There is always plenty of interest and mutterings in the industry over what Google plans to do next in the travel industry.
NB: This is an analysis by Craig Stewart, a director at hotel distribution technology provider FreeToBook.
Perhaps more so than its on focus with airlines through the Flight Search product, many ponder how Google might disrupt the current models of accommodation booking.
This is perhaps spurred on recently because Google has been experimenting with discount rates behind the logged-in Hotel Finder “captive demand” platform.
Why?
How it all works
In the world of online hotel distribution, there is no other player anywhere near the size of Google.
With tens of billions of hotel searches every month, Google is the number one gateway to online hotel distribution.
Right now, Google feeds traffic to the players that do the bookings, mostly OTAs and metasearch engines. But still, Google does not transact a single hotel booking itself.
In the current version of online hotel distribution, searching hotels of Google earns revenue from pay-per-click revenues, mostly paid by the OTAs, metasearch sites and some direct hotel advertisers who in turn earn commission from the bookings they transact and the customers they acquire.
Google is passing on the traffic or sales leads in a hands-off, pay-per-click auction.
As we all know, the proliferation of OTAs has lead to the invention of metasearch which enables customers to search for availability and rates across multiple OTAs and multiple hotels all in one go.
You would think this rate shopper type of technology helps you find the best deal. In reality, metasearch most often returns the same rates due to rate parity enforcement which makes it little more than a waste of time.
It serves an important if unintentional role, that of the key and continuing exposer of rate parity and the agreements that must be behind all the rate equality that OTAs and hotels cherish so much.
How it doesn’t work
When we see the same rate across all channels it tells us one big thing.
The online price of a hotel is very important and no tiny deviation can be tolerated. Online, a small difference in price returns a disproportionate increase in bookings.
It takes considerable effort and expense to get the independent vendors aligned all the time. That massive effort and the existence of rate parity exposes the primary importance of price.
This is arguably the only thing that metasearch has been good for in its so far relatively short and restricted history.
But surely customers using rate shoppers notice this – being starved of a good deal they will most likely flock to where they can find offers, if and when allowed.
Some are realising a new model can be provided through closed or captive platforms – such as behind a login, like a Google account, where all is for your-eyes-only (yes, all a bit James Bond-esque).
Different deals and lower prices can be offered behind the curtain, lower than the rate parity available in public search. What’s more. it would be virtually impossible to police.
There would be no way to enforce rate parity – only the customer, the captive platform and the supplier would know what rates were being offered users.
How it might shake out
Google is not the only big captive platform, there is also Facebook and Twitter, both giant services accessed by a personal log-in with hundreds of millions of logins.
Those that have railed against rate parity may very well have the last word, as large closed networks make offers at the lowest rates possible.
But is this really the end of the OTAs that some are predicting?
Google, or any of the other consumer web giants, are unlikely to give up the advertising revenue they currently receive from the transactors of bookings.
But smart OTAs and switched on metasearch engines will quickly adapt to offer lower rates where they can, and Google will probably facilitate this.
The OTAs are the best placed to bring discount rates into the platform and they most certainly will want to protect booking volumes.
The result should be an increase in the number of players and the types of businesses participating, creating more competition and lower prices.
It feels strange to call these platforms closed when considering the number of “members” brands such as Google, Facebook and Twitter have on their platforms.
If it is a closed or captive market it will undoubtedly be the most open “closed market” in history – you could even call it a “clopen” market.
Just ponder all that for a moment and tell me you don’t think Google et al have a handle on hotel distribution.
NB: This is an analysis by Craig Stewart, a director at hotel distribution technology provider FreeToBook.
NB2: James Bond island image via Shutterstock.
