With tech titans encroaching, hoteliers need to be smart about distribution

MINNEAPOLIS—During a session on the evolving distribution landscape at HITEC this year, Cindy Estis Green, CEO/co-founder, Kalibri Labs, laid out the ever-shifting environment created by tech titans, hotel brands and OTAs—and cautioned those in the industry from resting on their laurels, allowing disruptors to dictate the game.

Pointing to tech companies like Facebook and Google, Estis Green noted that these companies have deeper pockets than hotel brands do. For instance, she said, while Marriott’s market cap is $42 billion, Google’s is $789 billion. “Think about the value that is in the marketplace and how it has shifted from the large hotel brands to the large tech companies—of course, Google and Facebook, their valuation has much more to do with other things that are not just in the travel business, but all of them have their sights set on travel. [They] have decided travel is a place they want to operate, and they have very deep pockets to do so,” she said. “So, keeping an eye on that will be very important for the whole industry going forward.”

How are these companies making inroads into travel? Estis Green pointed to Google. “It’s the 800-pound gorilla, and it spent at least 10 years building out its travel ecosystem,” she said, pointing to everything from Google Trips to Google Wallet.

“It started out a few years ago with Google Trips and Google Destination. Those were apps that were inspirational—for information and to get you excited about going somewhere, but it wasn’t anything you would actually make a booking on,” she said. “However, this evolved, and a couple of years ago, the company introduced Book on Google… It has enhanced the user interface booking, added more information, consumer reviews, the metasearch component, and the price comparison. It’s quite a robust experience for users. It’s a good experience. And when you look at it, you might be thinking, ‘Hey, that’s like an OTA.’”

A concern for the OTAs, she said, could be Google cutting into their portion of the pie. “Because if you’re on Google and finding this, what do you need to go to Expedia for? Even though the OTA rates might be listed, if my hotel rate is listed as well, especially if my rate is a bit lower, then I’m going to get my booking directly and I’m not going to send my consumer off the site and get into one of the third parties,” she said.

The concern for companies like Google, she said, are issues related to privacy, issues that are garnering national attention in areas that go well beyond the travel industry. “There’s lots of discussion about that now,” she said.

For its part, Facebook has introduced an inspirational travel-planning tool called City Guides. “That picks up data from your friends and family and other things that are part of your network to be able to serve up hotels that match that profile,” she said. “They’re trying to compete with Google. And, while Facebook said it wasn’t getting into booking either, last year it announced Instagram would get into booking.”

Another major disruptor is Amazon. Estis Green pointed to Amazon Destinations, created in April 2015. “By November 2015, they announced they were backing out of travel,” she said. However, the advent of Alexa changed things, she said, as everyone expects the voice-activated assistant to be able to book hotels.

“I know Amazon has been working with Expedia and hotel brands, but as a user experience, consumers just want to say, ‘Get me a hotel room.’ They don’t want to say, ‘Get me to Expedia, who can find me a room,’” she said. “It’s unclear how this will play out but it’s something to keep an eye on… They aren’t going to be able to avoid it because that’s what everyone is going to expect from Alexa.”

Airbnb is another player expanding into the hotel space. “It’s been doing a lot of work to get hosts more up to speed to be able to handle guests in a more consistent manner. Now, small hotels and B&Bs can list, and clearly, they’re going to expand beyond that,” she said, pointing to Airbnb’s acquisition of hotel booking platform Hotel Tonight and its investment in Oyo Hotels & Homes. “So, there’s no question they’re trying to build out a distribution platform and tie into the hotel industry.”

What does all of this mean for the OTAs? Expansion. “They’re having to expand because now other players are getting into the market; the big brands’ book-direct campaigns have gained traction where there’s more business going directly to the hotel brands, and the OTAs are feeling the pinch,” Estis Green said. “From a consumer point of view, they’re trying to offer more options so they can compensate for that loss of revenue, which is going either to the Googles of the world or to big hotel brands, by offering other kinds of services.”

For instance, Booking.com offers BookingSuite. “It’s going after independent hotels to offer web services, online marketing, PMS, revenue management services,” Estis Green said. “Expedia is doing the same thing; they’re trying to go after more of the enterprise-technology play. It’s kind of like when the global distribution systems started to plateau and the OTAs came on the scene; Amadeus went the big tech route and started building out major technology to support the hotel brands, and Sabre went in to try to help more of the independents.”

