"Google’s big advantages over other travel content aggregators is its already-huge user base and its ability to target consumers across the entire travel funnel."
Report OverviewGoogle has always played a pivotal role in travel, since the early days of search. Now, travel ad spend accounts for a significant portion of the company’s total ad revenue, about 12 percent according to Skift estimates. More recently, the company has upped its sophistication in facilitating various travel functions including hotel and air search (and book) but also in-destination activities, reviews, and ground transport. Numerous successful pivots to mobile proved crucial in positioning the company as an all-purpose travel platform. This transition over to product has also put Google in more direct competition with OTAs, other metasearch players, as well as the suppliers all vying for ownership of the customer. While we expect Google to capture significant market share, this shift will prove gradual. Currently, global hotel chains acquire under 10 percent of their bookings through Google AdWords and Hotel Ads. The rest comes from OTAs, direct marketing, and other channels including group bookings and rates negotiated over the phone. Hotel spend on Google is expected to increase through 2018. Some see the company as an OTA killer. Our sensitivity tests show that it makes little business sense for Google to proactively seek to displace its largest advertising partners. Short of completely upending them, Google’s position will continue to push existing players to evolve new and blended business models that combine distribution with other value-add functions for suppliers.
What You'll Learn From This Report
- How the Google ecosystem complements and competes with other players in the market
- What Google’s expansion into ad-driven travel apps means for hotels and airlines
- Baseline economics and corporate structure of Alphabet Inc.
- Differences between hotel direct and indirect customer acquisition strategies
- 2017–18 data on hotel distribution mix for branded and independent hotels
- Evolving online travel agency (OTA) strategies as a hedge against the rise of Google Hotel Ads
- What Google’s growth in travel means for other metasearch players out there
- Breakdown of Google ad revenue and why the company is NOT trying to become an OTA
- The nuts and bolts of running a Google Hotel Ads campaign
List of Figures
- What does your current distribution mix look like? Results from Skift’s State of Hotel Direct Booking Survey 2017
- Over the next 24 months, will your spend on the following channels increase, decrease, or stay the same? Results from Skift’s State of Hotel Direct Booking Survey 2017
- Google Ad Revenue from Large Hotel Brands. Skift Estimates
- What channel do you typically use to book a hotel? Results from Skift’s U.S. Experiential Traveler Survey 2017
- Through which channel do you normally get the best prices for travel services? Results from Skift’s U.S. Experiential Traveler Survey 2017
- New/ Lost Google Revenue from Hypothetical OTA. Skift Estimates
- Approximately what share of your total bookings come direct through your airline website? Results from Skift’s 2017 Airline Survey on Leadership in Ancillary, Revenue Management and Marketing
- Approximately what share of your bookings come from loyalty member customers? Results from Skift’s 2017 Airline Survey on Leadership in Ancillary, Revenue Management and Marketing
- Google Maps overall ranking in the U.S. iOS app store
- Travel searches on YouTube have tripled over the last five years
- Top 1,000 Travel Queries
Google has always played a pivotal role in travel, since the early days of search. Now, travel ad spend accounts for a significant portion of the company’s total ad revenue, about 12 percent according to Skift estimates. More recently, the company has upped its sophistication in facilitating various travel functions including hotel and air search (and book) but also in-destination activities, reviews, and ground transport. Numerous successful pivots to mobile proved crucial in positioning the company as an all-purpose travel platform. This transition over to product has also put Google in more direct competition with OTAs, other metasearch players, as well as the suppliers all vying for ownership of the customer.
While we expect Google to capture significant market share, this shift will be gradual. Currently, global hotel chains commonly acquire under 10 percent of their bookings with Google Hotel Ads. The rest comes from OTAs and direct marketing. Hotel spend on Google is expected to increase through 2018. Some see the company as an OTA-killer. Our sensitivity tests show that it makes little business sense for Google to proactively seek to displace its largest advertising partners. Short of completely upending them, Google’s position will continue to push existing players to evolve new and blended business models that combine distribution with other value-add functions for suppliers.
As hotels have caught up technologically, with improved revenue and digital channel management capability, this has helped Google to become a more viable ad platform for the market as a whole. This trend will also continue, particularly as the bigger branded hotel chains move increasingly asset-light and into marketing- and advertising-related roles. Here, Google will become a critical ad-based distribution partner for these players. Independent properties will likely remain more OTA-dependent, relative to the chains.
In addition to attractive economics, both hotels and airlines look for better customer data and more platform flexibility from their intermediaries. Google Flights direct-connect streamlines existing airline distribution networks. Its native user base also gives it an enormous cost advantage over other distribution players. Looking forward, Google is taking steps to add even more value to the customer journey with new hardware and deeper technology with its voice search and Google Assistant products.
Globally, we wonder how Google with compete in China, given that market’s restricted access to foreign companies. We also note recent consumer backlash against platform dominance and how regulation might play into Google’s overall competitive positioning, especially in Europe. Here, brand positioning will play a crucial role in how platforms integrate travel products and services into their overall wheelhouse.
Key Findings / Conclusions
- Google, under parent company Alphabet, has vast resources that will play into its overall strengths as a rich travel search and advertising platform.
- From a user experience perspective, we see how Google’s ecosystem of apps could carry additional draw for the consumer, where the whole is greater than the sum of its parts. As Google improves connectivity across hotel and air search, activities, itinerary management, person-to-person communications, payments, voice search and other features, this will offer added benefit to the user.
- Google will likely continue to grab hotel and air business market share away from other aggregators, as consumers warm up to Google for travel search and book, and as hotel chains get smarter about using Google as an advertising platform.
- Google’s big advantage over other travel content aggregators is its already-huge user base across the ecosystem, and its ability to target consumers across the entire travel funnel. Gmail, Google’s popular email application, currently has 1.2 billion users globally.
