Papers by US advisory firm Evercore, penned by Ken Seda and his colleagues, map out what Google may be up to in the world of digital travel and search – and why OTAs have a great deal to fear.
Starting with a number of small-scale initiatives Google is pushing into OTA territory with products such as Limited Offers linked to Google’s Hotel Finder service.
Next up will come a yet-to-be-branded ‘captive demand platform’ which will give Google’s hotelier customers the ability to upload secret lists of loyal, valuable customers into the Google engine and then churn out special rates to customers.
Finally, this will be connected back to Google Wallet, allowing the search giant to control the whole process of research and booking.
This opens up a number of possibilities, not least the rise of opaque pricing based on personal information – a huge departure from the existing rate-parity agreements signed with the OTAs – with the potential to push prices below those advertised on Priceline and Expedia.
Key to this push by Google is the bait for hoteliers. They keep the customer lists and transactions and don’t have to rely on the existing ‘atomic’ model managed by OTAs where between 15% and 25% of revenues is taken as commission.
Data is now owned by the brand-marketing channel allowing them to aggressively market to their own lists of customers.
According to Ken Seda at Evercore, the OTAs are not going to lie down in this battle, with Priceline in particular fighting back by buying up specialist outfits such as Buteeq, HotelNinjas and Open Table.
The game plan here is to build another leg to the business, allowing the OTAs to turn into white label customer intelligence and servicing propositions for hoteliers.
As these changes start to ripple through the industry I’d wager we will see some profound changes, not least for the rabble of OTAs scrapping around for business.
The key challenge is that the direct travel model is a classic ‘middle man’ squeeze waiting to happen.
Technology teaches us that eventually the market finds a way to squeeze out expensive middle men, even if they provide a valuable service.
Lurking beneath this push for market control is a cold reality: the OTAs account for 20% of travel advertising spend while contributing to 8% of global bookings. They simply charge too much.
According to the Evercore analysts, Priceline and Expedia “charge hoteliers over 20% of each booking on average (adjusted to account for just hotels) whereas Amazon and eBay take closer to 13% and 9%, respectively”.
Google is slowly but surely eyeing this model and seeing a huge new market, especially as mobile helps to redefine everything, almost instantly removing some traditional channel superiority.
This will force the OTAs to plump for one of three options: to be the biggest and offer the most comprehensive selection (the Expedia model), to look at white labelling and working with hoteliers to provide optimisation services (the fast-emerging Priceline approach) or to become the brand customers trust and base product around search and knowledge via reviews (the Tripadvisor model).
What of the implications for the rest of the travel sector?
The obvious issue here is that Google has woken up to the realty that all travel research is about search and that what helps us search better is personalised, valuable information.
Cut the jargon and one simple fact jumps out – we all want to cut the time we spend online working out what to do next.
Evercore cites a Google Travel study presented to its Hotel Finder partners which cited “travellers spend an average 55 minutes to book a hotel and flight, visit 17 websites and click four different search ads per travel search, with 90% of those travellers conducting the booking process over multiple screens.
“The point of its presentation seemed to be a need for a streamlined bookings path, one where Google can retain the traveller from Search to Research to Book.”
Google already starts with an advantage. The Evercore paper notes: “22 billion hotel searches are performed on Google per month, with 58% of travellers (64% of business travellers) beginning their travel experience on Google, according to an Ipsos MediaCT/Google Travel Study.
“However, there is some question as to how many of those that start their search on Google were actually led to a booking decision by Google.2
My own, slightly offbeat, take on this is that most major existing travel businesses should give up thinking they can stop the Google juggernaut, back it in its fight against the OTAs and build their own platforms on top of the search giant’s architecture.
Last but by no means least, what happens to the poor old customer, befuddled by all the channels and brands?
Clearly the big game changer is mobile and the degree to which phones and tablets become the main digital interface.
These relatively constrained devices will lend themselves to modern-day equivalents of the old Compuserve walled garden, i.e. software-based architecture that keeps the customer within the world of Google via browsing through Chrome and paying through Wallet.
Or as Evercore’s analysts put it: “We see the integration of HPAs to Google Wallet, Maps and Now as creating a seamless travel experience for the user (from search, to research, to book, to travel and return).”
And just in case you think this is all pie in the sky, remember that according to analysts at Evercore: “10%-20% of all online-booked occupancy is [already] driven by Google properties, including Search and Hotel Ads (aka Hotel Price Ads). Moreover, this measure roughly equals all OTAs combined.”
My sense is that customers will happily live within these closed gardens because the net effect will be that prices for most will be driven down, not least by Google taking a hunk out of OTA revenues.
Sadly, this downward pressure on prices will have two nasty knock-on effects – more of that opaque pricing via personalised offers and a slow but steady move towards online forms of internet social stratification.
In the new world that is fast emerging, power will sit in the hands of those marketers with the right lists of wealthy travellers who also happen to be on the right loyalty card lists and have the right credit scores.