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The curious case of online travel – OTA consolidation, Metasearch explosion – Is there consumer choice?

OTA consolidation, Metasearch explosion

There is much media interest in the consolidation taking place in the competitive online travel industry. The spectacle of bigger companies gobbling up smaller companies to become even bigger, can deliver fascinating analysis and proof points. The giant online travel agencies (OTAs) are examples of unwavering focus on their core business of delivering travel products over the Internet to independent and non-package travellers. To get to where they are today is an incestuous history of explosive growth, timely acquisitions, strategic deals and huge investments.

For example, it is a well known fact that in the US market just four brands Expedia, Priceline, Orbitz and Travelocity – control around 95% of the U.S. OTA market, with Expedia alone having a 40% market share of US OTA bookings, while Priceline with its brand boasts a formidable 30% plus market share in Europe. The 2013 revenues generated by these giants is staggering: Expedia $, Priceline $6.8 bn and TripAdvisor $944m with Orbitz trailing at $800m. Throw into the mix Europe’s largest OTA, eDreams Odigeo, a cross border merger in 2011 of several well-known brands with €4.3bn ($5.8bn) in 2012 and you can get a sense of the scale of consolidation taking place.

The Rise of Metasearch

Interestingly enough Expedia was created by Microsoft back in 1996 (well before consumers trusted the Internet as a place to buy travel products) and spun off in 2001. In 2011 Expedia’s own offspring TripAdvisor is sold off and now making serious competitive waves with the recent launch of its own metasearch offering TripConnect that competes directly with Trivago, Expedia’s metasearch acquisition in 2013. This may be surprising, but worth noting that Expedia shareholders were compensated with TripAdvisor stock as part of the spinoff. In other words, the companies have a mutual interest in each other’s success. Does this mean that TripAdvisor’s rates and availability platform is welcomed?

Another interesting point, indicating the incestuous nature of travel relationships is that as an advertising platform, nearly half of TripAdvisor’s revenue comes from Priceline and Expedia alone, two giants who can afford to spend millions to ensure that their listings get pride of place in TripAdvisor’s search results. With over 250 million average monthly unique visitors (up 27% in a year) TripAdvisor’s size makes it attractive to hotels, online travel agencies, restaurants, and other tourist-related industries – who are all battling for prime advertising real estate space.

The three Gorillas (Expedia, Priceline and TripAdvisor) and the Elephant (Google) are all investing heavily in their metasearch capabilities in response to the increasing popularity of this shopping model with savvy consumers. Travel suppliers such as hotels and airlines have quickly had to take note of the advertising and direct distribution channel that this potentially presents. Depth and breadth of product information including consumer reviews becomes the strong differentiator.

Consumers, especially the savvy ones, are beginning to prefer metsearch platforms that give them the ability to compare the offerings of both supplier’s and online travel agencies (OTAs) from a single screen and then be connected directly with their preferred website where they can complete the booking. In future, as hotels and airlines get better at marketing themselves and their direct channels, this transfer of purchase may not lead to an OTA. Although the findings of a recent PhocusWright survey seem to indicate that OTAs are still doing much better than the suppliers in getting metasearch referrals.

Metasearch, apart from offering shoppers all the information they need in one place, is increasingly becoming the next advertising battle ground, where the giants are potentially once again poised to have more spending power than hotel chains or independents. As a source of customer referrals, hoteliers feel compelled to add this distribution channel into their marketing mix but they need to make sure they can measure the performance and returns in relation to other channels in order to understand the value.

Hoteliers may well be getting fed up with the high margins OTAs charge, versus direct channels, but unfortunately the sheer scale and financial muscle of the OTAs means they remain a force to fear as they seek to dominate these other channels. Metasearch is not only an opportunity for hotels, but also for OTAs. Using metasearch ad spend models, hotels can invest alongside OTAs in a cost-per-click (CPC) to drive bookings to their respective websites. The profitability of any CPC ad spend campaign depends on the ability to convert clicks to bookings. Whoever is best at achieving this will be able to outperform the other. More than ever, all online travel companies need to be monitoring their search traffic as well as their bookings in terms of performance and return on investments. XML analytics can help here.

Although operating under many separate brands, the giants of the industry (Expedia, Priceline, TripAdvisor) or ‘gorillas’ as the Economist prefers to call them are already big and intent on getting bigger, even though online growth in the established markets of the US and Europe seems to be stalling. Skift, a travel news and intelligence portal, does a good job in following the consolidation trend by charting the acquisitions of major travel companies and also their bookings and revenue results. The acquisition list includes Expedia’s latest bid to buy WOTIF ($703), Australia’s 8th largest OTA (according to Hitwise), which is aimed at boosting its market share in Asia Pacific. Priceline and TripAdvisor’s acquisitions of the restaurant booking systems OpenTable ($2.6bn) and LaFourchette (undisclosed) respectively are also in the list. Online restaurant booking is deemed to be the next competitive frontier in online travel.

