EC designates Booking.com as a “gatekeeper” - Reason for Hotels to Celebrate?

Question

On May 13, 2024, the European Commission (EC) designated Booking as a "gatekeeper" (see my LinkedIn post), similar to how it previously branded Google, Facebook, Microsoft, Amazon, TikTok, etc. "Holidaymakers will start benefiting from more choice and hotels will have more business opportunities," declared Margrethe Vestager, EC's Executive Vice-President in charge of competition policy. One of the results of this designation by EC is that Booking can no longer include rate parity clauses in its agreements with hotels. In other words, hoteliers can now publish promotions and lower rates on their websites than what they provide the OTAs with.

What's your take? Will European Hotels benefit from this decision?

Thibault Catala · Answer

I believe this is a positive step towards fair competition and gives hotels the freedom to create better pricing strategies overall. Savvy hoteliers will definitely drive stronger performance thanks to this, for the others this won't change much :) Now, let's not always blame the OTA for everything, if we really look at the NetRevPAR per channel, most hotels will be surprised to see that the NetRevPAR of the OTA is sometimes the highest one! Remove all costs that you need to have to drive your direct channels (marketing costs, staff, brand, loyalty, ...) which are all included in the OTA commission already. I often suggest to hoteliers to piggyback on the OTA to increase visibility and awareness, and have a direct channel strategy in parallel.

Timothy Wiersma · Answer

Great subject to discuss. The industry for too long has been a slave to parity agreements, and now the EC has created some breathing room for hoteliers to develop their own strategies as it relates to OTA's. It was almost like the tail was wagging the dog from a digital strategy and pricing perspective. They created schemes that could drive a revenue professional crazy and occupy too much time to make sure everything was in parity. Having this gift also comes with responsibility. If you are truly dedicated to driving more business direct, you will need a sound commercial master plan and ensure you have a smart pricing and digital strategy. If this is not in place, hoteliers will fall back into old habits and depend on OTA's to drive occupancy.

Mark Fancourt · Answer

Good. High time. Most customers are price driven and want to get the best quality product at the best price. Where else should that be found, but with the producer directly? Put simply, there is no environment where it should be acceptable that the producer and provider of a product is forced to offer the same price to a third party that does not produce the product, and expects to profit from the same. The fact that these agreements were allowed to be in place at all was wrong. Once upon a time in an industry not that long ago, discounts were offered for guaranteed results, or potentially a penalty was paid. In this environment the third party will need to demonstrate genuine value to their customer if they want to beat the best price direct from the producer. These are the general rules in business and it is right that these organisations should be subject to that reality.

Vassilis Syropoulos · Answer

Rate parity is easy to understand and manage. Rate disparity is hard to manage. OTA's can and already are lowering their margin to acquire new customers. Since they have more scale, they can be more aggressive than hotels in this game as they amortize the acquisition cost on a higher Lifetime Value. This can potentially lead to a race to the bottom in rate.

Max Starkov · Answer

Will European Hotels benefit from this decision? Depends. Smart hoteliers who invest in talent, technology and digital marketing have now a great opportunity to increase their direct online bookings. The rest? The ones with 5-year old, mobile-unfriendly property websites? With ancient SEO and visual and textual content? The ones without merchandising strategy and up-to-date website technology like chatbot for 24/7 customer support? The ones without mobile payment options and multilingual booking engine? And, of course, the ones without adequate investments in digital marketing? These hoteliers will continue to be overdependent on the OTAs in a downward spiral to insolvency. The outlawing of rate parity in France back in 2014 serves as an important case study. Five years after this law, heralded as “liberation from Booking” and great opportunity for French hoteliers, Booking doubled their market share in France and quadrupled it 10 years later. Why did it happen? The main reason was French hoteliers’ continued systemic underinvestment in the direct online channel - talent, website technology and digital marketing. Just imagine if you publish lower rates on your tired and unkempt property website that is visited by more malicious bots and search engine spiders than humans - who will even see these lower rates?