- The assumption is that relationships between OTAs and hotel megabrands are strained. Historically, these entities have found themselves at odds over comp structures. Nevertheless, OTAs still have significant leverage in appealing to these entities including better commission structures, data sharing, and other value-add terms such as access to proprietary technology.
- The Google Hotel Ads platform is not a simple plug-and-play tool. Initiating and managing Google ad campaigns is complex, technically. Larger hotel chains with the scale, resources and acumen to use Google effectively will gain more ground with this channel, compared to independent properties. However, integration partners also see opportunity for the long tail of independent properties to benefit from the platform.
- Our channel checks show that paid-direct channels, i.e. travel metas and Google, still account for a relatively small share of the hotel distribution mix. The bigger chain brands pull in around 10 percent of bookings from these channels. Independent properties can hover in the mid-single digits. Over time, we expect this gap to widen as global chains lean on Google’s advertising muscle.
- In the world of online travel, Google poses the most immediate threat to travel-specific metasearch sites like Trivago, TripAdvisor and Kayak. These platforms will need to stay price-competitive on traffic acquisition. Oddly, these brands also participate in Google Hotel Ads to win traffic.
- Proprietary Skift data from our annual hotels survey show that paid-click channels will experience the biggest increase in investments through 2018, relative to other channels. All 300 survey respondents indicated that they expected investments in paid-click to either increase or stay the same.
- Last quarter’s earnings announcements from Priceline and Expedia exposed planned budget shifts from performance marketing to brand advertising. While still early, we see this as a telling adjustment in OTA strategy that reflects a changing and increasingly competitive online travel market landscape.
- The unraveling of U.S. rate parity agreements between the OTAs and their hotel partners gives hotel properties added advantage on Google over the OTAs. While these laws are still in place, the major U.S. chains recently reworked their contracts with Priceline and Expedia to allow them to offer cheaper “loyalty rates” on other platforms. Independent properties could remain locked in to their contract agreements.
- Expedia’s recent moves to offer more competitive commission terms to independent properties as an incentive to adopt Expedia hotel technologies hints at greater OTA focus on controlling the hotel supply (over consumer) as a competitive moat against Google.
- One possible Achilles heel scenario for the OTAs is if the mega chains were to pull inventory and replace lost traffic with increased spend with Google. Here, OTAs have room to offer incentives to their hotel partners. This includes better commissions and value-add such as technology solutions to build longer-lasting partnerships.
- While additional consolidation in the hotel industry is expected, particularly in developing markets, much of the low-hanging fruit in the U.S. and Europe has folded into the bigger global branded networks. Further consolidation will put pressure on the OTAs to lower commissions. These hotel networks will also continue to develop their capabilities in using Google as an acquisition channel.
- We see a world where the distinction between hotel brands and OTAs becomes less clear, as the chains move toward more marketing and asset-light strategies. In addition to native direct strategies, i.e. loyalty programs and content marketing, we can see how Google could become their largest single paid customer acquisition platform.
- In addition to the OTAs, Google will benefit as more hotel bookings move from offline to online channels. Phone, email and walk-in bookings still account for approximately 10 percent of hotel bookings.
- We believe the effective hotel commission rates on OTAs are likely to decline over time. How much or how fast is unclear.
- OTAs continue to use metasearch platforms including Trivago and Kayak to lower their overall cost of customer acquisition. However, OTAs have recently pulled performance marketing spend away from these platforms, with a bigger focus on brand advertising. If these meta platforms can deliver traffic at a cheaper rate than Google, then they will remain relevant to the OTAs.
- Google Flights poses a more direct threat to the OTAs as the platform gains momentum with consumers. While the core margin rests in the hotel product, Expedia in particular depends on air shopper traffic to cross-sell hotels.
The United Nations ranks travel and tourism as the second largest industry globally. In 2015, global international tourism revenue reached approximately $1.22 trillion, according to the World Bank. Early on, Google (and Internet search engines more generally) allowed destinations, hotels, tours and activities providers, restaurants and retailers to become more visible online.
The company’s role has clearly evolved since the early days of search to include various layers of data and features that have helped travel suppliers reach travelers and vice versa. Furthermore, Google’s smart execution with its mobile products suite was crucial in securing its long-term positioning in the travel space. With U.S. smartphone penetration now reaching over 80 percent, younger generations might struggle to remember or imagine what travel was like before mobile.
Those in the industry often claim that travel has fallen behind other sectors when it comes to technology adoption. Fragmentation in the hotel industry and, arguably, consolidation in the airlines industry has kept suppliers from making the necessary investments in distribution, revenue management, and ecommerce capabilities. In a 2017 Skift survey, we asked the travel industry about their perceived ability to compete in the digital world. Over one-third of survey respondents believed that they were behind in their adoption of technologies and processes such as personalization, digital analytics, and big data.
Source: Skift Research, Digital Transformation in Travel Survey 2018
This is the context in which Google has made steady gains in the industry as a sophisticated travel platform. Pundits have pointed to Google as a disruptive force in travel since 2011 when the company launched its air and hotel search products. Slowly but surely, hotels and airlines and even tours and activities companies are adopting the back-end technologies and skill-sets needed to fully utilize newer means of customer acquisition. Things look a lot different today than they did just seven years ago. Sixty-two percent of consumer-facing travel brands expect to either significantly or moderately increase their budgets on Google spend. Other areas for investment include the mobile environment and native content.
Source: Skift Research, Digital Transformation in Travel Survey 2018
As an ad-driven platform, it can be difficult to understand how travel product distribution plays into Google’s core business. Larry Page and Sergey Brin built an empire on sophisticated algorithms and web crawlers that returned virtually instantaneous search results on static web content such as news articles, websites and product descriptors. Leaning on this experience, the jump to more dynamic content, i.e. pulling real-time pricing and room availability for the hotel sector was a natural jump for Google.
