Skift broke the news last week that Amazon plans on entering the hotel-booking arena early next year.

This could mean that Amazon eventually helps upend the existing power relationships between Booking.com, Expedia and hotels around the world. On the other hand, Amazon could end up being a nonfactor, or land somewhere else along the spectrum.

It all depends on the nature of Amazon’s still-unarticulated ambitions as a hotel-booking power, its commitment to do the work, and one pesky little detail: How skilled Amazon would become at executing on its strategy to become a major player in the hotel industry.

Or perhaps Amazon is merely testing the waters to see if it can create a viable lodging business.

To be sure, Amazon brings substantial competitive advantages to the table. Amazon has one of the largest network of global websites in the world, and unlike websites such as those of Booking.com, Expedia and TripAdvisor, which might see leisure travelers researching trips two or three times a year, millions of consumers regularly engage with Amazon throughout the year, buying books, wine, Kindles and other electronics, games, car accessories, clothes and jewelry.

Amazon has that built-in audience already. Think of all it won’t have to spend on Google AdWords.

Amazon Prime Could Break Rate Parity

Amazon has at least 20 million members in Amazon Prime, which already offers all sorts of special deals from free shipping to streaming video, and can use Prime’s closed-group nature to offer special hotel deals that undercut pricing offered by online travel agencies, avoiding the current system that bars hotels from giving specific online travel agencies special rates.

When it comes to discounting, Amazon is renowned for low-balling the competition and offering pricing that undermines their margins while running in the red.

As it turns out, according to one of the hoteliers Skift spoke with, Amazon intends to use the merchant model that Expedia and Hotels.com used as a foundation for growth, but Amazon would entice hotels to sign up by taking a considerably lower margin, around 15%. Expedia’s usual is 25%.

As one analyst told Skift, “That’s an interesting FU to Expedia.”

Under this merchant model, Amazon would get a net rate from a hotel, and mark it up, taking its 15% margin. Travelers would prepay for the room, and Amazon would be the merchant of record.

Amazon also has tons of data for cross-selling its retail items, and would collect massive data about traveler intent that it could share, or not share, with hotels.

And with a market cap of $154 billion, Amazon could make major acquisitions to render itself an instant power in the lodging sector if it chose to go the mergers and acquisitions route.

It’s Late But It’s Early

Amazon, which would launch a hotel-booking service in the next month or two, is late in getting into the hotel game as the Priceline Group’s Booking.com has been at it for a decade and currently offers 553,773 properties, including 212,587 vacation rentals, around the world.

As the leading online seller of hotel rooms, the Priceline Group, of which Booking.com is the largest piece, moved 267.8 million room nights through the first three quarters of 2014.

Expedia Inc. is the number two player globally and top dog in the U.S., although Amsterdam-based Booking.com has been taking share in the U.S. in the last couple of years, showing there is still a substantial growth opportunity for Amazon and others even in the in the U.S. and more so abroad.

Ken Sena, head of Internet equity research at Evercore ISI, says Amazon “is a little bit late” in moving into travel, but it could still signal a trend that would be negative to the online travel agencies.

“Amazon alone is not necessarily a threat,” Sena says, but hoteliers may find they would have more choices of viable distribution partners with “Google getting smarter,” TripAdvisor getting aggressive in hotel metasearch and connecting more properties, and Facebook honing its advertising tech.

Oh, and then there’s always Apple with its multitude of travel patents.

Companies such as Buuteeq (acquired by the Priceline Group), Duetto, and Seekda are offering more connectivity and rate management solutions for hotels, Sena says.

“Amazon is coming into the space, and it isn’t oh-my-God, Amazon is here, and everyone should run,” Sena says.

But the emergence of new players “signals it is a lot easier to plug into supply,” Sena says. “We can generate demand for you.”

Sena says if Amazon can work out attractive economics for hotels — and taking only a 15% commission could be a signal of its intent — then hotels could consider investing in the Amazon channel.

Would Amazon Be the Enemy of the Hotels’ Enemy? 

Hotels are feeling under the gun, pressured by the combination of transaction fees, marketing costs paid to Google, Facebook, TripAdvisor, and other metasearch players, as well as the commissions they pay to online travel agencies. These costs are rising faster than revenue per available room, says Max Rayner, partner at hospitality and travel consultancy Hudson Crossing.

“A new entrant like Amazon might appear to add to the problem, but actually hoteliers would prefer to have a healthier mix of distribution options in order to have more bargaining power and ultimately lower rather than high and rising channel costs,” Rayner says. “So hoteliers’ reaction to Amazon is likely to be one of ‘the enemy of my enemy is my friend.’”

Still, if Amazon can entice members of Amazon Prime to be loyal to Amazon because of discounted hotel offers and cut into hotels’ own loyalty programs, that could be a big challenge for hotels and a reason not to go all-in on building up Amazon as a hotel-booking player.

Online Travel Agencies Should Pay Close Attention

Priceline Group CEO Darren Huston and his counterpart at Expedia Inc., Dara Khosrowshahi, likely slept very well last night despite the news that Amazon is readying a hotel offering, but they won’t get complacent either.

“Amazon’s rumored net rate discount of 15% with no questions asked is better than what Expedia has offered to many independents and will exert downward pressure on the size of discounts for merchants and the size of commissions for retail agencies if Amazon commits to this business and really scales it,” Rayner says.

And although Amazon apparently is initially striking direct relationships with hotels, Amazon “may soon look at wholesaler and bed bank rates,” Rayner says. “Those are far more deeply discounted than net rates and could make things truly interesting.”

Those relationships, too, could help Amazon scale the business faster than sending salespeople out to sign contracts hotel by hotel.

Amazon’s engaged audience is advantageous given the high costs of competing for hotel bookers in Google, Rayner says.

“Amazon has an advantage in any new vertical based on its large audience with heterogeneous reasons to visit repeatedly,” Rayner says. “In other words, unlike hotels it doesn’t have to be paying quite as much for a visiting/shopping audience.”

“That makes Amazon an inherently formidable booking brand, meaning a top of the funnel booking channel,” Rayner says. “The hotel chains and independent hotels are finding it increasingly expensive to compete for eyeballs at the top of the funnel with the massive marketing budgets of OTAs and some metas. They’ll welcome alternatives to rising pay-per-click costs as much as they’ll welcome downward pressure on commissions/net discount sizes.”

Hotels will have lots of time to figure out what Amazon is up to, whether it goes all-in on trying to be a power in hotel booking as it juggles its other numerous pursuits, and how the online retailer goes about its business.

Hotels would like viable alternatives to Expedia, Booking.com and TripAdvisor, and new entrants such as Amazon and others could one day help to change the competitive balance.

Photo Credit: Amazon CEO Jeff Bezos can afford to test out a challenge to the existing travel booking players. Gus Ruelas / Reuters