Hotels and OTAs duke it out over customer acquisition

The distribution panel consisted of, from left: moderator Dirk Bakker, from Colliers International; Interstate Hotels' Carol Dodds; Trivago's Daniel Holl; Google's Ruairidh Roberts; and CMS law firm's Louise Wallace. (Distribution Panel at IHIF)

BERLIN, Germany — In the constant contest for customers, battle lines continue to be drawn between hotels that have to fill beds and the prevalent, long-armed online travel agencies that are a continued, but costly, provider of customers.

Discussion pivoted on distribution during a panel session at the International Hotel Investment Forum, here at the InterContinental Berlin. Who, then, owns the customer? The debate ensued.

"We are all taking the battle seriously over the retention of the customer," said Carol Dodds, VP of commercial for Interstate Hotels & Resorts. The company, which manages more than 400 hotels globally, receives a broad range of OTA contribution, but it varies per market, Dodds said. "The core brand is winning the mid-week battle," she continued. "Where the brand struggles is over leisure demand times. When customers are looking for an experience and there is more selection, then they go with third parties."

Dodds did say that hotel member rates, usually 10-percent off the best available rate if you are a member of that hotel company's loyalty program, are driving more direct business, but that the challenge is retaining repeat business. 

In the sea of search for hotels, one this is clear: booking options abound. Whether it is direct with the hotel, through an intermediary, or through a wholesaler. Each entity wants and needs customers to use their channel.

"Customers have learned that it's about how to find a really good rate," said Daniel Holl, head of global hotel sales at metasearch site Trivago. "Our biggest challenge is to personalize the search and enable customers to find a suitable hotel based off their preferences."

In the realm of digital travel bookings, Google is the 800-pound elephant in the room. But according to Ruairidh Roberts, industry head for travel at Google, the search behemoth has no intention of becoming an OTA. "We don't fulfill transactions and have no ambition to fulfill holidays," he said. Instead, Roberts underscored platforms like Google Trips as a way Google inserts itself into the travel conversation, by offering consumers inspiration.

Stakes Are High

Clearly, customer acquisition costs are high, noted Dodds, and OTAs, as Holl pointed out, are, indeed, expensive to use. True as that may be, OTAs deliver hotels customers, and for smaller hotels, who can't afford to spend much money on marketing and a distribution strategy, OTAs can be that stopgap. Still, the idea of handing over a hotel's complete inventory to an OTA is foolhardy, argued Trivago's Holl. "If I was hotelier, I wouldn't give it all to OTAs. You have to diversify and figure out which distribution strategy works best. Find the best technique and cost to fill up beds."

But OTAs are not about to sit back and release total control of its customers to hotels. Launching their own loyalty programs, like Expedia Rewards, is a strategy toward achieving that, even if the likes of Expedia and don't own any hotels. "They don't have the product to play with," Roberts said, then followed that statement up by cryptically saying that could change in the future.

He said for a small hotel, things are very difficult, but good old word of mouth is still the best bet. When you are small independent hotel, how do you get the eyeballs?" Roberts said. "It's so hard to get through. You have to build the OTAs into your price plan."

And while hotels continue to use OTAs to deliver guests, many owners are asking their brands to do more, and if they can't, they'll end their relationship. Louise Wallace, a partner at law firm CMS, said she and her firm recently negotiated a franchise agreement with a termination provision in it if the brand didn’t deliver a certain percentage of direct business. Is this the wave of the future?

Alternative Plays

As Airbnb becomes more professionalized as a travel company, the question continues to be: Is it making a dent in traditional hotel lodging? Though still smaller as a percentage of booked room nights to hotels, it is driving share and stealing some traditional hotel customers away, to be sure. As Airbnb looks to compete with Expedia and, which Airbnb's CEO Brian Chesky said are its two biggest competitors, Google's Roberts quipped that "Airbnb is just an OTA—are they not?" 

He continued, "Obviously there is the inevitability to list hotels on Airbnb." That is already happening, especially in the boutique hotel space, and with Airbnb recently signing a deal with Siteminder, there will be more. Siteminder is a cloud-based distribution platform that will act as a channel manager to ensure hotels will be included alongside Airbnb hosts.

SiteMinder’s distribution platform consists of more than 28,000 hotels. Hotels, particularly boutique properties and bed-and-breakfasts, have listed rooms on Airbnb for some time now, but these were all independent efforts. With this new partnership, Airbnb is showing an ambition to handle more hotel inventory. 

Airbnb is also an experience, which Holl said is what's trending right now, calling such brands as citizenM a "great place to hang out."

"Airbnb came in as an anti-establishment product," Dodds said. "It dominates the authentic. But some [travelers] want assurances of a strong brand and the security of that."