Clearly, travel is important to Google given its revenue generating potential. Travel is also important to Google because travel is so integral in our daily lives. Beyond basic search, many of Google’s products have taken on more prescriptive functions. Google no longer tells us how to get from point A to point B, it tells us the most optimal route based on traffic and other considerations. Google can auto-generate suggestions on things to do and places to see. It can preempt and correct our behavior by reminding us of flight times and other calendar items. Google also has the resources, the platform and the user base to consistently improve its products over time. We truly believe that if left unchecked by competition or regulators, a company like Google could become an even more essential extension of our day-to-day lives. Travel is just one of these functions. The question, therefore, is how far can Google realistically go?
In under 20 years, Google, now a part of parent company Alphabet, has grown to be the second largest company in the U.S. by market cap, which now sits just north of $700 billion. Driven by its mission “to organize the world’s information and make it universally accessible and useful,” the company employs more than 78,000 people and operates in over 100 countries. Alphabet is set to do $110 billion in sales this year, but more impressive in our view is its ability to compound such a large top-line dollar figure at a 20%+ growth rate over the past several years while maintaining an operating margin around 25 percent. Underpinning this success is Google’s network effect from its billions of users. As customers are free to use whichever search platform they choose, Google ultimately relies on providing value through its high-quality search results and by meeting users at their preferred formats and devices. To protect its competitive advantage, the company tries to surround its users with the Google ecosystem, which has led to an expansion beyond desktop into mobile and voice searches and from text searches to video services like YouTube. This is also the impetus for Google’s push into hardware devices like the Pixel phone and the reason why the company seems to obsessively tweak how it displays results.
Alphabet has two operating segments: Google and Other Bets.
Other Bets is Alphabet’s “moonshot” division. It houses a portfolio of early-stage businesses that don’t fit into Google’s core offering. These businesses have a lot uncertainty, but also hold the potential to be highly successful long-term. Most of the businesses are pre-revenue, though Nest (smart home thermostats) and Google Fiber (Internet service provider) are notable contributors to segment sales. This division also houses Alphabet’s investment arms CapitalG and GV, as well as its self-driving car initiative, Waymo. Despite the headlines it sometimes gathers, Other Bets is still a very small part of the picture, generating less than one percent of consolidated sales and six percent of consolidated expenses sales over the last four quarters.
The Google Segment is the portion of Alphabet that readers are likely more familiar with. This houses the core Google search and advertising products, YouTube, Maps, Gmail, and others. We expect Google to do $110 billion in gross sales for 2017, up 22 percent from last year. We forecast this business unit to generate $34 billion in operating profit this year, a 31 percent margin. The Google segment is further subdivided into the Google Advertising business and Google Other businesses (not to be confused with Other Bets). The Google Other subsegment houses non-advertising revenue streams like the Google Cloud offerings, Google hardware initiatives (e.g. Pixel phone), Google App store purchases, and others. The Google Other subsegment is just 13 percent of the overall segment but would still be a large company in almost any other respect with $13 billion in sales over the last four quarters.
Google Advertising: Google primarily generates revenue from online advertising. We estimate that in 2017 Google will generate more than $70 billion in net sales from advertising in 2017, up 16 percent from last year.
First Party Properties
Google offers advertisers the opportunity to display targeted ads on many of its own properties including search results, YouTube, Gmail, and others. On a net basis, Google sold $65 billion of ads over the last four quarters on its own sites and this figure is growing at a 19 percent rate driven by increased user engagement.
We believe that a majority of these sales come from the core online search product, which is monetized by displaying relevant ads among search results. In 1999, Google was displaying over one billion searches per year and today we believe that number is over two trillion searches per year. Google has a dominant position in search, capturing 73 percent of all desktop searches and an impressive 93 percent of mobile searches.
Moving Beyond the Core: Innovating in Search and Expanding Into Video
The company historically maintained growth rates first by growing desktop search market share and next by moving to mobile searches. However, with search market share near a peak, Google has had to expand the ways in which it delivers ads to maintain its growth rate outside of traditional search. Prime examples of this include integrating ads within Maps and Gmail. The company has disclosed that both Maps and Gmail each have at least one billion users in addition to the estimated 2.4 billion users of core search. Most important outside of core search is the rise of YouTube which has rapidly grown to become a crown jewel of the company. YouTube now has at least 1.5 billion unique users who engage with the platform across a variety of devices. For instance, users now spend an average of 60 minutes a day on mobile and collectively watch 100 million hours a day of television through either apps or hardware accessories.
These strategies have been working so far. Consider that while aggregate search volumes have slowed to a mid-teens growth rate, Google’s paid clicks, the number of ads that users engaged with and a measure of ad volume, increased +55 percent in the third quarter of 2017. Clearly that volume growth is coming from outside of traditional search, such as from initiatives to make ads more engaging and to bring the Google platform to new devices and media formats. Given initial successes, we expect Google will continue to push the envelope of ad formats and products — travel search and advertising will be no exception.
Google also operates a third-party network of ads through its AdSense, AdMob, and DoubleClick platforms. Here, Google acts as a broker that matches buyers and sellers of advertising. Independent websites can contribute ad inventory to the platform, allowing owners to monetize their sites instantly without a salesforce. Google can pool that inventory and offer it to advertisers looking to increase the scale of their campaigns beyond Google’s first-party sites. Google generated $5 billion in net sales from its network sites over the last four quarters.
