The Other Side of Search Marketing – Popular by Demand

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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, 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.

Opposite ePinions

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.

Marketing eVolution

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 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.

Mihaela Lica Butler
Mihaela Lica Butler is senior partner at Pamil Visions PR and editor at Everything PR. She is a widely cited authority on search engine optimization and public relations issues (BBC News, Reuters, Al Jazeera and others), with an experience of over 10 years in online PR.
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  • RobertKCole

    I will provide a copy of my comment regarding GHE from the Travolution post on the topic:

    A lovely concept, but I am highly skeptical for six reasons:

    1) Consumer Booking Fee Tolerance. When airlines eliminated commissions to Online Travel Agencies, the OTAs assessed booking fees for airline tickets, consumers rejected the model, diverting bookings to the carrier websites. As a result, the OTAs pretty much eliminated the booking fees (for example on all round-trip, single-carrier flights.) OTAs receive a portion of the GDS segment fee revenue paid by carriers for airline bookings, but no such fallback position exists for the Global Hotel Exchange.

    2) Consumer Value Creation. The proposed model creates supplier value by reducing distribution costs,but as described thus far, it fails to create customer value. Business models that fail to create consumer value have difficulty succeeding. Hotels have entered into price parity agreements with the OTAs and the OTAs have the staffing and technology available to aggressively monitor compliance. For stand-alone hotel bookings, GHE can’t undercut the pricing provided to OTAs or the supplier websites – especially by using promotional codes that will reportedly be offered to affiliates. The “market based pricing” described as a competitive advantage is not groundbreaking and alone does not represent sufficient benefit to drive conversion (ask the Farecast team.)

    3) Traveler Awareness. Launching a viable competitor to the Online Travel Agencies for hotels will not be an inexpensive marketing task. While I am sure the group will rely heavily on SEO-boosting backlinks from the hoteliers, at $3.00/booking, there will not be much funding available to gain awareness of the site across the global traveling public. The hotel companies that founded the reborn TravelWeb in 2002 can undoubtedly attest that competing against aggregated sector marketing budgets in the hundreds of millions is a daunting challenge. TravelWeb also garnered a considerable amount of its traffic through an exclusive distribution deal with Orbitz, who funded the consumer advertising initiatives. At $3.00 per booking, there is precious little funding available to motivate an affiliate or distribution partner under a revenue share.

    4) Technological Sophistication. Creating globally scalable, high availability, real time transaction processing platforms is not easy or cheap. Creating an innovative user interface that delights and engages travelers to drive hotel booking conversion is not something to be taken lightly either – especially when needing to deal with a variety of form factors. Using an extranet for inventory and rate updates is labor intensive for the hoteliers and inhibits access to last room availability and spot pricing promotions. Any distribution partnerships will require the development and maintenance of interfaces. There is no financial incentive for the partners to fund technical development, so the cost will need to be borne by GHE.

    5) Industry support. The concept is controlled by the CEO of Magnuson Hotels a group that represents 2,000 independent hotels. Despite the lure of significant reductions in distribution costs, it is unlikely that major global hotel brands will be interested in supporting a platform that is managed via extranet and provides comprehensive forward looking pricing and inventory information to a competitor. large hotel groups may like the idea, but would strongly prefer an industry consortia or neutral non-profit organization tasked with protecting their rate/inventory content and customer information.

    To be successful one would think that at a minimum, a majority of the following groups would need to be actively participating: Accor, Best Western, Carlson, Choice, Hilton, Hyatt, InterContinental, Marriott, Starwood, Wyndham. Without brands that are recognizable to consumers,broad awareness and word of mouth promotion are unlikely.

    6) Funding. To support the business model described and an”unprecedented marketing effort” that the press release explicitly said “including mass media communications including TV, radio…” at no cost to hotel owners, there will need to be significant funding behind this initiative. Additionally, the investors, who will be taking on considerable risk, will be involved in a business with limited capability to generate cash flow from operations. That is a tricky pitch.

    In summary, to successfully disintermediate the Online Travel Agencies in the hotel booking vertical, a new entrant must cleverly inhabit a “sweet spot” where they can a) increase supplier margins while reducing distribution costs, b) undercut competitive pricing or provide high value-added benefits, and c) generate a sufficient profit to support marketing, technical operations and investor profit requirements.
    Right now, I see huge strategic gaps in the model. With a January 2012 launch, that is a problem.

    Maybe Tom Magnuson is waiting to introduce a big surprise during the consumer market announcement at World Travel Mart that makes this all work. Considering the initial industry announcement took place at the Lodging Conference in early October, that would have been a big missed opportunity.

    I’m not holding my breath. At this point, this looks a lot more like an idea than a business model capable of dramatically disrupting current OTA hotel distribution practices.