For our client portfolio, the average cost per booking via the hotel website is 10 times lower than the average booking via an OTA. Period.

OTAs can still play a vital role in hotel distribution and service particular segments of the traveling public that prefer a travel package (hotel+air; hotel+air+car rental; hotel+car rental; hotel + event ticket, etc). This role will never disappear: this is where OTAs can provide a real value-add. But the role that OTAs play in distribution of barebone hotel inventory, without providing any value in the process, will diminish over time.

The industry didn’t suffer amnesia, they suffered serious economic difficulties. These are very smart people, it is an insult to assert that all of them “knew not what they were doing”. Many understood that for every reservation made on Expedia’s websites, probably another 5 are made direct with the hotel as the result of utilizing Expedia’s various properties (Hotels.com, TripAdvisor, etc.) for shopping and rate comparison. In addition, once those customers stay on property, the smart hoteliers collect contact information and are able to successfully direct market to those customers for years going forward.

Hotels are not like airlines where routes and gates are limited and controlled. Some cities have as many as 350 hotels and the thought that a single hotel or brand could successfully market a single property or group of properties in such a competitive marketplace at a higher ROI than Expedia is incomprehensible. To prove this point, try to set up a small travel site and secure high-margin contracts with 5 hotels in a large market like New York. Then using all you know about SEO, SEM, PR and etc., try to generate sufficient booking volume to maintain those contracts at a profit. You will not be able to do it. The conversion ratios for the marketing spend will be too low with such a small selection.

Even with a complete selection, it is still difficult to generate a profit because of the leakage mentioned above… mainly that customers use third party booking sites for research and fast rate comparisons and then call the hotels direct. Without the OTA sites, most people wouldn’t know about the hotel sites they end up booking thru. People don’t find hotel sites on Google, they find them on Expedia, Travelocity, TripAdvisor and Priceline and then search Google to find the hotel site. It’s a delicate ecosystem, just ask IHG and MGM why they finally caved in. If you aren’t in Expedia’s results, it’s worse than not being in Google’s results. Smart hoteliers know that the majority of people searching Expedia end up booking direct after their research phase is complete. The rest book with the OTA’s because of convenience, brand trust or time savings.

It’s fine if you want to scare hoteliers into spending more money with HeBS, SEM shops and Google Adwords but at least be honest with them about the true costs of customer acquisition. It doesn’t take a rocket scientist to see through the smoke screen of Expedia’s financial statements and understand they are operating on extremely tight margins. Selling airline tickets is a cakewalk compared to selling hotel rooms on the Internet. Marketing hotel rooms through OTA’s is significantly less expensive than marketing them through Google Adwords. One hotel in Las Vegas spent $75 per booking on Adwords before killing the program. (Again, because of the way selection and variety affects conversion ratios).

Teach your customers how to embrace the OTA’s and the incredible marketing machine they have created. Explain to them how most of their direct site traffic (type-ins and Google) are actually the result of a shopping cycle that begins on the OTA sites. Show them how to capture that Expedia customer for life once they check-in at the front desk and explain to them that Expedia can barely afford to market their lower ADR rooms in the current economy even at 25% margins. Look at Expedia’s profits, not their revenues, when evaluating the leakage theory you propose. Certainly hoteliers cannot market a single property or group of properties in a mass marketplace like the Internet at the same cost and conversion ratios as the large, extremely efficient OTA’s.

If I were to open a hotel, I would give all the rooms to the OTA’s from day one and focus on providing such a great experience, environment and level of service that I’d never have to market my hotel to “new” customers again.

Based on my experience (as a Receptive Operator) working with hotels over the last months I suspect that this is probably the case. The properties I have worked with seem to be even more clueless that ever, with little, if any, control on their interface with the public. They do not seem to have noticed that there is significant competition for business and feel free to treat their contacts with impunity and wanton disregard for their requirements. If that is the public face, it is hardly surprising that the “private” face can have screwed up their relationship with the OTAs as described!

To do that however, hotels will need to invest more heavily in serious marketing efforts to designed to build stronger customer relationships and loyalty. An investment in marketing might cut into the savings in the example above, but any hotel that does will still reap significant financial rewards and be more in control of their destiny.

Madigan