Traffic Acquisition Costs
A growing expense for Google is its traffic acquisition costs. These are the fees that Google pays to drive web traffic to its first- or third-party sites. This expense is largest within the third-party network business where Google collects gross receipts from the advertiser, but then must credit a portion of the sale back to the site owner that displayed the ad. Within the third-party business, Google rebates more than 70 percent of all gross sales in traffic acquisition, thus reducing $17 billion in gross Google network revenue over the last four quarters to $5 billion net.
Traffic acquisition cost is a far more modest 12 percent of sales in the first-party business, though that number is rising with the shift to mobile browsing. The stark difference between total acquisition costs (TAC) on first- and third-party traffic should underscore why Google is so obsessive about bringing users onto its own sites and devices.
We suspect that a large driver of the growth in first-party TAC are fees paid to Apple by Google to ensure that Google is the default search engine within the iPhone’s Safari browser. These fees to Apple were $1 billion in 2014 and have undoubtedly only grown since. That means Apple is likely a large portion, perhaps even a third or more, of the almost $8 billion in first-party TAC paid by Google this year. This would also help explain Google’s push to grow its Android mobile operating system and its expansion into phone hardware.
Source: Company Filings, Skift Research
Google stands as running one of the most internationally focused operations with just under 50 percent of company sales from the United States. A full third of Google’s business is in Europe and a quarter of its assets are located abroad.
Google is also seeing some of its fastest revenue growth in international markets. Its fastest growing region is Other Americas, which includes Latin America. Though still a small market today, just five percent of company sales, we see long-term potential to replicate successes from other geographies.
We highlight the Asia Pacific region, which did $15 billion in sales over the last four quarters and grew by 29 percent year-over-year in the third quarter. The Google platform has been eagerly adopted in Asia with the number of active advertisers increasing by 25 percent or more in a number of countries including Japan, Vietnam, and the Philippines. Management has also been focused on getting consumers to live within the Google ecosystem abroad. Part of these efforts have included introducing products tailored for specific country audiences. An example is Tez, a mobile payments app recently designed for and launched only in India. This localization strategy is more likely to be successful, in our view, than one that simply imports existing U.S. products and services to new markets. It should be mentioned that Google’s success in APAC comes without any boost from China, the largest country in the region. Google withdrew many of its businesses, including core search from the China market in 2010, due to concerns about government privacy and steep competition from search engine Baidu. While Google has found success in Asia without China thus far, the company may look to once again grow its local presence in coming years.
Source: Company Filings.
Source: Capital IQ, Company Filings.
The last five years have seen Google do more than 100 acquisitions cumulatively worth at least $20 billion. However, that headline is skewed by the billion dollar-plus purchases of Motorola, Nest, and most recently HTC, the maker of Pixel phones. These mega-deals speak to Google’s growing ambition, and struggles, to launch first party hardware products. Google’s only other two deals with a price tag over a billion dollars are DoubleClick ($3.1B) and YouTube ($1.5B). Both closed before the financial crisis and have grown into core pillars of the business. Pixel will have big shoes to fill.
Remove these mega-deal outliers and Google is still highly acquisitive but the trend becomes clearer. Our research shows that in an average year, the company will do 15-20 small deals valued in the $20-30 million range. These small tuck-ins will typically be accompanied by two-to-four larger acquisitions that can range from $250-900 million dollars.
Google prefers to build in-house – it has twenty-seven thousand employees in R&D – but will still use M&A to quickly bolster efforts in new services with long-term potential. Google is also willing to be a defensive bidder and has in the past acquired emerging competitors for their employees or user base.
Google’s plays its cards close to the vest and rarely discloses deal terms but Skift research reviewed sales where market values were available. Of those few deals, it is interesting to note that four of largest are in the travel, dining, or transportation/mapping verticals. Scanning further down the list, we can also include the short-lived acquisition of Frommers. The prominence of these verticals stands out even more sharply when one realizes that most other large acquisitions are in Google’s stated core competencies of ad tech, artificial intelligence, mobility, and cloud computing. Perhaps Travel is more core to Google’s business than many suspect? This finding would certainly tie with Skift’s recent research that the Travel industry might account for up to 10% of Google’s total ad revenue.
The Google Ecosystem
We believe a large part of the reason why Google has been so successful is because of its powerful ecosystem and the network multiplier effects that come with it. Many Google products work well individually, but they are all built as part of a network and stand upon the others to become greater than the sum of their parts.
Within the world of travel, Google has certainly taken this approach and built a platform that spans the full life-cycle of a trip from discovery through planning and on to the destination. Priceline and Expedia, stand out as having taken a similar line, but few other travel services can offer such an integrated experience.
Google’s unique edge is its ability to plug its travel platform into the broader Google ecosystem. For starters, Google can acquire organic traffic more cheaply than perhaps any other property on the web by virtue of its estimated two trillion or more searches per year. Further, Google bridges the gap between the “travel” and “everyday” sides of our brains. Many might only visit a travel-related website when planning a trip a few times a year. Even for hardened business road warriors, travel can often occupy a different headspace. However, Google integrates travel into every day, often local, experiences. Flight and hotel searches are built into the core Google homepage. The same Google Maps app used for directions on the daily commute can also recommend nearby activities and restaurants in a foreign capital. Google Trips automatically pulls in flight and hotel reservation information from Gmail with its over one billion users. User data from search history to location information can be mined, often with the help of artificial intelligence, to improve existing services. These broader network effects cannot be replicated by any other travel-specific platform and, in our view, are of increasing importance to a new generation of connected traveler that expects a seamless connection between local and travel experiences.
Like it or not, Google has moved beyond simple search and is a large and growing player in the travel industry. Travel leaders should be aware of its strengths — big data capabilities and network effects — as well its weaknesses — difficulty building personalized experiences and supplier networks — to best compete and partner. To place travel within the Google ecosystem, we explore each product more fully below.
