Analyst View: Direct Booking Campaigns Still Not Hurting Expedia

With earnings season behind us, we checked in with Expedia for an update on the impact from the ongoing direct booking campaigns from the large hotel chains. There have been more concerns surrounding Expedia than Priceline given Priceline is far more internationally driven, where the hotel industry is more fragmented, and Priceline has put up much stronger gross booking and room night growth recently.  For more on Expedia, please see our Research Report.

Large chains are successfully moving more bookings to direct channels, but the economic impact to Expedia and Priceline has been minimal.  If the industry does not engage in a prolonged price war, both sides could be better off seeing some shift in online travel bookings to smaller chains and independent hotels, both of which likely pay more per booking to the online travel sites than the large chains do.  However, it is important that the OTAs still have complete inventory where large chains are present on the sites.  We expect that both sides will behave rationally and the large chains remain available for booking on the OTA sites.  Additionally, while the ad campaigns have been equated to a “booking war”, both sides still work together and are starting to develop new technology partnerships.

We discussed the current landscape with Melissa Maher, Expedia’s Senior Vice President, Global Partner Group.  She manages all aspects of global business relationships with the company’s top strategic hotel partners including large and regional brands, connectivity providers, ownership groups, and management companies.

We asked Melissa for an update on the impact from the ad campaigns.  She confirmed our view that there has been share shift versus loss for Expedia.

“We have certainly done a lot of measurement in brand heavy markets and in brand light markets. We continue to not see any meaningful difference between the two. The efforts don’t seem to be affecting our results. We are in fact seeing a bit of a shift to independent hotels or smaller chains. They seem to be growing faster than the brands within our marketplace.”

She provided insights into the types of hotels that are taking share.

“It really boils down to the hotels that have the most compelling offers in our store. Those are the hotels that are benefiting within the Expedia marketplace.  Just really like any other marketplace.  Consumers are looking for competitive rates and competitive inventory. Hotels that are offering that as well as offering such things as more photos, positive reviews, and great availability.  Those are the hotels that are most likely to convert, and as a result will move up in a sort order and are gaining more business within our marketplace.”

ONLINE TRAVEL AGENCY CUSTOMERS ARE BRAND AGNOSTIC

Melissa emphasized that Expedia consumers are brand agnostic.

“We did some research and found that when consumers come on our site and they’re looking for a hotel, that less than half of one percent type in the brand names like Hilton, Marriott, or IHG.  Again, just another data point that our consumers are brand agnostic and tend to be more incremental to our hotel partners.” 

NEW PARTNERSHIPS AND DATA SHARING

We also discussed the Red Lion and Marriott partnerships.  She confirmed our belief that these can serve as examples for future relationships.  A key reason the hotels are likely to be receptive to these is that Expedia is sharing the data whereas it does not in a typical transaction.  The hotels want to be able to market directly to their future guests and improve customer service ahead of the stay.  This gives them a better chance of acquiring that guest’s loyalty longer-term.

“We’re trying to change the conversation with the chains and get away from the rate wars discussion, and look at becoming a more strategic partner and driving more incremental business to them.”

Expedia also launched its Expedia Partner Center (EPC) Conversations to facilitate better communication with the hotels.

“EPC Conversations are essentially a mechanism for the hotels to communicate with the guests once the reservation is booked.  We realized that having guest information and communicating to the guests in advance is something our hotel partners want.  Again, looking at various tools for us to be able to help accomplish that goal for our hotel partners.”

We asked if these partnerships can be a model for future ones.

“I definitely see this evolving into more of our hotel partners utilizing us in more strategic ways, and utilizing our technology to help grow their own business using our marketing efforts to help grow their business.  I think the conversations will continue to evolve.  We’re having a lot of really unique, good conversations and want to make sure that as we innovate, we’re working with our partners to grow the type of businesses that they want to grow. Really to again, change the conversation from pure distribution to more strategic, and utilize our assets of technology, of marketing, and of data to help grow together.”