Kevin Duncan · Answer

Overall, the European Commission's designation of Booking.com as a gatekeeper is a positive step towards more competitive and transparent pricing in the hospitality industry. Travelers will have greater access to competitive pricing and exclusive offers/discounts. EU-based hoteliers stand to gain significantly from this ruling, especially if they are already investing in the right technology systems and people - i.e. an optimized brand.com website, a customizable booking engine, and adequate investment in digital marketing tools and people to attract holidaymakers. By enabling hotels to be more competitive on their own sales channels and offer unique offers and promotions, the EC's decision empowers hoteliers to find the right guests, drive guests to book direct, and grow loyalty and revenue with each guest. Consequently, hotels can achieve fairer consumer access and improved profitability without high OTA commission fees. It remains to be seen how Booking.com will respond to this ruling. Typically, OTAs penalize non-parity hotels by lowering their search rankings. However, for hotels to truly benefit, they need to continually invest in their direct booking channel, or they end up sacrificing their bookings for better booking experiences on third-party channels, as seen in France since 2014.

Oleksii Kapichin · Answer

OTAs have a significant impact on the distribution space due to large marketing budgets, focus on technology and user experience, loyalty programs, and the increasing integration of AI in all stages of the customer journey. Can individual hotels compete with this? The answer is no. Large hotel chains have some competitive edge and leverage, but in Europe, most hotels are independent and rely on OTAs like Booking. What happens when hotels give Booking rates that are higher than those on direct channels? Booking will penalize properties that do not have rate parity by lowering their listings in search results. This will lead to a decrease in revenue from Booking, which hotels won't be able to compensate for through direct channels due to the reasons mentioned above. Hotels in the market that maintain rate parity will get better positions in search results and increase their competitive advantage. Booking will ensure most hotels maintain rate parity regardless of the laws in place, in my opinion. Hotels need to invest more in their direct channels, technology, and digital marketing to decrease reliance on OTAs.

Simone Puorto · Answer

We're focusing on the finger and not on the moon. As the European Commission focuses on writing norms, the web for which these norms are written will no longer exist in the next few years. This paradigm shift suggests a transition in how web interfaces are conceived and used. AI assistants (be they conversational tools such as ChatGPT or Claude or physical devices such as Rabbit's R1) could one day become the primary or, in some cases, the only interfaces for web access. These models could evolve into primary aggregators and distributors of information, particularly in sectors such as tourism. Such a development would mean a fundamental reversal in the traditional digital ecosystem and a move towards an unprecedented dynamic in terms of interface. If today Booking.com is powered by OpenAI's APIs, tomorrow it could be OpenAI powered by Booking.com APIs. This evolution would radically transform the architecture and interface of the World Wide Web as we know it.

Fabian Bartnick · Answer

My take: Don't get you hopes up on the Booking Gatekeeper stuff. They will use tactics such as removing hotels, bringing them down in ranking... when rate parity was ruled back in the day....nothing changed! Let me explain: The theoretical take: Before Booking became a Gatekeepers: Guest Perspective Searching for a hotel meant wading through endless options and sometimes unclear pricing. Switching between different booking sites to find the best deal was common. Hotelier Perspective Competing for visibility was tough, with Booking often setting the rules Limited control over how their listings were presented and priced on the platform. After Booking Became a Gatekeeper: Guest Perspective: Finding a hotel is now more straightforward with clearer, fairer pricing. Easier to compare options without needing to jump between multiple sites. Hotelier Perspective: More control and fairness in how they can present their listings. Increased visibility and a fairer competitive environment. Simplified: The EU's new rules make Booking play fair, giving guests easier bookings and hotels better control. Reality: Not a lot will change! OTA will find ways around it. Sorry, but every time they were "ruled", they found another way.

