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Expedia Overturns Hotel Business Model With Introduction of Bidding for Listings

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Skift Take

Expedia is upsetting the proverbial apple cart in introducing hotels bidding against one another for prime placement in Expedia’s search results. It’s a bold move that could have a far-reaching impact across the online travel agency and hotel industries.

— Dennis Schaal

In what may ultimately develop into a massive change in the way online travel agencies and hotels do business with one another, Expedia Inc. has quietly introduced changes in the way hotel properties make it to the top of the page on brands such as Expedia.com and Hotels.com.

Although it hasn’t been officially launched or widely publicized, Expedia’s market managers began offering hotels the ability to bid their way to the top of Expedia’s sort order of listings. [Expedia CEO Dara Khosrowshahi discusses the new dynamic pricing program beginning at the 52-second mark in a CNBC video February 11 that’s embedded below.]

In an interview with Skift February 10, Expedia Inc. CFO Mark Okerstrom described Expedia’s new Accelerator program for hotels, a plan that turns Expedia’s search results’ pages into a “marketplace” and has hotels competing against one another for bragging rights in Expedia’s listings.

The placement on a page is all-important in driving hotel bookings.

“We are also offering the opportunity for hotels to augment that quality nature of their listing with incremental economics to help give them a little bit of a boost,” Okerstrom says. “It is a program we call Accelerator. And so we just transitioned the model to one of much more of a marketplace. So I think we will leave it to the various hotel companies to dictate for themselves how they use our marketplace and we would encourage them to do it in a way that maximizes what’s best for them.”

Okerstrom says the transition in Expedia’s hotel business model has been under way for a year. The basics of the Accelerator program were finalized in the fourth quarter.

“The best thing about it is that for our consumers you’ve got a huge selection of hotels,” Okerstrom says. “And we’re confident that you can find a hotel for the right price and the right room type and availability that suits them [consumers] well.”

Metasearch-like Bidding

Details are scant about precisely how the program works but it involves properties being able to bid for placement in various slots on the page. In a way, it resembles metasearch, where hotels bid on a cost per click basis although the Expedia Accelerator program isn’t necessarily based on clicks.

In fact, an Expedia spokesperson says the bidding is “compensation-based” — i.e. the “cost-per sale” — and hoteliers can turn it on and off during the day.

Okerstrom explained it in the following way after we asked him about the weakening of rate parity in Europe and hotels beginning to offer lower rates online for their loyalty program members than they are offering to online travel agencies such as Expedia and Booking.com.

“I think it is something that we have to some extent catalyzed,” Okerstom says. “We have transitioned our business over the course of this last year and we are going to continue to transition in 2016 to much more of a marketplace. You know a marketplace where hotels can compete against the right people – not us – compete against each other for the vast amount of traffic and bookings that our booking platforms and fantastic brands around the world provide.”

Getting to the top of Expedia hotel-page listings isn’t all about the economics offered as other factors are at play, too.

“And the hotels that ultimately are successful in getting the maximum exposure to our consumers generally do a few things,” Okerstrom says. “One is they provide our customers great rates and they also provide them great availability — rooms at important peak times. When we do that consumers click on them and they book on them and the way that our marketplace works is when that consumers see something they like and when consumers vote for a hotel with their bookings they rise up in the sort order and those hotels that do not offer an attractive product generally suffer.”

Customer satisfaction post-stay, as captured in Net Promoter Scores, also play a role in the algorithm that determines where a hotel is positioned on the page.

Encouraging Results So Far

Expedia CEO Dara Khosrowshahi addressed the Accelerator program during the company’s fourth quarter and full-year 2015 earnings call February 10, saying the program is in its very early stages in a limited number of markets. Hotel partners that are participating are “pretty darned happy,” Khosrowshahi claimed, adding that the signs are “encouraging.”

Khosrowshahi said hotels chains and independents can compete for share on Expedia sites by bidding in the marketplace.

He said Expedia’s recent strategy has been to lower commissions for hotels so there are no impediments to working with Expedia.

The nature of such marketplaces is that they will grow over time as more players participate and the bidding becomes more competitive, Khosrowshahi said, adding that he doesn’t expect Accelerator to have much financial impact in 2016.

Understanding how hotel properties see their listings rise and fall in online travel agency listings has always been shrouded in mystery. For Expedia, the placement revolved around rates, availability, the quality of reviews, whether the property participated in Expedia vacation packages, the popularity of the property, the distance from consumer’s sought-after location and the economics, according to a 2010 Hotel News Now story.

Expedia’s Accelerator program, if it is successful and becomes an industry standard, could dramatically change the economics of the relationship between hotels and online travel agencies.

Here’s the CNBC interview with Khosrowshahi. He’s asked about and discusses the new Accelerator program, which he refers to as dynamic pricing, beginning at around the 52-second mark of the video:

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