Exclusive: Major Hotel Chain Won Financial Protections in TripAdvisor Instant Booking

TripAdvisor Instant Booking may turn out to be a hotel-friendly channel after all.

In other words, it appears as though it is trending toward not being merely a metasearch replay, which saw online travel agencies such as Booking.com and Expedia, with their vast resources and comprehensive hotel inventory, dominating the channel.

To date, in addition to a landmark partnership with the Priceline Group, TripAdvisor has notched Instant Booking partnerships with Accor, Best Western International, Carlson Rezidor, Choice Hotels, Hyatt Hotels, Langham Hospitality, La Quinta Inns & Suites, Mandarin Oriental, Marriott International, Starwood Hotels & Resorts, and Wyndham Worldwide. Hilton Worldwide and InterContinental Hotels Group are two notable holdouts.

Although Booking.com is scooping up bookings on TripAdvisor for many hotels, such as brands that belong to InterContinental Hotels Group and Hilton Worldwide, which have not partnered with TripAdvisor, and occasionally for properties that have (see details below), one chain that is a TripAdvisor Instant Booking partner told me that it negotiated protections with TripAdvisor that safeguard the chain’s KPIs (key performance indicators) within TripAdvisor Instant Booking and metasearch.

If Booking.com or another online travel agency occasionally gets a TripAdvisor Instant Booking for one of its properties, the chain isn’t overly concerned.

“We agreed on success metrics,” the official said of the chain and TripAdvisor. “We are not freaking out.”

If one major chain negotiated such protections with TripAdvisor, it stands to reason that some of the others did, as well.

If TripAdvisor Instant Booking, which is now live in the U.S., UK, Australia, Canada, India, Ireland, Malaysia, New Zealand, Philippines, Singapore and South Africa, gains consumer traction, then the chains at risk would appear to be Hilton Worldwide and InterContinental Hotels Group because they don’t participate in TripAdvisor Instant Booking and could see an adverse impact on their share and return on investment.

In a few random searches of TripAdvisor Instant Booking for a one-night stay February 22, it was easy to find online travel agencies such as Booking.com, Getaroom and TripAdvisor’s own Tingo, all of which are Instant Booking partners, handling the Instant Booking for a property even though the relevant hotel is a TripAdvisor booking partner too.

TripAdvisor Instant Booking Is A Commission Auction

How does Instant Booking work? According to a PiperJaffray research note on TripAdvisor, written by Michael J. Olson and Samuel J. Kemp, hoteliers and online travel agencies for the most part don’t pay TripAdvisor a pre-negotiated commission to win the right to handle the booking but bid a commission rate through a competitive auction.

Pre-negotiated commissions come into play, PiperJaffray states, when there is only one supplier partner for that specific property.

“It should be noted that near-term, there are scenarios where there is only one supply partner available (e.g. Priceline is the sole supplier able to fulfill a booking for a remote BnB in Romania) – in these cases, we believe that there is a pre-negotiated floor rate that each supplier has with TripAdvisor,” PiperJaffray states. “This prevents these suppliers from throwing in a cheap commission rate as there are no other competitors for the booking.”

But that would be the exception as TripAdvisor’s Instant Booking auction appears to be a competitive one — and that fight to be the booking partner would only get more intense if Expedia joins the program, as some expect, within six months or so.

So it is easy to search TripAdvisor and find hotels that are losing out to online travel agencies in the competition to handle the Instant Booking on TripAdvisor for their own properties. Perhaps the online travel agencies are outbidding the hotels in the Instant Booking auction or maybe it is because the online travel agencies are offering lower rates than the hotels themselves.

For example, consider the screenshot below from TripAdvisor for a February 22 stay at the New York Marriott East Side. There is a Book on TripAdvisor option for $237 per night, and alternatives to book outside of TripAdvisor on Travelocity for $237, Marriott for $246, and Expedia for $237. Marriott, of course, is a TripAdvisor Instant Booking partner.

if the traveler chose the $237 Book on TripAdvisor option for a February 22 stay at the New York Marriott East Side, then they’d see that Booking.com was TripAdvisor’s Instant Booking partner. The $237 nonrefundable rate is for for a double bed. (The $246 Marriott prepaid rate above was for a king room. It isn’t an Instant Booking link; users would have to navigate to Marriott.com to book the room.)