Trevor Stuart-Hill · Answer

I wrote about this topic exactly 5 years ago (Rate Parity Is Dead - What's Next for Hoteliers) As rate parity disappears, hoteliers can now offer lower rates on their own channels, potentially increasing profits. However, this shift necessitates a more substantial marketing investment to compete directly with OTAs. On the bright side, hoteliers may gain more control over guest information and the ability to tailor the guest experience. Yet, it's important to note that this also requires a significant investment in technology, a crucial aspect to consider. Overall, the disappearance of rate parity could be a positive development for hoteliers, but it would also come with significant challenges - including altering consumer buying habits (OTA's make travel purchases so convenient) - which is no small feat.

Silvia Cantarella · Answer

I won't be impressed until I understand what the real consequences of this designation will be. We talk about regulating those companies that harm free competition and limit choices for consumers. For now the buzz it's all (again) about rate parity, nothing new. Hotels can always create direct exclusive promotions and deals, nothing ever prevented them to undercut OTAs because OTAs can undercut them alike by playing with their margins. In a recent hotel opening, Booking.com was the first and only OTA that I opened for sale with 100% parity with the direct website. Despite this, a price cut was immediately initiated for reasons probably linked to the conversion or something that not even the market manager was able to explain. So what? If we do really believe in leaving freedom of choice to the customers, what will limit Booking's dominant position? Certainly, more clarity on ranking factors, visibility, conversions, partner distribution and data sharing. How do we bring customers to our site? Investments in marketing, content, digitalisation, technology, sales conditions, positioning, value... by creating a markedly different booking experience. The foundations have been laid. Awareness, education and managerialization will be decisive factors to drive direct bookings.

Andrew Metcalfe · Answer

The EC’s ruling presents a need for hotels to do some soul searching. Are they ready to bring customer acquisition back into their ownership? Airlines are an interesting comparison, and hotels need to decide how this ruling could benefit them. Airlines now offer near-frictionless booking and payment processes. Hotels must ensure they constantly optimise the user experience to prevent guests turning to third party platforms. Like airlines, hotels need to be smart about their pricing strategy, and this needs an RMS for real-time dynamic pricing to keep up with market demand changes. While hotels will never be as slick as large OTAs, they have the advantage of a closer connection to the guest, and technology will be key to deliver on this. Hotels can offer reasons to engage directly that OTAs cannot, not dissimilar to how airlines offer additional services; i.e. online check in, digital boarding passes, and optional extras like fast-track security, parking, insurance etc is now akin to mobile check in, kiosks for key cutting, upsells in a guest portal, or discounts for repeat business. Many hotels are able to retail more ancillary products in a single shoppable cart, and this will need to become more commonplace to capture high value bookings - and deliver a connected trip that OTAs will struggle to match. It is hard enough for one hotel to offer the connected itinerary, imagine how hard for an OTA to do it without fault. But this is all revenue upside for the hotel and an advantage to the guest looking to book all at once. It’s important hotels realise that this isn’t an overnight change, they have time to evolve rather than panic. However, the administrative burden and debt needs to be removed for thought-through end-to-end experiences. The good news is small changes constantly is the best way to stay on track with the tech stack.

Harald Bindeus · Answer

I doubt that this decision will benefit most independent and smaller hotels. Rate Parity is usually a two-way street and while hotels are allowed to price themselves lower than BDC on their own site, the OTA has the same right. In addition, "Forward Distribution" comes into play where BDC sells to partners who sell to consumers at lower rates. OTAs also have the "big stick" of impacting ranking of hotels with parity violations. Based on the mix of business for many independent hotels, who will be able to take the risk to lose a large portion of the business they currently enjoy? In the end, it will come down to whether hotels or the OTA can attract more potential guests to their respective websites. Rate alone will not create demand. Odds are - and history has shown it many times - the OTAs will outspend the independent operator and win the battle for consumer share. BDC is a global OTA with a huge investment in technology, marketing - only large brands will have the resources to compete against them for market share and direct distribution. Very few hotels will benefit due to high repeat guest numbers and "brand" equity - most will not.