In this economic downturn, Expedia (EXPE) and other Online Travel Agencies (OTAs) are desperately trying to generate incremental revenues, including advertising on their sites, to supplement their decreased margins. Sales pressure from the leading OTAs such as Expedia, Travelocity and Orbitz (OWW) has intensified tremendously over the past year. In addition to banner ads, in 2008 Expedia introduced TravelAds, a pay-per-click advertising program. Expedia proclaims that “similar to traditional search engines, this pay-per-click auction model is great for any budget”. The only caveat is that when users click on the sponsored listing, they do not go to the hotel website, they go to the hotel page on Expedia to make the reservation. In other words: advertising cost plus Expedia’s margin equals a total cost to the hotel of as much as 30%-40% from the booked hotel revenue.
Does it make good business sense to pay OTAs (who already make hefty profit margins from hotel’s net rates in the so called merchant program) to profit even further from hoteliers’ own inability to properly utilize the Internet and to damage even further the hotel brand and price integrity? We firmly believes that this is yet another proof of the existence of a new kind of disparity in the hospitality vertical: between smart, Internet-savvy OTAs on one hand and web-illiterate hoteliers on the other.
The OTA’s merchant model has greatly injured the hospitality industry and has done long term damages to the hotels’ brand and price integrity. You do not more proof than that; just look at the diminishing ADRs. The so called “rate parity” is in fact acceptance of the merchant-discounted rates as the hotel rack rates. The hotel’s discounted rates on Expedia have become de facto the hotel’s published rates. Though claiming to be “free of charge”, these merchant services cost hoteliers dearly. They cause long term damage and downward pricing pressures (both online and offline) beyond repair.
Paying to advertise on the OTAs, on top of these long-term damages, simply doesn’t make much sense. HeBS considers hotel-advertisers on OTAs as being the web reincarnation of the “Stockholm Syndrome” where the kidnapped victims (hoteliers) fall in love with their kidnapper: Expedia and the rest of the OTAs.
Disclosure: no positions