Hotels and Google
Customer Acquisition: Where the money is going
Hotel marketing and distribution is a complex landscape where individual properties work through various direct and indirect channels to fill supply. In very simplistic terms, guests reserve rooms either directly with the hotel or through intermediaries. How guests end up to which booking page is where much of the strategy lays when it comes to customer acquisition. Google is one of many channels that suppliers and intermediaries can use to effectively lead guests to their booking pages.
Hotels connect with other channels including online travel agencies (OTAs), global distribution systems GDSs, travel management companies (TMCs) and traditional travel agents to make their properties visible to a global marketplace. Hotels publish their content including product information, price and room availability to these various channels. They also manage their own websites which get indexed by Google and may result in “free” or organic traffic and potential bookings. Direct outbound marketing programs based on rewards programs, for instance, are another tactic that hotels use to maintain brand awareness and to effectively bring traffic to their booking pages.
The following figure shows the distribution mix for a typical hotel chain and for a typical independent property:
Google’s AdWords and Hotel Ads products fall into what we refer to as paid digital-direct channels. Travel metasearch marketplaces also fall into this bucket and include sites like Kayak, TripAdvisor, and Trivago. Unlike the OTAs, these sites aggregate content from multiple sources and then offer suppliers (in this case OTAs are also suppliers) the option to improve their visibility to shoppers either through cost-per-click (CPC) or cost-per-acquisition (CPA) ad bidding.
Google launched Hotel Finder as its stand-alone metasearch platform in the summer of 2011. More recently, the company folded the hotel search feature directly into its main search results page. The company has steadily improved the product over the six years of its existence, integrating more advertisers onto the platform. Pricing and availability are now overlaid on its directory of listings. Hilton began using the platform and now has all of its 4,200 hotel properties on the Google Hotel Ads platform. Both OTAs and other metas including TripAdvisor now run ad campaigns on Google Hotel Ads.
Mechanics of Google Hotel Ads
Google Hotel Ads is a robust digital advertising platform that allows suppliers to manage and automate cost-per-click (CPC) bids that appear on Google Search and Google Maps across devices. The overall benefit over traditional AdWords is stronger return on ad spend, since these ads target users that have already shown buyer intent for hotel products. Advertising to active buyers helps improve overall hotel (or OTA) website conversion rates.
Building and managing CPC campaigns on Hotel Ads requires integrating three different data feeds with Google: Hotel listing, price and availability, and point-of-sale feeds. Hotels typically work with integration partners to ensure proper connectivity.
Once connected, campaign managers can place bids on one or multiple properties based on various attributes. This improves their overall visibility to shoppers. Properties that convert well are typically good candidates for click-based advertising campaigns. Hotels (and OTA) websites that deliver a clear and easy path to purchase have better odds of converting, once visitors arrive at the site.
Managers also prioritize properties and set either higher or lower bids based on various criteria including room rate, occupancy, hotel location and others.
Managers can also set multipliers based desired shopper criteria. With multipliers, hotels can better target specific guests that might have higher customer lifetime value e.g. more likely to sign on for loyalty programs or spend money at the hotel bar, or those that book longer stays, for instance.
Google Hotel Ads also has automated features where managers can set their Target Return on Ad Spend. ROAS bidding requires deeper data integration with Google in order for the system to capture all necessary information to reach desired return on ad spend.
Hotels and Google AdWords
Google offers both the traditional AdWords platform and the Hotel Ads metasearch product. Under AdWords, hotels tend to focus most of their bidding on branded search and very narrow key terms rather than generic ones. An example would be Hilton bidding on “Hilton in NYC” for branded or “luxury hotel on 51st street” for narrow. Hotels tend to avoid bidding on a term like “Hotels in NYC” as the OTAs have massive ad budgets and inventory to win that click. On Google’s Hotel Ads platform, larger hotels bid to be present on their own properties. For example, if we search for “Hotels in NYC,” we return Expedia, trivago, Kayak, and Hotels.com for the four paid AdWords links.
The deterioration of rate parity
Hotels have traditionally held contractual agreements obligating hotels to maintain rate parity with their OTA partners and other channels including their own websites. In recent years, legislation in Europe banned the practice of these agreements to presumably encourage competition. The big hotel chains recently rewrote their contracts with the OTAs allowing them to offer special rates to loyalty members. Nowhere is this more visible than in the Google hotel search result field. Hotels can tweak offers and how they appear in Google to encourage direct bookings (see highlighted yellow).
We believe that this more recent development could potentially give Google and other metasearch brands a distinct advantage over other aggregator sites including the OTAs. Rate parity embodies the wider and sometimes contentious conversation that has played out between the OTAs and their hotel partners. The core issue between these two groups typically centers around commission rates. An additional sticking point is increasingly who owns the customer data. When an OTA books a room, they capture the user data and will often limit what is shared with the hotel property, for instance some OTAs will mask the email address of the customer.
The hotel still has an option to recapture customer data, such as if the OTA booker is also a loyalty member, but this is clearly less than ideal. This issue is still secondary to price but of growing importance in today’s age of big data arms races, especially for the large brands. Logically, hotels look to minimize overall distribution costs by constantly exploring more economical channels. This typically includes negotiations with their distributors. Hotel groups with more inventory typically have more leverage to negotiate. (See Skift article about more recent negotiation rounds between Hyatt and Expedia).
In the following figure we see a wide disparity between what larger chains might pay to their OTA partners and what independent brands might pay. We also see the varying degree in share costs across the different channels. Arguably, all of these options are effective channels. Which channels hotels use often depends on property and brand attributes.
For example, a branded chain hotel in Manhattan might allocate more budget/inventory to metasearch CPC campaigns to acquire traffic that it knows it can convert at a cost-effective rate. A desirable boutique Manhattan hotel with high occupancy rates might opt to allocate more inventory to an OTA, because it can negotiate a competitive commission rate, and because it does not have the in-house channel management personnel to launch a cost-effective CPC campaign that would yield higher conversions.
