, and even Google have all become a giant tourism company that offers a "total” travel experience. Meanwhile, we cannot assume that the traditional players, such as Expedia or Booking.com, will not go in the same direction. In fact, becoming a super-app is probably the only way how they can survive in the competition.
“If we cannot change the world, change ourselves.”
Think positive. More competition can help hotels reach more travelers through different channels. Unless hotels can stop consumers from booking rooms from OTAs, we had better work with the OTAs as a “partner” than an “enemy,” regardless of their sizes. For that being said, I also agree that hotels must do a better job in CRM and improve their loyalty programs, as suggested in some of our panel discussions earlier. That will be the only solution to encourage more travelers to book direct.
Digital Marketing in Hospitality
Your content on Hospitality Net?
Hospitality Net membership explained
