Op-Ed: Time to put the ‘Book Direct’ debate to bed
The book-direct vs OTA argument oversimplifies reality, to succeed in today's competitive market, accommodation providers must adopt a balanced approach
Op-Ed: By Peter O’Connor, Professor of Strategic Management and Co-Director of the Centre for Enterprise Dynamics in Global Economies (C-EDGE), University of South Australia Business School
There’s no such thing as a free booking. Driving direct bookings can be a costly and risky process, where in contrast, Online Travel Agents (OTAs) are ultimately risk-free because they are pay-per-performance.
As more accommodation providers understand the true cost of direct bookings versus OTA compensation, this once-raging debate is now nothing more than a storm in a teacup.
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A recent Book Direct push, largely spearheaded by Australian motels, reinvigorated the age-old argument – do OTAs have too much power? Ask that question five years ago, and you would have had a very different response to the one you would get from the majority today.
Calculating the true cost of driving direct bookings usually results in the shocking revelation that on a net reservation basis, direct bookings are more expensive than bookings from the major OTAs.
Book Direct advocates should do more due diligence on the true costs of branding, engaging effectively in Search Engine Optimisation (SEO), paid search engine marketing and metasearch, and operating their own website and bookings engine, all of which may or may not result in bookings.
All of this is critical in our digital world, but it’s also technical and complicated work. Most accommodation providers are unlikely to have the expertise to do this in-house and end up outsourcing these activities at high costs or doing a poor job and suffering the consequences of ineffectiveness.
On the other hand, OTAs are equipped to engage in this work on an accommodation provider’s behalf.
OTAs are all about visibility. They use SEO and paid search to gain visibility for the accommodation providers they distribute for and do so with specialised expertise and sophisticated technology that generate economies of scale, to achieve more bookings for partners – better, faster and cheaper.
The big advantage of OTAs is that they are pay-per-performance, which is unlike practically any other way of driving additional business, unless, you have travellers flocking naturally to your doors, which for most hotels, is simply not true.
To be successful, accommodation providers today must balance driving bookings directly with using OTAs to generate additional business and address additional markets that they do not have the time, resources, and expertise to reach independently.
Platforms like Expedia Group have a vested interest in this debate, with Vice President, Market Management, APAC for Expedia Group, Michael Dykes stating that their platform is one of the most cost-effective means for hotels to fill their rooms and offer valuable investment against the return of exposure and business conversion.
Mr Dykes indicates that what accommodation providers pay in commissions covers every aspect of marketing and customer acquisition on the platform, including travellers who find the accommodation on Expedia Group’s platform and then go on to book directly with the property – transactions from which Expedia Group earns nothing.
OTAs play a critical role as visibility generators that, along with generating bookings, also create what is known as the Billboard Effect, where customers discover hotels on OTA sites but end up booking directly through the hotel’s direct website.
This symbiotic relationship acts as free advertising, amplifying a property reach and attracting potential customers.
General Manager at Seasons of Perth, Yohan Alahapperuma provides further insight into this – Mr Alahapperuma has a “Book Direct” banner attached to his e-signature and yet, recognises the important role OTAs play in driving revenue. He believes that there are major benefits to having a mix and that OTAs help market the property better and identify the strategies for how to maximise revenue.
For example, Mr Alahapperuma has worked with Expedia Group for over 15 years and in this time, he has built a strong relationship with his account manager, keeping in contact regularly to make sure the relationship between the two, results in a win-win.
He maintains that the key to success lies within how you use the platform and leverage the Partner Central tools to manage promotions and strategise your yield.
When discussing the Book Direct mentality, Mr Alahapperuma believes change is something that takes time to get used to but understands that OTAs are a good way to get exposure.
According to Mr Dykes the value of Expedia Group’s platform goes far beyond listings on a distribution channel, as lodging providers can utilise the platform’s technology tools, data and insights to understand travel trends, which ultimately can help them make better decisions to drive business results. He also explains that Expedia Group consistently invest and reinvest into ensuring that their world-leading platform is highly intuitive to help travellers find their best travel options quickly and efficiently.