Most hotels acquire traffic and bookings from a diverse set of sources. While hotels often complain the commission that OTAs charge is too high, the cost of metasearch or Google under CPC can wind up being higher due to the fact that CPC does not guarantee a booking for the cost, whereas OTA commissions are only paid on success. The better a hotel is at branding and conversion, the more likely CPC rates will be below OTA rates, but that is a difficult task. OTAs use meta to increase their own bookings as well and can do so with effective CPC rates that are much lower than hotels could achieve due to higher conversion and more advanced optimization technology for the ad campaigns themselves.
Rather than managing the process in-house, some hotels and hotel groups work with third-party channel management companies. One such company is SiteMinder which offers a range of products and solutions. The following excerpt is an interview with Mike Ford the co-founder and managing director of SiteMinder. Here, Mike talks about how hotels often work with Google:
Skift: There’s been quite a bit of change in Google and how they place paid versus organic search. Have you seen the change in terms of costs of acquisition on Google for hotels over the last year?
Ford: “Generally, with our independents, what we find is that they’ll be on more of the CPA model, because they don’t really have the power and inclination to manage against Google, against Booking.com or Expedia. Managing your CPC, you’ve either got to use an agency or really know what you’re doing. So generally, for independents the CPA is easier on Google and would be 12 or 15 percent [effective commission].”
“You’ve got to remember that Google, it’s not just a plug and off you go. The guideline is to provide the piping and the technology to get onto Google, that’s the booking engine and the availability and rate into Google, we have to handle all the payments, etc. on behalf of the independents and even the small chains, because Google doesn’t deal directly with the end hotel. So, there’s still costs over and above the bidding costs that we and other technology providers have to charge the hotel on top of what Google does in order to handle all the payments and the technology.”
“It is tough to say I’m going to get these bookings much cheaper than the OTAs. You’ve got to outbid Booking.com and Expedia. They have multi-language, so if you want guests from different countries, you’ve got to make sure you’re translating all of the content on your booking engine, otherwise you can only do it from English speaking countries. You’re then paying your technology provider to handle the payments to Google and the technology provider has to click the monies and remit the commission back to you. It’s a complex environment and depending on how well the booking engine converts, that’s the key.”
Ultimately Booking.com and Expedia are conversion experts. So you’re up against that as well. I wouldn’t say it’s dramatically cheaper than the OTAs, but the cost of acquisition model is cheaper and you could probably make the CPC more cost effective if you are very good at converting traffic.
I think the most important thing about Google and TripAdvisor meta is not necessarily the cost of acquisition, even though I think you can make it more cost effective if you’re very good at what you do, but it’s also about making sure that hotels are looking after the future and that they’re engaging with multiple channels and not just getting all their reservations through one channel.
The other really important aspect is that it is more difficult for the hotel to have a relationship with that guest for bookings coming from the OTAs. Booking.com, for example, will mask the email of the guest, because they like to keep that relationship with the guest. So there’s some benefits of meta, which are it diversifies the distribution and the source of bookings and it also allows a closer relationship with a guest for the hotel.”
The ideal mix
The following figure shows where hotels would like to be with their distribution mix. Here we see a significant split between independent and chained hotels. We also compare this to the current distribution mix and note some potential areas of movement: Both branded and independent chains would like to see more bookings coming through unpaid digital direct channels, about 40%. Branded chains would like to see a significant reduction in OTA share. We also see both groups would like to see an increase in bookings acquired from paid click channels including Google.
Source: Skift’s 2017 State of Hotel Direct Booking Survey
Source: Skift’s 2017 State of Hotel Direct Booking Survey
In this figure we see that the vast majority of branded chains intend to either maintain or increase their spend on Google HotelAds and AdWords.
Source: Skift’s 2017 State of Hotel Direct Booking Survey
Source: Skift’s 2017 State of Hotel Direct Booking Survey
How much could it be worth?
Google does not disclose specific numbers, but as a frame of reference Skift Research estimates that Adwords and Hotel Ads may already generate as much as $1.2 billion in US ad revenues from the large branded hotel chains alone, based on a percentage of gross bookings. That number grows if one factors in international branded budgets as well as the global ad spend of independent hoteliers and the OTAs, though that is outside the scope of our analysis. Skift Research has previously estimated that the OTAs may spend as much as $4 billion with Google globally and across all ad units (i.e. not exclusive to hotel search).
Skift believes, based on company filings, that the largest branded hotel chains do close to $99 billion in North American gross bookings and our survey work indicates that, for those same brands, paid clicks make up 5% of distribution, on average. If Google is the majority of paid clicks for these brands, then it could drive gross bookings north of $4 billion. We believe that for these marquee brands a 3-4x, return on advertising spend is an appropriate benchmark, which, given the level of bookings, requires an ad spend of $1-1.4 billion.
Source: Skift Research, Company Filings.
Key drivers in this model are distribution from paid clicks and return on advertising spend (ROAS). We believe our assumptions to be reasonable but recognize that they will vary from brand to brand. A sensitivity analysis tests our assumptions; the mid-point is centered at $1.2 billion in branded hotel revenue but could conceivably range from $800 million to $1.7 billion depending on inputs.
Source: Skift Research, Company Filings.
In a recent Skift survey, hotel operators indicated that they intend to increase paid clicks as a percent of distribution. Their preference was for paid click distribution to grow from 5% today to 11%. Under our initial scenario, paid click distribution doubles from current levels, as is hotelier’s preferences, Google ad revenues from this segment go to $2 billion from $1.2 billion. If over the next five years gross bookings grow at a 5% rate and paid click distribution doubles, Google branded hotel revenues could approach $2-3 billion dollars or more. We sketch this out as a potential scenario but stress that this future state comes with significant uncertainty, as demonstrated by the sensitivity table below.
