When you switch on your PC or smart device these days, a deluge of positive “sounding” news flows into your world, but the noises do not often match the reality. Amid this endless static though, the hope that social media, new channels, the digital evolution will somehow rescue us – that hope is still there. Well, maybe it is.
In recent news, Google Hotel Finder, ITA software, DOT fines for inappropriate online advertising, third party commissions it seems obvious online travel may be headed for rocky shoals. The very channel OTA’s and some other travel constituents were supposed to open up (which they did) have now become a premium some suppliers cannot afford. SEM, SEO, analysis gurus, endless conferences, and so on, service users and providers face increasing costs. American Airlines pulling their flights from Orbitz was just the first symptom of a rapidly growing economic imbalance.
Supply, Demand, and the Middle Man
At both ends of the travel booking spectrum, guests and providers end up paying the OTA’s, and a seemingly endless array of hangers on. At the end of the day the question arises; “are growth and a fair deal possible in any zero growth environment? Make no mistake, in all industries, the reality of approaching zero growth is coming.
Reading this post the other day at Hospitality.net, we came upon one of the soon to be many challengers pitted against Expedia, Travelport, Sabre, and Kayak’s market, a startup called Global Hotel Exchange. In development by Tom Magnuson (at left), CEO of Magnuson Hotels, this new breed of OTA promises a better way. Zero commissions, an end to what’s known as rate parity, and a direct connect conduit between hoteliers and their guests.
Magnuson claims he will offer free marketing and digital engagement with the mission to; “regain control of our margin, price, and inventory.” Added to this matrix of potential, there are the 2,000 plus Magnuson affiliate hotels, of course. The simple point of pain being solved here is, Magnuson and others suggest, there’s no longer room for the middleman – and they are intent on being the pain pill. What does this mean for SEM, SEO, and the support industries? We had all better evolve too.
Heads or Tails – the Other Side of the OTA Coin
Big surprise! This massive recession, an overall constricting mechanism, has brought to the forefront the question; “Can we still afford the current search engine marketing (SEM) structures? Is it just too expensive for all concerned for SEM (at least the current structure) to rule the Internet visibility roost? Advocates of social media think there are logical alternatives. Where travel is concerned, it’s no secret either Travelport and Orbitz woes, airlines and rental car companies sick to death of high commissions, and hurting hoteliers – these are one half of the monetization equation. Just , look at this report about some hotels already following the airline trend to tack on added fees – clear signs margins are gone. Now, along comes Tom Magnuson and what will likely be a herd of other players with a simple innovation – another channel. Magnuson says told Travolution yesterday:
“Our goal is to provide a growth vehicle in a non-growth environment. We have developed the technology and are in final testing. It’s fully set for deployment in January. The key to this is that there would be no cost to the hotel owners.”
As I said, “no growth” is not simply a trend in travel, it is endemic and will become pandemic wherever inefficiencies and waste occur. General Motors execs probably do not fly private jets to beg for money these days. The day of the massive SEM budget may soon be over, at least in the way the system has worked. Lean operations just make more sense. Talking with Magnuson, his Harvard School of Business and Mom & Pop hotelier sides come off as pure logic, he added an economic lesson here:
“There is no data on Earth that supports the theory or idea that growth is possible in the hospitality industry, at least not for the next several years.”
Right now many of you are asking; “Does dissatisfaction with commissions mean SEM and OTA’s will cease to exist?” Certainly not, but it will be individual and groups of hotels who select their own SEM strategies – probably as it should have been all along – and maybe better for Google too. As for rate parity, the old GDS model, SEM, and all the associative frills and fringes? First of all, this article from Hotel Interactive about the leaking billions from travel, supports most contentions versus the current SEM budgets. According to Magnuson, the hoteliers will absorb ZERO cost from his new channel, and the consumer will pay a once per transaction booking fee of under $3.00. We asked just how his model could be supported, to which Magnuson replied:
“Some have implied we cannot support the model with such a low fee, this is not true. Without giving away our proprietary plans, suffice it to say SEM is not a cost consideration for Global Hotel Exchange. There is plenty of money to be made transparently, for the out-of-the-box thinker. I will discuss this in due time”
Secondly, the whole reason for this “rate parity” industry springing up was, according to then VP of distribution, marketing, and revenue management for InterContinental Hotels Group Asia, Jos Weesjes, was to keep the OTA’s in check in case they wanted to enact their own rate schedules and strategies. The bottom line on all this is, people will trust a clearly transparent model – $3 bucks, an ATM fee, to save tens or hundreds – there’s no contest, it simply has to be conveyed.
That same article by Max Starkov on Hotel Interactive, and a dozen more like it, call for just the sort of “trusted” and economical “channel” Magnusson speaks of. Some $5 + billion is “leaked” form some of these channels with diminishing value added. “Abnormally high” commissions are sucking the life out of industry. Expedia commissions alone were estimated to exceed $2.7 billion in 2010. In other words, hotels lost almost 3 billion in revenue compared to a plan like Global Hotel Exchange or other could represent. Who do you think paid for this loss in the end?
GHX is on a collision course with the big online travel entities. Max Starkov (left) who did the research for the Hotel Interactive study above, and who is the head thought guru over at Hospitality eBusiness Services (HeBS Digital), says “Global Hotel Exchange hasn’t a chance.” I don’t know about you, but the last time I was not worried about competition, mentioning them seemed the least of my worries. Yes, whoever comes up with the new paradigm for online marketing will have to either include peripheral services, or destroy them altogether. The online game of cat and mouse has gotten just this thick.
Meanwhile, AAHOA, the largest hotel lobby in the US, has already begun their own movement. The same Hotel News Now article talks about other “channels” already open. For one, the President of the AAHOA, Fred Scharz, talks about the organizations offering rooms on mybesthotelrate.com at a drastically reduced commission rates down to as little as 8%, compared with some as high as 25% for OTA’s. The battle lines are becoming more and more clear. Magnuson and the other forces in play will leverage the so called SMERF (Social, Military, Educational, Religious, Fraternal) communities, and others, to become a persuasive channel alternative.
This economy has forced hotels and their guests closer together – the same is true in most industries actually. While hype about the “social wave” can be a bit disconcerting, it’s obvious that as businesses refine their interactions, social media and especially mobile aspect will encroach upon traditional models. It’s not often I jump off a cliff for an innovation, and I am no soothsayer where GHX is concerned either. However, the one constant we can all count on is change, evolution, the dynamic progression of our endeavors. The bitter pill here is, companies and their customers will eventually stop paying for excess baggage.