Launch of AllHotels.com Signals a Change
Posted on 20. Oct, 2010 by admin in Online Travel Agencies
It was only a matter of time. For many years here in the United States the hotel industry has been dependent on a small group of well established Online Travel Agencies for the majority of their business. Online Travel Agencies like Expedia, Travelocity, Orbitz and Priceline have enjoyed strong margins from hotels and it seemed as though nothing would change that… until now.
The American Online Travel Agencies had a difficult time breaking into the European markets. That is because the larger chains would not accept the 25% margins being forced upon them, and thus opened the doors to smaller European OTAs to grow. Booking.com in particular, which started out charging a low commission (in some cases just 10%) grew rapidly and captured the majority of the market in Europe. Priceline intelligently swooped in and bought up Booking.com which has resulted in Priceline.com trading at a higher valuation than Expedia on the stock exchange.
Hotels here in the United States may have noticed, particularly over the last year, that Booking.com is quietly starting to make an entrance into the US. Independent hotels have strong relationships with a Booking.com market manager based here in the United States and in many cases Booking.com produces a significant amount of revenue to these hotels, particularly when they are located in major US cities or destinations that attract European travelers. Interestingly, reservations now come in through Booking.com from Brazil, other Latin American countries, or even from within the United States.
Why did the American OTAs enjoy so many years of 25% margins without being challenged? Well that’s because hotels didn’t have any other choice. Hundreds of small OTAs have tried to compete, including one that I started back in 2007 with two private investors which attempted to replicate the OTA model on 10% margins which failed and has since closed down. The lesson learned there was that creating a great OTA, even with thousands of hotel contracts is worth nothing if you don’t have a large consumer base to book the hotels with you. Most customers don’t care what margin the hotel is paying…. and it isn’t logical for an OTA that is getting away with 25% margins to introduce a Booking.com model here in the US… or is it?
I believe that Priceline.com has consciously allowed Booking.com to make an entrance into the US market and to have direct relationships with suppliers. They could then start working with hotels that did not have GDS connectivity, which has always been a hindrance for Priceline.com. Then they could resell Booking.com’s inventory to Priceline’s customers. Isn’t that ironic? An American OTA is using a European OTA to contract American hotels and then they are reselling that inventory to the American public. Go figure… Notice that you haven’t seen any advertising of the Booking.com brand to the American public. That is probably because Booking.com has always grown organically, but also probably because Priceline is conscious of the potential of cannibalizing their own business and eroding their own margins.
In an August 2nd, 2010 interview by Ritesh Gupta at Eye for Travel, I stated:
“We have seen international markets maturing and they are experiencing the growth that the US saw years ago. The consumer adoption rate for booking online travel is increasing, the consolidation of US and International OTAs has created huge growth opportunities for US OTAs in international markets, more advanced methods of payment processing have emerged in Asia, and adjustments to margins and supplier conditions has allowed for a more functional relationship between OTAs and suppliers. I personally believe that we will start to see some changes here in the US as a result of what has happened in other markets.”
For the full interview, click here.
Today’s announcement that Travelocity has launched AllHotels just blows everything wide open. They are not shy about saying that AllHotels.com is “extremely similar to Booking.com”. I believe that Travelocity recognized that things are inevitably going to change here in the United States and they are taking steps to prepare themselves to be ahead of the game. It will be interesting to see if Travelocity actively promotes the AllHotels brand here in the United States, of if it will try to grow organically as Booking.com has done. If they do try to promote the brand, how will Priceline react? Will they try to promote the Booking.com brand as well here in the United States? Will Allhotels be able to grow as quickly as Booking.com has given that it has the Travelocity seal behind it? Will Expedia and Orbitz launch similar sites? Whatever happens, it is going to be interesting…