Estis Green noted that the focus used to just be on the shopping and buying experience. “Everyone was worried about what shelf we should be on and our commission rate,” she said. “What has happened is a lot of the tech platforms have now focused on the full customer journey, so not just the shopping and buying—arrival, eating and drinking, the staying and the paying. All of these different elements of the guest stay are starting to show up in the apps, and the consumer really enjoys the convenience of being able to do all of those things. I want mobile check-in, I want to be able to get information about the destination I’m in, I want to be able to pay at the end—and imagine how convenient it is if it’s all in one place.

“By linking the shopping and the buying with the rest of the experience, a lot of these larger players are hoping to hang on, be very sticky and keep the users on their app, which is maybe a good thing in that it adds convenience to the marketplace, but it could be concerning for the hotel companies to think all of these third parties might actually start getting involved in every aspect of the guest experience,” she continued.

What should hotels do? Control that experience. “When you think about mobile check-in or choose your own room, consumers want that, and if the hotel brands can separate the shopping and buying and let the big third parties handle that, but block them at the front door by requiring them to use the Hilton or Marriott app in order to get these other on-site services, they have a chance to maintain the hold on the customer,” Estis Green said. “This arrival and stay experience is really critical.”

Another way hoteliers can control the distribution landscape is through a new trend—attribute-based booking. In this case, guests don’t just book a king room or a suite. Instead, they would be able to book a high floor, far from the elevator, with an early check-in—or whatever their preference was. “If hotels can offer that, and if Expedia and Booking and Google don’t have access to that inventory, then the only way you can book your customized stay is to book direct,” Estis Green said. “These are some of the techniques the brands are using because we’re in a bit of a David and Goliath situation—we think of Marriott as gigantic, but the market cap is $42 billion whereas Booking.com is $75 billion, and you’ve got Google and Amazon close to a trillion dollars—there’s just no contest anymore.”

For hoteliers, gaining a larger piece of that distribution pie with direct bookings will be important going forward, thanks to the rising costs of customer acquisition, Estis Green said, noting that when hoteliers take into account commissions, sales and marketing, and everything else done to acquire guests, hotels’ revenue capture of what guests actually paid was 83.8% in 2017 and 83.5% in 2018.

“When you think about how much we’re having to pay to acquire our customers, we end up in a situation where last year, we would’ve had almost half a billion dollars more in the pockets of hotels if we were able to retain that same revenue capture as we did in 2017,” she said. “The concern, from an owner’s point of view, is their asset valuations are based on profit margins, and profit margins are being eroded because it costs more and more to acquire customers. This is a big concern. When we look at RevPAR over the last four years, we’ve had healthy growth; then we look at that revenue capture number and it continues to decline. So all of these numbers become concerning because even if we start ramping up revenue, we can’t hang on to it. And the problem is, we will have a recession, the cost of acquisition will most likely go up, and yet the revenue is going down. We’ve got to get on top of this; this isn’t just a matter of renegotiating a better deal with Expedia or Booking.com. It’s really understanding the nature of the business and being able to manage that.”

And once the tech titans are more firmly ingrained in the industry, this issue will only be intensified. “Even if the Google fees are [lower] today, there’s no way they’re going to keep these fees low once they’re controlling the market,” she said. “These are big companies and they have to keep growing. It’s the nature of the beast.

“However, we are not powerless,” she continued. “There are things we can do, and as the model for revenue and the approach to revenue evolves, instead of just having this traditional revenue management, looking at rates and inventory, we’re going to be looking much more broadly at how we can be smarter about going after which sales opportunities, which digital, which brand options to take advantage of. We need to actually apply the same kind of filter for rates and inventory at the top of the funnel and start making smarter decisions: What is the business in the market that’s actually worth going for?”

This means being practical. “We’ve got to start being smarter; the only way we’ll save money in going after business is by not trying to go after everything,” Estis Green said. “We have to narrow the focus and go after the lowest hanging fruit, and we have to use data to figure out what that’s worth. Identifying those revenue opportunities will be critical—making sure we don’t just measure the RevPAR index anymore and the top line, but that we actually look at profit contribution because these costs are running 15-25% of guest-paid revenue, and that’s too much to ignore and not manage.” HB