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In our latest report, Skift Research takes a deep dive into hotel distribution channels and the outlook for hoteliers to drive direct bookings in 2021 and beyond.

Built around a proprietary survey of hospitality operators, we are able to get a look into how many bookings each of nine different distribution channels deliver across the industry as well as the cost for each method.

The below excerpt focuses on Skift Research’s analysis of how hotel distribution channels had been evolving prior to Covid-19. Get the full report here to stay ahead of this trend.

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Direct Booking’s Evolution from 2017 – 2019

Prior to Covid, what stood out was the heavy reliance of the hospitality industry on third-party bookings. Despite years of hoteliers pushing direct booking initiatives, more than half of sales still come from indirect channels. In fact, in 2019 the largest single source of hotel bookings in aggregate were online travel agencies, accounting for a third of sales.

Skift Research conducted a similar study in 2017 and we can compare this with our 2019 data to see how the hotel industry had been evolving prior to Covid-19. What immediately stands out is that the direct channel actually fell in aggregate as a source of bookings. This comes as a shock given that the period from 2017-2019 was characterized by hoteliers aggressively pushing direct bookings and investing in the tech infrastructure to support that sales process.

Looking a bit closer into the numbers, we can start to see some nuance and perhaps understand what appears to have happened. The many highly touted direct initiatives primarily drove guests to book online. And these seem to have worked as intended, with unpaid digital direct seeing the largest share increase of any single distribution channel, up eight percentage points to 22 percent of bookings in 2019 from 15 percent in 2017.

However, this substantial increase in unpaid digital direct was offset by declines in other, primarily non-digital, channels leading to the overall rise in indirect bookings.

It is also notable that hotelier reliance on paid digital advertising channels declined by four percentage points. In previous research we have discussed how online travel agencies dominate bidding on Google and other travel metasearch sites. For instance, the Expedia Group and Booking Holdings regularly represent 75 percent-plus+\ of all business done by Trivago.

This leads to a “crowding out” effect that makes it hard for hoteliers, which necessarily always have smaller marketing budgets, to win online ad auctions at affordable prices. This in turn either bars hoteliers from participating or means that they generally receive poor returns on investments via performance marketing. In fact, 47 percent of hoteliers we surveyed said that they face challenges in effectively competing for online advertising against online booking sites and other industry players. This was the second most common first-party distribution challenge faced by all hoteliers surveyed.

While paid digital’s booking share fell four points, online travel agencies rose by six points. It would seem then for all intents and purposes these shifts offset each other and many hoteliers effectively outsourced their online advertising budgets to the online travel agencies.

Finally, we note that two categories that are often predicted to disappear — traditional travel agents and wholesalers including GDSs and bedbanks — both managed to maintain their booking share. Reports of these businesses’ demise continue to be exaggerated.

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This is the latest in a series of research reports, analyst sessions, and data sheets aimed at analyzing the fault lines of disruption in travel. These reports are intended for the busy travel industry decision-maker. Tap into the opinions and insights of our seasoned network of staffers and contributors. Over 200 hours of desk research, data collection, and/or analysis goes into each report.

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Photo Credit: Direct distribution remains the most important battleground in the hotel industry John Stavely / Flickr