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.
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