Similarly, wth just a few searches on TripAdvisor, I found TripAdvisor’s own Tingo booking site handling the Instant Booking reservation on TripAdvisor at the Novotel Marseille Centre Prado Velodrome for a February 22 stay even though AccorHotels, Novotel’s parent, is an Instant Booking partner.

Likewise, online travel agency Getaroom was TripAdvisor’s selected Instant Booking partner for a February 22 stay at Marriott’s Canyon Villas Desert Ridge even though Marriott is a TripAdvisor Instant Booking partner.

In all of the three cases I cited where an online travel agency was handling the TripAdvisor Instant Booking instead of a hotel partner, the online travel agency site was offering a lower rate than the hotel.

TripAdvisor won’t say how the booking partner is determined but some of the likely factors would include the rate; the commission offered in the auction; the quality of the hotel description; including photos and language, and the partner’s reputation. It also isn’t known whether any of the partner agreements with TripAdvisor have preferential aspects.

Hotels Getting Displaced in a Minority of Instances

To be sure, TripAdvisor’s hotel partners only appear to be getting outbid — or deselected for other reasons — in Instant Booking for their own properties in a minority of cases.

For example, in searching TripAdvisor for Manhattan hotels for a February 22 stay, among the first 20 listings I only saw two instances out of a possible 11 where online travel agencies (Booking.com and Getaroom.com) were handling hotel bookings when an implemented hotel Instant Booking partner could have otherwise been the selected partner.

The Booking.com example was for the above-cited New York Marriott East Side. Getaroom was handling the Instant Booking for the Hyatt Times Square New York although, highlighting the dynamic nature of these things, the partnership reverted to Hyatt when Getaroom’s lower rate ($219 for a standard room versus Hyatt’s $244 for two queen beds) was no longer available.

This leakage of hotel bookings to online travel agencies appears to be less impactful if major chains that are TripAdvisor Instant Booking partners indeed have protections built in.

It is for the brands that are unprotected, including DoubleTree, Millenium and Holiday Inn, that could feel the heat — if TripAdvisor Instant Booking becomes a force.

Will Instant Booking Be Successful for TripAdvisor?

A key investor concern and issue for TripAdvisor is whether the economics of Instant Booking will grow to equal those of TripAdvisor’s metasearch or even surpass it. We’ll find out more about this issue when TripAdvisor reports its fourth quarter earnings on February 11.

On November 5, TripAdvisor reported that during the third quarter, its revenue per hotel shopper in Instant Booking was lower than its older metasearch feature, which is based on clicks rather than booking commissions.

“Currently our instant booking feature is monetizing at a lower revenue per hotel shopper rate compared to our metasearch feature,” TripAdvisor stated. “While we expect to close this monetization gap, primarily by continuing to streamline our booking path to enhance user experience, persistently promoting the TripAdvisor brand as the place to ‘plan, compare and book’ and continuing to seek partners with strong branding and supply channels, there is no guarantee that these initiatives will ultimately be successful and, if not, our click-based advertising revenue may be materially adversely affected.”

One concern is that TripAdvisor may have given up too much in the form of lower commissions than the online travel agencies negotiate with hotels in order to entice hotels to sign on for TripAdvisor Instant Booking.

PiperJaffray believes that the hotel chains and Priceline negotiated deals with TripAdvisor that were “a couple of hundred basis points below historical metasearch monetization rates.”

The financial firm argues that investors who are bearish about TripAdvisor’s Instant Booking prospects are downplaying the competitive dynamics that will impact Instant Booking auctions.

“What is key is that supply and demand drive both auctions [Instant Booking and metasearch] — which means that, eventually, the commission rate paid in Instant Book will be at least at parity, if not higher than, the monetization rate seen in the metasearch auctions,” PiperJaffray states.

That’s the billion-dollar issue, of course.

PiperJaffray states: “We believe that as Expedia and the remaining hotel groups join the Instant Book platform — bringing the aggregate demand up to similar levels as in the metasearch auctions — that monetization rates will gradually rise, which should be a tailwind for [TripAdvisor] revenues in the 2H’16 and 2017.”