Mr Alahapperuma uses such insights in his operations, claiming they’re really helpful in the domestic market, where people are shopping around online for the best rates – making insights on your competitor set and market pricing essential.
Ultimately, the book-direct versus OTA argument oversimplifies the reality. To succeed in today’s competitive market, accommodation providers must adopt a balanced approach that leverages the strengths of both channels.
OTAs enable hotels to reach new markets, while direct channels facilitate customer retention through effective marketing strategies. In an era where competition is a click away, no singular approach guarantees success, emphasising the need for a diversified portfolio.
To put the debate to bed, there’s no such thing as a free lunch, so use both.
Peter O’Connor, Professor of Strategic Management and Co-Director of the Centre for Enterprise Dynamics in Global Economies (C-EDGE), University of South Australia Business School
I think a lot of the frustration though is not from the cost perspective but from the loss of control that accommodation providers feel.
Most OTA’s are only contactable by email – no phone numbers. Personally, I find this very frustrating and unacceptable (but we have to accept it). Not only that, you don’t get to communicate with a known person – there is usually not a name at the end of an email received.
There is also the issue of OTA’s insistence on price parity. This means businesses are not free to price as they wish. Not only that, we then sometimes find that the OTA’s are selling our rooms cheaper than our agreed rates.
They also sell rooms through online sites other than the one we have directly contracted with (some that we have never even heard of). This can become an issue when there is a problem with the booking, and we contact ‘X’ about it and they tell us we will have to contact ‘Y’. Then when we contact ‘Y’ they say we must contact ‘X’.
If the relationship felt more like a partnership and less like a dictatorship, the commission costs would not be so focused on.
I wonder if Peter O’Connor has ever owned an accommodation business? Think Not.
Think again!
In the past, I both owned and ran independent (and small chain) hotels! And worked with many of the larger chains helping them develop and diseminate their distribution strategies.
Some interesting, and valuable points were mentioned, however some of the ones that weren’t mentioned primarily effect the smaller ‘mum and dad’ type moteliers, such as when the OTAs auto-opt their property into specials, promotions and deals without the property’s knowledge or permission, or share properties prices via their affiliate network, which is a major issue especially with the likes of AGODA discounting the properties prices.
These smaller properties often don’t have the time to investigate where their ‘rate leakage’ is coming from, the first they’re aware of it is when a booking comes through one of the ‘big two’ at a discounted price.
So it is understandable that they get frustrated when they can’t figure out how it’s come about and trying to get help from the ‘big two’ can often be difficult at best..
Absolutely use them, they have some great tools, but don’t let them use you!
But I would suggest that at least once a month, add a reminder to your phone or calendar to;
1) Search your property in google, to see if there are any prices there that don’t match what you’re uploading, then follow it up with the OTA in question.
2) Look into the OTAs promotions, offers, etc. to make sure there aren’t any there that you didn’t put up.
Good luck and keep pushing BOOK DIRECT with your guests.
I know I will be.
Great advice, Chris. I fully agree. OTAs are a tool for hotel to use to drive business and must be properly managed.
I am sure Peter has never worked in channel manager support and hasn’t had to deal with the repeated phone calls related to all the OTAs from moteliers who continuously discount their rooms to rates where is not worth taking the booking. Then when they cancel the booking, they get hit with relocation fees. Marketing is one thing but marketing motels below their required rates will send motels to the wall.
I have always wondered why OTA’s take so much commission and what we are actually paying for, it was always thought a whole lot of pain and grief really. OTA Bookers don’t turn up, don’t respond to messages or phone calls, provide invalid credit cards, make a hell of mess, take everything that’s not nailed down from the room. Have more guests turn up than are allowed in a room and they are usually the worst behaved guests. We do all the work and have to pay commission for the privilege! Then there are the reviews which are always one side of the story. When do we get to rate the guest? We list with one OTA and then find all the subsidiary companies list us and like what Karen said half of them we have never heard of, Agoda never send the full details of the guest so you cant contact the guest if there is an issue. Sorry but they are still a pain in the arse.