Phocuswright Panelists: Will OTA Struggles Lead to More Disruption for Hotels?

by Jason Q. Freed, Managing Editor | November 10, 2017

It was certainly an interesting week for online travel CEOs to be center stage.

The same week that the three largest online travel booking sites each released quarterly financials that fell far short of expectations and led their stock prices to tumble, leaders from Priceline, Expedia, TripAdvisor and others stepped on stage at the Phocuswright Conference in Hollywood, Fla., and opened themselves up for a smattering of questions.

With Airbnb increasing its share of the marketplace, hotel “book direct” campaigns proving effective and margins continuously being squeezed, the biggest question on everyone’s mind – as evidenced by a Reuters story from earlier in the week – was whether the run for intermediary booking sites is winding down.

HotelTonight CEO Sam Shank, whose own company is pivoting into a new business model, put it succinctly in a conversation with PhocusWire: “Are we at peak OTA? That’s certainly the chatter around here.”

So, has there been a structural shift in online travel booking that’s forcing the OTAs into new business models?

“There is no structural shift,” Priceline’s CEO Glen Fogel told Phocuswright’s senior VP of Research Doug Quinby. “The way anybody should look at our industry: We have so much ramp left, it’s so exciting the things we can still accomplish.

“I know there’s still tremendous opportunity for people to come on who are not currently getting their accommodations through an online and digital service, that’s one,” Fogel continued. “Two, I believe there are so many things we can do that will make that process better than it is now.”

TripAdvisor’s CEO Stephen Kaufer agreed.

“I’m a complete believer that the ongoing transition from offline to online still leaves plenty of headroom for everyone in the hotel space,” he said.

But days after TripAdvisor’s stock price fell 23%, Priceline’s 13.5% and Expedia’s another 2.7%, not everyone was buying it.

“It’s really their job to get up there and say, ‘It’s business as usual,’” said Alex Kremer, co-founder of electronic ticketing platform Redeam, which won three awards during Phocuswright’s Innovation Summit.

How Will OTAs Get Back on Track?

One perspective from an investor who can look at the space with a more comprehensive and long-term view stood out. Brad Gerstner, founder and CEO of Altimeter Capital, said the OTAs will not go down without a fight, even if it means diversifying their businesses.

More mergers and acquisitions are inevitable, he said. 

“We just saw earnings reports; we had about $30 billion of enterprise value knocked out of this category in the last 12 months, and it has huge implications for everyone in the room,” Gerstner said. “In that world, I think you’re going to see more activity, not less. … When we’re sitting here three to five years from now, out of the five or six large public companies in online travel, I bet you half of them are no longer independent companies.”

So what verticals are ripe for these giant intermediary travel companies with tons of capital?

Surprisingly, Kayak CEO Steve Hafner predicted they’ll begin looking into real estate and owing actual assets.

“The big guys — and I’m fortunate to work for one of them — are going to move into differentiation of their content and their services,” Hafner said. “In my mind that means owning the assets — airplanes and hotels. So I would not be surprised to see people moving into the hotel space by actually owning floors, or buildings or even chains.”

Hafner’s comments caught Shank’s attention, and the HotelTonight CEO surmised that owning assets would be the best way for intermediaries to lessen the friction in travel, something each of them see as their main mission.

But investing in real estate isn’t the only move forward. Expedia, for one, will not follow in Airbnb’s footsteps and open a hotel anytime soon.

“I would generally steer way from that,” new CEO Mark Okerstrom said. “We see ourselves as a platform, and we wouldn’t want to preference an Expedia hotel.

“By the way, I think we would be terrible at operating a hotel."

For Now, ‘Maybe an Equilibrium’ for Hotels and OTAs

Okerstrom and Fogel each said they’ll continue to focus on efforts that will be good for both partners and consumers down the road. One of those areas is investing in digital hotel keys, which both Expedia and Priceline have shown interest in.

But Okerstrom is confident the hotel transactions business will continue to grow, especially after the company has restructured much of the commission structure in an attempt to help partner hotels.

“We’ve lowered our structural margins so that they are better tailored to big chains when these hotels need us,” Okerstrom said, adding that Expedia’s Accelerator program and others allow hotels to pay a premium in times of low demand when they really need the business. “We’re cheaper than GDS in many cases, and the platforms are incredibly flexible.”

Duetto co-founder and CEO Patrick Bosworth agreed that OTAs can drive meaningful, incremental business to hotels at a lower cost of acquisition than many other channels. However, many hotels continue to use OTAs incorrectly, such as relying on them for base business or not capturing guest information and ensuring the guest books direct on subsequent trips.

Loyalty programs that encourage travelers to book direct are a great first step, he said, but more flexibility with data and technology will pave the way for more personalized offers and experiences.

“Hotels know much more about what the customers really want, and they have the ability to adjust their merchandising and rich content to match,” Bosworth said. “It’s just that scarcely any hotel companies have been able to move the needle.”

Both Okerstrom and Fogel said their companies are unfazed by the brands’ efforts to keep bookings in house.

“I hope that it’s working out well for them,” Okerstrom said. “If it’s working out for them, good. Maybe we’ve hit an equilibrium.”


Jason Q. Freed, Managing Editor

Jason joined Duetto as Managing Editor in June 2015 after reporting, writing and editing hotel industry news for a decade at both print and online publications. He’s passionate about content marketing and hotel technology, which leads to unique perspectives on hotel distribution and revenue management best practices.

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