Source: Skift Research, Company Filings.
The bottom line of this exercise is that Google is already a force within hotel distribution and well-positioned to grow further. If our estimates are reasonable, then Google is generating sales in upwards of $1.2 billion just from major hotel brands in the US. The vast majority of this is from AdWords though a small but growing portion comes from its hotel metasearch platform. For context, over the last twelve months TripAdvisor generated $1.2 billion in hotel advertising revenue while trivago had $1.2 billion in overall company sales; useful benchmarks but both are primarily metasearch which is not directly comparable to AdWords.
Google and the OTAs
Could Google become an online travel agency?
Source: Skift’s U.S. Experiential Traveler Survey 2017
Consumers also identified with online travel agencies as having the best prices for travel services including accommodations and flights. Conceivably, Google could eventually pull in the same level of consumer awareness as the OTAs but currently that awareness in not their yet. Within the “Other” category, most identified direct channels i.e. going direct to the supplier as the best-price channel. Google Flights was mentioned twice.
Source: Skift’s U.S. Experiential Traveler Survey 2017
We asked Oliver Heckmann, a VP of Engineering for travel at Google about the company’s ambitions and he was adamant that the company had no intention of becoming an OTA. Heckmann “continue[s] to view [Google’s] role in the travel industry as a connector between users and partners, like suppliers and OTAs.”
Skift’s research findings back this view and we believe that the two business models are more complementary than many may realize. The OTAs are some of the travel industry’s largest advertisers and so a hypothetical Google OTA would need to clear a very high hurdle of profitability to offset lost ad dollars. We believe that Google will continue to play to its advertising strengths in the search and metasearch space but not enter the OTA market directly.
To confirm this thesis, we begin by refreshing our breakdown of OTA performance advertising budgets. In 2016, Priceline reported $3.5 billion of performance ad spending. Expedia reported $2.7 billion of ad spending in 2016, but does not disclose the mix between brand and online performance budgets. While Priceline spent 92% of its advertising budget online, we assume 85% for Expedia with its exposure to Trivago’s television push. Combined, Priceline and Expedia likely spent $5.7 billion on digital advertising in 2016.
Source: Skift Research, Company Filings.
Assuming that a few percentage points of spend is on Facebook and a few is on other channels, we can estimate that around 70 percent of Expedia and Priceline digital ad spend went to Google. This would amount to just over $4 billion in 2016.
Source: Skift Research, Company Filings.
Priceline and Expedia collectively sold $134 billion of gross bookings in 2016, and earned an effective commission of 13%. How much market share could a hypothetical Google OTA capture? 10% market share would imply $13 billion in gross bookings which, with a similar commission structure would yield $1.7 billion in new revenues to Google. However, we note that Google would likely have to lower its commission rate to capture share, undercutting its OTA revenue potential.
Source: Skift Research estimates.
This new commission-based revenue stream would not come without a cost. The OTAs would likely scale back ad spending commensurate with lower revenue. While performance advertising is currently 34% of revenues today, that ratio would likely decrease as the Priceline and Expedia shift towards brand advertising to drive direct traffic. Acting as a downside multiplier, we also believe that the OTAs would reduce their reliance on Google, now a direct competitor, for their remaining performance ad spending. The cumulatively impact on Google could be to cut ad revenues from the OTAs by $1.3 billion or more, a 30% reduction.
This is a very simple analysis but highlights a key point: Google’s the risk/reward equation for becoming an OTA is heavily skewed to the downside. In our generous scenario where Google is able to 1) quickly take OTA market share, 2) maintain current pricing power, and 3) hold onto a majority of the online advertising pie, the revenue upside is still marginal. However, on the opposite side, if one or all of those assumptions do not hold, the proposition of becoming an OTA quickly becomes a net loss for Google. Google’s core competency is advertising, not hotel supply chains. We expect Google will continue to partner with the OTAs to optimize and grow ad-based revenue streams, in both search and metasearch, rather than build a new commission-based model from scratch.
Google and the Airlines
Google Flights is essentially a search-enabled advertising channel for the airlines to promote their fares and seat availability. As with hotels, airlines tend to look at three core factors when evaluating their distribution channels: Favorable economics e.g. relatively low costs/commissions, better access to customer data, and platform flexibility for better retailing and merchandising capability. Airlines see benefit in acquiring their customers through their own websites since native channels typically fulfill at least two out of the three criteria. Some airlines could feasibly acquire all of their customers through direct marketing and advertising efforts, but have historically outsourced at least a portion of this process with third-parties.
Current state of distribution
The channels that airlines use to acquire customers will depend on the airline brand and target customer. Many enter into third-party agreements to capture important segments of the market – the business traveler specifically. Certain low-fare airlines can survive and even thrive without direct agreements and connections to travel management companies, for instance. Full-service carriers see intermediaries as business-critical customer acquisition channels.
Smaller low-fare carriers and mid-range brands like Southwest Airlines tend to pull a much larger share of bookings through direct channels. Larger full-service carriers depend more on intermediaries. A recent Skift survey revealed that low-fare (cost) carriers might source twice as many bookings through direct channels. Alternatively, we see that full-service carriers tend to have a significantly greater share of “loyal” customers that belong to the various millage programs currently available in the market. As with hotels, loyalty programs continue to grow in relevance for airline marketing functions – and perhaps less so for operational and revenue management purposes.
