Russia’s Ostrovok besting Expedia in hotel booking choices

Five years from now it will be commonplace for online travel agencies to give customers the dual option of prepaying or paying at the hotel, and Russian online travel agency Ostrovok.ru is leading the way in the sophistication of its hybrid model.

Until recently, OTAs have offered one option at a time, either pay at the hotel using the agency/commission model or prepay with the merchant model. But, Expedia Inc. over the summer began changing things up and rolling out its Expedia Traveler Preference program on Expedia.com and Hotels.com, giving guests the choice of prepaying or paying at the hotel.

Speaking at PhoCusWright’s Travel Innovation Summit November 13 in Scottsdale, Arizona, Serge Faguet, co-founder and CEO of the Moscow-based OTA, said its own hybrid hotel model provides an “unbeatable consumer experience,” implying it is better than Expedia’s because Ostrovok built the complex technology behind it from scratch while Expedia had to add the pay-at-the-hotel component to its longstanding prepay model.

Both Ostrovok and Expedia are trying to give customers more flexibility — and both are competing with Booking.com, which exclusively offers the pay at the hotel model.

Built for the particulars of the Russia market

Faguet said Ostrovok, which was founded in 2010 and has raised $13.6 million from General Catalyst Partners and Accel Partners, among others, wanted to provide compelling options for Russian consumers, the majority of whom are used to paying in cash.

Having the dual options helps hotels because it increases conversions, and it is attractive  for hotels with governmental ownership interests because they are barred from paying commission, Faguet said.

The way the Ostrovok hybrid model is set up, it is geared to entice guests to prepay, Faguet said, and it is more flexible than Expedia’s program.

After the TIS session, Faguet told Skift that while the prepay component of Expedia’s program merely lets customers pay by credit card, Ostrovok’s prepay option enables guests to prepay by credit card or cash, use “one of the many electronic money systems popular in Russia, or pay at the stores of our offline partners.”

Engendering loyalty

Members of the Ostrovok loyalty program may also get a discount for prepaying.

“So it is that we give the consumer a serious incentive to pay now with the flexibility of multiple different methods of payment (many people just don’t have a credit card or don’t like using it online), and the reward of lower prices for our loyal customers,” Faguet said.

Although the hybrid model of Ostrovok, which expects to notch some $300 million in gross bookings in 2013, is crafted in particular for the Russian consumer, rest assured that dual-pay options will become pervasive over the next few years.