What do hospitality executives think of the current hotel distribution landscape, and the emergence of Google Hotels and Airbnb? And would they ever consider walking away entirely from a particular online travel agency partner, as Hyatt threatened to do last summer?
Skift discussed these topics with several hospitality executives attending the Americas Lodging Investment Summit last month in Los Angeles, and what they had to say may or may not surprise you.
Generally, these hotel executives seemed to welcome the idea of other players coming into the distribution space and challenging the Priceline Group and Expedia duopoly. Some also expressed concerns about the growing importance and influence of Google and Airbnb.
And while direct booking pushes were a major point of focus for hoteliers in 2016 and 2017 — and to some extent still are, given Wyndham’s news this week — the executives have certainly softened their stances when speaking about their companies’ relationships with third-party booking channels. Today, it feels like the hotels have reached an equilibrium with the online travel agencies, with both sides acknowledging that they need one another to succeed.
Still, that won’t stop others, namely Google and Airbnb, from trying to get their share of the hotel booking market, and smart hoteliers are keeping an eye on those companies’ efforts.
On Leaving the Online Travel Agencies All Together
Asked whether his company would consider pulling a similar move to what Hyatt did last year by threatening to leave Expedia, Wyndham Hotel Group CEO Geoff Ballotti said, “I don’t see that happening. Expedia has been a great partner for our franchisees. We built a direct connect to Expedia and we have seen that relationship continue to build and flourish. We have been able to bring, because of that direct connect, the commission to our franchisees down.”
Jay Stein, Dream Hotel Group CEO, on the other hand, has had experience abandoning an online travel agency.
“We left Expedia in early 2006 or, 2007,” Stein said, adding that this only applied to the group’s seven or eight hotels in New York.
“We went back about three years later after we got them to be more reasonable,” Stein said. “We were a small group and they wanted to take us up to that sublime [commission] number of 25 percent, and we said, ‘Thank you, we’re out.’
Dream Hotel Group contracted instead with then-little-known Booking.com, which charged it commissions of 13 or 14 percent, and kept that at reasonable numbers even after Dream’s volumes through Booking.com climbed, Stein said.
“Then they became a major player and they raised [our rates] up, but they always left us at a reasonable number,” he said. “We were smart that we were able to negotiate through those waters, but we took a chance, and then we went back with Expedia and they were more reasonable. But I think it’s difficult.”
It’s nearly impossible for hotels to compete with the online travel agencies on keyword spending and digital marketing in major markets like New York and Miami, Stein said.
“The OTAs [online travel agencies] are not as strong in the West Coast,” he said. “They just don’t seem to spend as much on the keywords like they do in two cities, particularly New York and Miami, where they’re insanely aggressive, to the point where I think they lose money on the customer but they’re willing to [spend] just to own that customer.”
Stein said Dream Hotel Group has tested using Airbnb as a distribution platform. “We’re open to anything. I think we did put one of our guest house suites in one of our properties [on Airbnb] as a test, and it wasn’t spectacular,” Stein said. “I would prefer not to [list hotels on Airbnb], but I’m open to anything. It’s genius what [Airbnb has] done, and I think as the playing field is becoming more and more fair and insurances and safety and the taxes and all the other things [are becoming required] … they’re conforming to being what’s more like a business than they were initially.”
It’s Only Natural for Airbnb to Get Into Hotels
When asked for his thoughts about Airbnb actively trying to get more hotels to advertise their rooms on its platform, Best Western CEO David Kong said, “I think that if I were them that’s what I would do.”
“It’s like Amazon. Once you have a pretty hefty user base you can branch into all kinds of things. They have such a high penetration in Amazon Prime that they can sell anything, so why limit yourself? I think with Airbnb having so much traction they have a lot of people going to their website every day and looking for accommodation, it’s only a natural progression for them to get into hotel stays. Why not monetize that and grow it even more? If they make commissions from renting hotel rooms they have that much more money to spend on technology, on marketing, on support. If I were them, that’s what I would do.”
When it comes to Google, Kong said he thinks it’s inevitable that Google will try to monetize Google Hotels as much as it possibly can, but the truth is that the hotel industry finds itself in a tough situation no matter what.
“I think Google is going to do whatever it can to monetize the search engine even more,” Kong said. “Already just in the last few years the amount of money that we’ve had to spend with Google has doubled and tripled. It’s because they create all these advertising opportunities. The OTAs are on there, and if the OTAs are on there, they’ll basically hijack your traffic. People who type in ‘Best Western,’ because of the way Google displays the ads, they don’t realize that they’re booking through an OTA because Google has created all these advertising opportunities.
He said Google will continue with these practices because they are “a winning formula. The brands are forced to keep up with the OTAs and advertising and these new opportunities because otherwise their traffic would be hijacked so it’s just going to continue with no end in sight.”
Between Google and the online travel agencies, hotels find themselves in a tough spot, Kong said.
“How are you going to avoid that?” Kong asked. “You can’t take action against OTAs because you have an agreement with them to market and sell your rooms so they’re going to advertise. You can’t really do anything with Google because it’s their domain, so you’re stuck. If I were Google I would continue to create these opportunities and monetize the search engine.”
Hotels, he said, are stuck between a rock and a hard place, so to speak. “Unfortunately, for the hotels it’s a sad situation. You spend money on advertising or you have your traffic hijacked. Which one is going to cost you more money in the long run?”
In some respects, hotels have to match the online travel agencies and compete, Kong said.
