In the past few years, global online travel giants Expedia Inc. and the Priceline Group have been digger deeper into the hotel industry with a slew of new services mostly for small and independent properties.
In 2015, Priceline created a new unit called BookingSuite with paid services to help hoteliers manage their businesses. Soon after Expedia began offering services, including promises of more insights into how to set rates and maximize online distribution.
Now, we have another sign of just how interested online travel businesses are in pursuing this strategy of deepening their ties with hotel partners. Expedia-backed hotel-search company Trivago said it has formally reorganized its operations to create a subsidiary that focuses on the marketing, sales, and maintenance of its business software services and technologies that are used by hotels to improve booking.
It’s the first online travel player to commit to this type of initiative by formally creating a subsidiary. The company won’t see any change to its financial reporting, though.
Trivago Hotel Relations is a fully consolidated subsidiary, but its earnings and revenue won’t be broken out, the company said.
While Trivago provides the technology, Trivago Hotel Relations will provide the salespeople to entice hoteliers to use its supplementary tools, the company said.
Broader Business-to-business trend
The big picture trend here is that the global players, including Trivago’s parent Expedia and its arch-rival Priceline Group, are increasingly experimenting with enterprise software services for hotels. While these new business lines often generate incremental revenue, the key strategic goal is to increase the interaction each brand has with hoteliers in the hope that increased engagement leads to further business overall.
These services may be more effective in hotel markets outside of chain-dominated North America. In Europe, for instance, a majority of hotels are independently owned.
But lately, the large online players have dedicated more of their engineering and user- experience resources at building business-to-business tools that are useful to hotel partners.
Trivago’s move also plays off another larger trend, which is that hotels are increasingly looking to metasearch as a way to drive so-called direct bookings and reduce their dependency on online travel agencies, as Skift Research has reported. Hotels don’t like how online travel agencies tend to charge high commissions and control customers’ booking experiences.
Tools Come at a Cost
While the hotel-search company’s basic extranet — a metasearch marketing platform called Trivago Hotel Manager — is free, its other three services are paid, namely: an advertising tool called Rate Connect, a property management system that also offers a booking engine for a hotel’s own website, and analytical tools to help with rate setting.
There are different paying modules according to each property. For example, Trivago Pro has a yearly cost, while Rate Connect works on a cost per click model. Base7 is a subscription service whose cost varies by the number of rooms at the property.
Trivago’s new subsidiary will focus on sales while engineers will “sit” in tech-focused Trivago’s core business unit. The dedicated sales subsidiary intends to create its own identity, workplace culture, and employer branding to recruit salespeople.
Stipe Dikic and Benedikt Schreinemacher, who have been in charge of Trivago’s hotel relations team for around two years, will run the new division. Johannes Thomas, managing director and chief revenue officer at Trivago, will oversee the new business unit.
Trivago’s effort to build up a rapport with hoteliers brings it in direct competition with Priceline Group’s BookingSuite, which has continued to develop, and Expedia’s extranet-based Partner Central tools, which has been in expansion mode.
All of these businesses must sell into a tough market: Many hotels are suspicious of the online travel players and persuading them to share even more data and to spend even more money on their relationship with these companies will not be always be a straightforward sale.
Trivago could use the additional subscription-style revenue and hotelier commitment to its platform to meet the ambitious expectations of its major shareholder Expedia, other shareholders, as well as investment analysts.
Last month, a revenue shortfall tied to the way Trivago works with advertisers kicked in faster than expected, and the hotel-search company had to revise downward its forecast for revenue and profit for the second half of the year.
That said, Trivago still expects its revenue growth will be 40 percent higher in 2017 than last year.