Nothing helps building a fruitful online travel agency-hotel relationship for Expedia and Marriott than than the latter's wooing another suitor like TripAdvisor. All is fair in love and travel.
Given their respective power, when Marriott International and Expedia Inc. confronted one another in previous contract negotiations it was like two 800-pound gorillas squaring off.
But now that Expedia has acquired Travelocity, Orbitz, Trivago, and Wotif, it is like a 1,200-pound gorilla looming over a relatively dimunitive 800-pound rival.
That’s the view of Max Starkov, CEO of HeBS Digital, who argues that the main reason Marriott International agreed to participate in TripAdvisor Instant Booking, which will enable consumers to book Marriott properties on TripAdvisor, is to give Marriott leverage against Expedia in contract negotiations in light of all the industry consolidation.
Sure, Marriott will likely pay TripAdvisor lower commissions than it generally pays Expedia and Booking.com, and that’s a factor in the hotel chain’s decision to participate in TripAdvisor Instant Booking. But gaining increased clout when bargaining with Expedia was Marriott’s prime motivation, argues Starkov, who presented his views during a UBS expert conference call for institutional clients October 1. Skift obtained a transcript of the call.
“I mean in the past when Marriott and Expedia sit in the same room and negotiate, these are two 800-pound gorillas negotiating,” Starkov said. “Now when Marriott sits with Expedia, one is a 1,200-pound gorilla, the other one is still an 800-pound gorilla.
“And that’s why Marriott needed another leverage — which in this case is TripAdvisor — and so when they sit with Expedia and say, ‘By the way guys, of course we want to lower your commission because do you know that our commissions with TripAdvisor, which is the largest travel website in the world, and we’re seeing tremendous results from our participation in Instant Booking.'”
Starkov admitted that he doesn’t know for sure the precise commission amount Marriott pays to Expedia or TripAdvisor but he argues that the point remains the same.
“‘Our commissions stay less than 10 percent [with TripAdvisor]. So why would we pay you 14 percent? Why?,'” says Starkov, portraying an imagined conversation between Marriott and Expedia representatives during negotiations. “That’s why they [Marriott] joined [TripAdvisor Instant Booking]. No other reason.”
Starkov estimates that major chains such as Marriott, Hilton, and Starwood pay Expedia commissions ranging from 13.5 to 15 percent, and they pay Booking.com 12 to 14 percent.
Independent hotels, he says, pay a lot more: 25 percent to Expedia and about 18 percent to Booking.com.
Marriott is believed to have renewed its most recent contract with Expedia at the end of 2011 or the beginning of 2012. At the time Marriott officials said they only got some 3 percent of their bookings from online travel agencies, although this figure seems low.
There hasn’t been much uttered publicly about when the next Expedia-Marriott round of contract negotiations would come up.
Expedia and Marriott didn’t respond to request for comments about Starkov’s statements.
Marriott International, with its more than 4,300 properties and 19 brands, has the power to negotiate commissions from online travel agencies, as well as TripAdvisor and Google, that are lower than independents and smaller brands would have to pay. Independent hotels would have to calculate whether paying commissions to TripAdvisor or Google would bring a larger return on investment than bidding in their cost-per-click metasearch and advertising products.
Starkov argues that TripAdvisor Instant Booking is generally “more expensive” for independent hotels than bidding for ad placements in TripAdvisor’s metasearch product. He says TripAdvisor’s Instant Booking commission “for all practical purposes” is 15 percent for properties that want to be featured in results half of the time while CPC ads “basically translate” into commissions of 5-8 percent.
In addition to Marriott, other chains participating in TripAdvisor Instant Booking include Accor, Best Western, Mandarin Oriental, Choice Hotels, Carlson Rezidor Hotels, and Preferred Hotels & Resorts. Hilton Worldwide and InterContinental Hotels Group are notable holdouts.
Starkov also believes that the just-beginning Book on Google feature, which enables consumers to book hotels in Google search, maps and Google+, won’t become a legitimate competitor to online travel agencies because it is a “sideshow” for Google.
Google has never advertised its hotel and flight products because Google doesn’t want to alienate some of its biggest advertisers, namely the Priceline Group and Expedia.
Photo credit: The Book on TripAdvisor option for the New York Marriott Marquis is handled by Getaroom.com as shown above but soon Marriott will be processing these bookings on TripAdvisor. Frame