How OTAs Got Rich at the Expense of Hotel Owners and Managers
Authored by: Adam Schwab (CEO & Co Founder Luxury Escapes)
The world’s biggest online retail technology company, Amazon, gets almost 100 percent of media coverage devoted to the sector, but too often the media ignores the incredible growth of OTAs such as Priceline.com (and to a lesser extent, Expedia) and their devastating effect on the hotel industry.
Priceline.com, largely through its Booking.com brand, has quietly become one of the world’s richest companies with a market capitalisation of US$90 billion. Smaller competitor, Expedia, is worth US$22 billion. To compare, Marriott International, the world’s largest hotel brand, is capped at just US$40 billion (after its merger with Starwood), Accor is worth US$11 billion and Hilton US$22 billion.
None of this is news to brand and hotel owners who - for more than a decade - have been fighting the curse of OTAs: a parasite that was allowed to grow more dominant than the host. In 2016, for the first time ever, the value of booking platforms (including Airbnb) exceeded that of accommodation providers. The hunter has very much become the hunted.
At the risk of talking our own book, our team at Luxury Escapes have been able to build our business, in part, because of the dominance of OTAs who - to a significant extent - have cannibalised the revenue of brands and owners. Shrewd use of loyalty schemes and dominant SEO (search engine optimisation) have meant that guests who would have otherwise gone directly to a brand.com website are instead buying from Expedia, or Agoda or HotelClub at a commission of around 15-20 percent. This is revenue collected by the OTAs that should, for all intents and purposes, be in the pocket of hotel owners.
Unlike say Airbnb, which adds real value to society by utilising empty rooms in residential apartment buildings and houses, OTAs don’t add any value to anyone. They simply steal a booking that would have been made anyway, and clip the ticket along the way.
At Luxury Escapes we’re very proud to have generated billions of dollars of incremental revenue for our hotel partners. This is because more than 90 percent of our guests weren’t planning on staying at the hotel they ended up buying. Even more powerful is the fact that more than 70 percent of Luxury Escapes guests weren’t planning in even going to the country they visited. What Luxury Escapes has been able to do is not simply take someone else’s share of the pie, but in fact grow the pie. This is a great win for both guests and owners.
The underlying driver of what Luxury Escapes does is to ensure that both hotels and guests have outstanding service. We deliberately overinvest in our customer experience team, who work 365 days a year. If someone has a problem, they can expect to get an email reply within an hour, or sometimes even faster. Compare that to Booking.com, where you’d be lucky to get a nonsensical reply in a week.
It’s this devotion to customer experience which has meant the average Luxury Escapes member buys 1.4 holidays per year (up from 1.0 holidays in 2016). That means more incremental dollars into the pockets of owners and brands, rather than OTAs.