PACKAGE BUSINESS BRINGS INCREMENTAL CUSTOMERS

“One of the benefits with the customers that we bring to the chains and our hotels is, our customer tends to be more incremental.  We drive a lot of package business.  That tends to be a customer that our hotel partners can’t reach as easily.  That tends to be more incremental.  The nice thing about the package business is they tend to book further out.  They have a longer length of stay, and usually have a much lower cancellation rate.  Again, that tends to be incremental, and a value that we bring to our hotel partners that is certainly unique.”

For the hotel perspective, we turned to Viceroy Hotel Group CEO Bill Walshe along with Standard Hotels Chief Revenue Officer Jimmy Suh, who we had far ranging interviews with in our recent 2017 Outlook On Metasearch Research Report.  Both hotels are upscale brands, but differ greatly in their approach.  Viceroy has super-high end properties where villas would not be booked online in most cases while their urban properties most often come through third party online distribution sites.  For Standard Hotels, they have managed to build an extremely loyal customer base where the most effective marketing has been direct channels like email.  We believe Viceroy’s urban hotels would be the type of hotel that could add some incremental share while Standard is a model of how to best drive direct bookings through building a strong brand and loyalty from the experience itself rather than the booking methodology.

Viceroy CEO Bill Walshe offered a pragmatic viewpoint …

“It concerns me that the conversation has gone to a point where there is an inference that every OTA booking is a bad booking and that OTAs are cannibalizing business that would otherwise come direct. I don’t agree with that.

We’re headquartered in Los Angeles. We have no operating product in a country like Australia. I don’t have a sales office open in Australia. I’m never going to have a sales office open in Australia. I don’t want to have to send my director of sales or general managers on flights to Australia to make sales calls. I’m actually doing nothing to penetrate that market. I’m not investing a dime. Whereas Booking.com, Expedia, TripAdvisor and others are spending significant amounts of money to bring my product to a point of visibility within the market that I have done nothing to penetrate.

Commission is an alternative to me having to invest dollars directly into those key source markets through permanent presence of a sales office, through hugely expensive brand advertising, be that digital or traditional, or deploying boots on the ground through sales trip which is also an extremely investment both in terms of time and dollars.”

… but it is different for the large chains.

“Sure, if I was running Intercontinental, Marriott or Hilton, and I had made the investment to create a sales platform globally and I see other people competing in the markets that I’ve invested in for that customer and sending them to my hotel, I would think that they were cannibalizing my business. I wouldn’t think it’s good. When I hear people within companies that have 10, 20, 40, 50 hotels saying oh yeah the OTAs are cannibalizing my business, I go, what have you ever done to deserve to receive a reservation from Japan? Nothing? Then shut up and pay the commission. Take the booking and move on.”

Standard Hotels Chief Revenue Officer Jimmy Suh on Direct Bookings

“We get the lion’s share of our bookings direct from our website and from our immediate sales force as well as our reservation centers. We get roughly between 65 and 70 percent on average across our portfolio, but that’s also the type of brand that the Standard is all about. We’re not for everyone and the people who know us are far more engaged. That higher level of engagement often transmits to just coming to us as our direct channel first and foremost, without even a secondary thought of trying to find the lowest rate somewhere else. Even if they do, and I’m sure you heard this a hundred times over from other companies … We do always ensure that you get more … Not only the lowest rates, but also more product portfolio, if you will, of the types of rates that you can book on our own channel.”

DIFFERENTIATED MARKETING STRATEGY

“We focus a lot of our marketing dollars on building the cultural aspects. What company, for example, has an editorial team on staff? We spend a lot of time partnering with or doing events and activations on-property that generate the social buzz for our local community. One thing that the whole Internet and social media world has provided was to equalize the playing field, in which more times than not for our brands, it’s the local community who brings out the viral effect for the consumer markets as well.”