Stepping into the competition ring to join these three ‘Gorillas’ is Google dubbed by the Economist to be the ‘Elephant in the Room’. With some strategic acquisitions and partnerships including licencing Room77 technology, one of whose stakeholders happens to be Expedia, Google is moving boldly to develop Hotelfinder, its metasearch platform—at the risk of offending some of its biggest advertising customers. It is reported that Expedia and Priceline spend over a billion dollars each with Google (about 5% of total revenue). Google’s long term travel ambitions to become the search engine of choice for all travel products from one platform is putting the elephant on a collision course with the gorillas. Today, Google is experiencing some success in giving hotel chains direct access to shoppers, something they yearn for in their battle with the OTAs. Google’s well established search capabilities enables the company to collect data on consumer interests and habits. Combining such personalisation knowledge with travel search opens up possibilities of delivering better targeted search results, which most other travel product sellers couldn’t match. This differentiation makes Google a compelling business partner with it media rich search platform.

Indeed it is this Economist article (Jun 21st 2014) asserting that in spite of industry consolidation, consumers still have plenty of choice that made me ponder two questions.

– Firstly, if the volume of bookings is being handled by the giants at the expense of smaller players, as the article suggests – then what choice in terms of provider and price does the consumer really enjoy?
– Secondly, if the giants keep growing by acquisition in the way they have done, is the travel landscape becoming increasingly monopolistic, with the downside to competition that this implies. In other words are there too few serious independent contenders to make all those hours travellers are reported to be spending online looking for the ‘real value’ deal worthwhile?

The two questions are closely entwined since market domination by a few large players can lead to back office platform consolidation, and ultimately to higher prices or less great deals. Take for example, the powerful marketing agreement signed in August 2013 between Expedia and Sabre owned Travelocity in the US, where Expedia will effectively provide its former rival, Travelocity with the technology needed to keep up with the innovation and scale demanded by online travel. From 2014, Expedia is handling most of Travelocity’s operations, from running searches to answering customer enquiries to processing bookings, while Travelocity remains a brand to attract customers to its website. Expedia collects the related fees from suppliers and pays commission to Travelocity.

The deal helps Sabre to concentrate on its IPO plans and Expedia keeps a rival from the clutches of a potential competitor, while boosting its revenue from the North American market where it already holds prime position. The traveller has an enlarged portfolio of hotels available on both platforms. Sounds like a cosy deal all round, but in reality the numerous affiliation partnerships that exist across online travel companies means that in the words of consumer correspondent Christopher Elliot “these little-understood, behind-the-scenes deals mean that the shopper could be querying the same site multiple times,” and presumably with very similar results.

Question of Consumer Choice

It can be argued that while the giants are busy building OTA and metasearch empires, real consumer choice in terms of where bookings are made has been similarly concentrated, since the consumer often doesn’t recognise brand affiliations or marketing deals behind the sites he visits.That said shopping habits are changing fuelled by social media sharing and the desire for easy real-time access to all relevant information in one place — across products and different devices.

They want to be sure they are getting the best deals and be able to trust the accuracy of the information and the authenticity of the reviews. Online travel shoppers are notorious for doing a lot of looking before booking and their loyalty can be described deal-driven rather than loyal. Being able make the right offers at the right moment to the shopper who is inspired and well-researched enough to hit the ‘buy button’ is getting harder. There are plenty of smaller unaffiliated travel sites competing for business. To be in with a chance they need to get found, be different and attract viral support.

The future of travel will mean enabling the shopper to balance booking accommodation and flights with an array of personal choice ancillaries as well as transfers or local excursions, while getting all the dates to line up for the right price. The travel company that can join these dots will be the one best positioned to grab market share and grow their business. Will this be one of the giants, or a start-up yet to get off the ground?

Buying into the metasearch model shows that Expedia and Priceline don’t intend to become dinosaurs left behind as shopping buying behaviour changes. Recognising that innovation usually comes in small packages, Priceline and Expedia are active with investment strategies designed to fund and nurture start-up innovation in travel and marketing related areas that could be of future interest. As already noted Expedia is one of the stakeholders in Room 77 booking technology which Google has just licenced. Priceline has set up Priceline Ventures. Such investment strategies are not just about equity and market share but are primarily designed to tap into fresh innovative ideas that can help them redefine their service offer, but for a much cheaper price than buying an acquisition such as Kayak once it is already well established.

In totally disrupting the way we research and buy travel, the Internet has created a very large and diverse sector, awash with giants and minnows alike. It has also created the conditions for consumer dissatisfaction. Dynamic pricing and disintermediation has led to shoppers searching endlessly looking for the best deal but struggling to commit to buy in case there is a better deal another click away. Amplify this with the choice available (whether perceived to be real or not) and you are left with the paradox of too many shoppers looking without booking, with the inherent strain on the systems and networks that manage the request and replies. This makes perfect market conditions for new entrants with vision and passion who are able to quickly and effectively come up with solutions that fill market gaps and satisfy unmet needs. Giants are usually too slow and entrenched to respond to changing needs and behaviours, but agile giants that recognise such limitations and harness the insight derived from data will remain formidable market players.

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