How Expedia is reinventing hotel booking — and upsetting the industry

Expedia is revolutionizing the way you’ll book hotels, and Hilton, Marriott, La Quinta and Barcelo Hotels are early adopters of the plan.

A new Expedia Traveler Preference program, which has been tested and could soon be rolled out globally, enables travelers booking rooms at participating hotels to decide whether they want to pre-pay for the room or pay at the hotel.

Until now, online travel agencies have given guests one option on how to book each property: either pre-pay for the room, using the merchant model, or pay at the hotel, a bow to the commission or agency model.

OTAs generally make more money per booking using the merchant model, but the agency model can drive huge volumes because it is much simpler for hotels.

Expedia and Hotels.com pioneered the merchant model, which sees hotels offering net rates to the OTAs, but they have lost ground to Booking.com, largely in Europe, as it uses the agency model and allows travelers to book a room and delay payment until they arrive at the property.

But, now Expedia says new technology enables hoteliers and the OTA to give potential guests the choice of which way to pay.

So if you want to stay two weeks from now in a hotel such as the Marriott Marquis in Times Square, in theory you would be able to decide on Expedia.com whether you want to prepay or pay when you show up, and register at the front desk.

One Expedia employee’s LinkedIn profile characterizes the hybrid Traveler Preference program, which is being introduced across the Expedia, Hotels.com, and Venere brands as the “most significant release in Expedia history.”

And, a veteran hotel expert who previously worked at another OTA, says, “It looks like a very smart move to me. It will obviously take some time to get hotels to adopt the new model, but I see this as a purely tactical challenge since I think most hotels would be delighted to get more agency bookings.”

Expedia plays offense

For Expedia, which acquired Italy-based Venere in 2008 to counter an agency-model-based drubbing from Booking.com in Europe, but has failed to take back any lost ground, the hope is that the Traveler Preference program may finally be a way to slow Booking.com’s gains.

Dara Khosrowshahi, the Expedia CEO, told analysts during the company’s second quarter earnings announcement July 26 that the company wanted to develop “a product that was better” than the merchant and agency model as currently practiced.

Khosrowshahi said hotels have responded positively to the tests so far, and that if Expedia decides to introduce the program globally, it could lead to lower hotel margins “as well as our merchant hotel flow trending down over time.”

In other words, if Expedia’s Venere acquisition signaled that the merchant model wasn’t the end-all and be-all, the Traveler Preference program sends up a white flag of sorts, symbolizing the fact that Expedia won’t beat Priceline’s Booking.com at its own game and that something radically new must be attempted.

Khosrowshahi believes that the merchant model and agency model dichotomy at Expedia eventually will be no more.

“As we introduce further innovation into the global hotel business, you would expect the current bright line between agency model and the merchant model to blur over time,” Khosrowshahi said.

It remains to be seen how Expedia will handle the blending of these two models, and many questions remain.

Would consumers get a significant discount if they pre-pay at the time of booking?

And, with Hilton, Marriott, limited-service chain La Quinta and Spain’s Bercelo Hotels already signed up, will other global chains follow suit?

Will Expedia Traveler Preference be so compelling that Booking.com would have to respond in kind?

Or will Booking.com just keep growing undeterred?

Khosrowshahi noted that Expedia could pull back on the initiative at any point if it deemed necessary, but is clear that Expedia is intent on staking its future on the pre-pay/pay-later mashup.

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