“And once the traffic is hijacked, you’ve got to think about the consequences of that,” he said. It’s not just the cost of paying commission because when they end up in those OTA websites, they’re not just going to see the Best Western hotels they are searching for. They’re going to see all the hotels in that area. It’s not only the traffic being hijacked and you end up paying commission for that booking. I think that 80 percent of the time they book some other competitor’s hotels. So, you are almost compelled or required to advertise whenever Google creates a new opportunity, because you’ve got to match what the OTAs do.”
As for Best Western’s relationship with online travel agencies, Kong said, “We like to think that we have pretty good relationships with the OTAs, but to continue that relationship, both sides have to win. You can’t short change the opponent. I think at this present time, we have a good thing going. We’ve each expressed what we’d like to achieve. We reached a compromise and so our relationship is good. It’s not one sided, but if it becomes one sided we’ll have to think about our options. But the good thing is that in today’s world, thank God, there’s a duopoly, and it’s not a monopoly.”
And if, Google and Airbnb were to get more involved in hotel distribution, Kong said, “We can see leverage there.”
Anticipating Google’s Next Moves
Pat Pacious, CEO of Choice Hotels, said that it’ll be interesting to see other players get more involved in hotel distribution, especially since it is so dominated by just two players: Priceline and Expedia.
“I do think with all the consolidation that’s going on, on the OTA front you are looking at how it used to be multiple OTAs and now you’re really down to just two so they’re not that differentiated at all,” Pacious said. He added that in Choice Hotels’ last two negotiations with the online travel agencies, “We’ve been able to move them in a way that’s beneficial to our owners.”
And when asked about the prospect of Google or Airbnb getting bolder in hotel distribution, he said, “It will be interesting to see how [they do it] because Google has played in the hotel space in some pretty interesting ways. They have pretty much stayed on the search side of the house as opposed to getting into the booking piece of it, but now they’re making some in roads on that front. Just like we do with everything, we will probably test and learn and see if we go down that path, if that is the right thing for our consumers, if it is the right thing for our owners.”
He expects the hotel distribution landscape to keep evolving.
“With regard to Airbnb, who knows?” Pacious said. “They’ve obviously created a great business in the sharing economy. They may be looking for different additional paths for growth. We don’t see them as an impact on our business because of the length of stay that they have as opposed to the seven days or just for the two nights. The places where Airbnb is most successful is in those urban and resort markets, and they are not places where we have the bulk of our brands. We don’t really see a significant impact from Airbnb on our business.”
Learning From the Competition
Mark Keiser, chief development officer of SH Group, said that it’s important for hotels like his to be partners with companies like Google and the online travel agencies.
“I do think that there are alternative models. They hold disruptive technologies and concepts that are coming to travel and other spaces that will always have an impact positive and negative on the traditional hotel companies. If you have a business, if you have a brand that resonates, then that’s the best defense against these new technologies. If you pivot to be a partner with them, even better,” Keiser said.
He noted that an upcoming 1 Hotel property in Sunnyvale, California, will be located near Google’s main campus in Mountain View. “We’re going to be the closest hotel to Google’s campus and so we’re talking with them about what they need as a corporate consumer, with their customers coming in to meet with them, what they want … If you’re having that kind of dialogue and a flexibility and willingness to change your own business model to reflect the current market conditions then that’s the best way to position yourself and secure your success, versus mocking it and saying, ‘Well, we’re anti-Airbnb.'”
Keiser said it’s smart to have a good relationship with the online travel agencies.
“We have a great relationship with the online travel agencies because we know that they have significantly more brand equity than we do at this moment in time,” Keiser said. “They spend tens of millions of dollars marketing Trivago. Every time I turn on the television there’s an advertisement. For us to say we’re not going to have a presence there — that we’re not going to treat them as a partner — would be foolish.”
It’s a different situation for a company like a Marriott, however. “The Marriotts, they can draw a fence around and say, ‘We’re going to take a position counter to this because we have such a big infrastructure and they’re taking our business off of our websites.’ For the millions of people who have never heard of 1Hotels yet, finding us on Expedia is a great way for us to generate new customers. If we didn’t treat them as a great partner then we’d be shortsighted.”
Scale Still Matters
To Keiser’s point, the scale that a company like Marriott possesses certainly helps when it comes to negotiating commission rates with the online travel agencies.
Tony Capuano, executive vice president and global chief development officer at Marriott said, “You’ve heard Arne [Sorenson, CEO of Marriott] talk in the afterglow of the Starwood acquisition that our negotiations with Expedia were an important reminder to us about the power of scale. And I think that same sort of notion, as you see a Google, or an Amazon, or an Apple, or anyone else move more aggressively into the travel space, we think we’ll be well-positioned, given our scale. But, listen, they’re big, smart companies and they’ve got lots of fire power. And I think they can be performance enhancers for our hotels. We just want to have a reasonable seat at the table. And I think our scale provides that.”
The More Options, the Better
Brenna Halliday, vice president of strategic insight for Host Hotels, would welcome distribution alternatives.
“I think that the more distribution options there are, ultimately, the better it is for us as owners,” said Brenna Halliday, vice president of strategic insight for Host Hotels. “I would expect Airbnb to continue to diversify their platform offerings in the future, which could include traditional hotels. So, when you talk about more options for where you can access distribution, you start to talk about upping the competition among those channels, and possibly lowering commissions, which is a good thing for us. At the end of the day, we want our managers to own the customer, but there are cases where it makes sense to capture that guest who wouldn’t otherwise book direct.”