Source: Skift’s 2017 Airline Survey on Leadership in Ancillary, Revenue Management, and Marketing
Source: Skift’s 2017 Airline Survey on Leadership in Ancillary, Revenue Management, and Marketing
Historically, OTAs and other aggregator sites removed much of the friction in air travel shopping and price comparison. Industry experts argue that this price transparency squeezed margins as airlines pushed to compete on the open market. While this helped to make air travel more affordable to the masses, it also put margin pressure on operators. More recently, lower fuel costs and high demand have helped improve airline economics. However, airlines also see a bigger opportunity to grow the top and bottom line through better marketing and distribution.
The following statement from the United Airlines 2016 annual report aptly emphasizes how airlines currently think about and prioritize distribution:
“The use of the Company’s direct sales website, united.com, the Company’s mobile applications and alternative distribution systems, provides the Company with an opportunity to de-commoditize its services, better present its content, make more targeted offerings, better retain its customers, enhance its brand and lower its ticket distribution costs. Agency sales are primarily sold using global distribution systems (“GDS”). United has developed capabilities to sell certain ancillary products through the GDS channel to provide an enhanced buying experience for customers who purchase in that channel. To increase the Company’s opportunities to sell its full range of products and services and lower distribution costs, the Company will continue to develop new selling capabilities in third-party channels and expand the capabilities of its website and mobile applications.”
What type of customers is Google Flights capturing?
Google Flights competes directly with the OTAs and other metasearch brands for the leisure and unmanaged business traveler segment. This tends to be the more price sensitive consumer segment compared to business travelers and frequent fliers. The economics of airlines (certainly for the full-service carriers) largely depend on business and first-class fares to drive a majority of the revenues.
Two-thirds of a typical full-service airline’s revenue might come from first-class, business, or premium economy fares. Rather than Google or the OTAs, these premium passengers are more likely to book flights through the airline directly or through traditional travel agents or travel management companies that book through other non-retail channels. Google Flights and other mainstream search sites therefore cater mostly to the more price sensitive economy leisure traveler and make up for it volume.
Impact of unbundling
More recently, the major full-service carriers started introducing Basic Economy fares which strip out or unbundle all additional costs including most baggage allowance as well as seat assignments. The objective with these offerings is to appear more price competitive with low-fare carriers on aggregator sites such as Google and the OTAs. Low-fare carriers unbundle the flight experience and then make up on revenue and margin with ancillary sales on luggage and seat upgrades, and other amenities. When it comes to distribution and marketing strategy, the objective is to win the customer then up-sell them on pure-margin upgrades. Ancillaries as a total share of airline revenues have been on the rise industry wide.
Here, the distinction between Google and the OTAs becomes clearer. In the current environment, pure price comparison sites like Google help airlines win business by validating the offer relative to other fare options, before redirecting the customer to the airline website. From there, it is up to the airline to convert and up-sell that customer on additional ancillaries using attractive user experience and choice architecture, in addition to pricing. Airlines have grown more sophisticated in how they surface and customize offers based on customer data and shopping behavior. These are still the early days of what the industry often refers to as retailing or merchandising. Merchandising aims to increase overall revenues through these custom offers.
Short of redirecting the shopper to the airline website, OTAs complete the transaction as the merchant of record. In other words, customers finalize their booking in the OTA web environment. This creates a challenge for airlines that wish to use the technology on their websites to convert customers at a higher overall price point, once all ancilary sales are accounted for. Global Distribution System (GDS) fees for air bookings are relatively low but (presumably) less profitable than direct bookings that might convert at a higher rate. For economy class bookings and customers acquired through mass market channels such as the OTAs or metasearch brands, airlines will juggle between lower overall cost of customer acquisition on the OTAs, and less control over the customer relationship and ability to offer customers more items for sale.
Google Maps launched all the way back in 2005, but only really came into its own more recently with the rise of mobile phones. Maps has arguably become the mobile killer app and an entire generation would be, quite literally, lost without it. Google Maps dominates this mobile app landscape with over one billion users worldwide. We believe it’s likely that Google Maps has over 50 percent market share for navigation apps in the U.S. Even on the iPhone, where Apple Maps is installed by default, Google Maps has been the most downloaded navigation app in the U.S. since at least 2013 and regularly places amongst the 10 most downloaded apps in the entire Apple U.S. App store. We expect that Google’s mapping market share increases internationally. Not only is Android’s market share greater outside the U.S., but Google Maps is the most downloaded iOS navigation app in 116 countries and a top 10 overall app in 39.
Google Maps overall ranking in the US iOS app store
Google’s success in this space is not a coincidence; senior management has been focused on building out this product for years now. Its efforts show up in a number of projects and acquisitions over the years, such as building out Street View or purchasing its own satellite mapping company. Since at least 2011, Google has been trying to localize its maps to move beyond simply providing driving directions, to allow for users to holistically search for and discover places nearby. Early attempts at this included the purchase of Zagat and Frommers, which were integrated into Maps to provide local restaurant and attraction reviews, respectively. When this approach proved slow to move the needle, Google shifted to crowdsourcing information from its community of local guides, who add, review, and correct location information. Google now has 50 million local guides, up from just five million in 2016, who are adding 700,000 new places to Maps a month — and 95 percent of these new locations are outside the U.S. This approach is augmented by algorithms such as when, just over a year ago, Google added areas of interest to its maps. These brown-shaded areas indicate places likely to be of interest to users where there are a lot of things to do – restaurants, bars, shops, or public squares. This is a feature that travelers increasingly adopt when navigating around new destinations. Google has also used a combination of humans and algorithms to develop an “explore around you” feature that can suggest local restaurants, bars, and activities.
Travelers are increasingly shifting to mobile and expect to have the same local services they use at home when visiting a new destination. Maps’ integration of local restaurant, bar, hotel, and attraction information — built with both locals and travelers in mind — gives Google a strong data advantage that will be hard to replicate. The implications are profound and Google itself has noted that “many travelers come to Maps before booking a hotel to get a sense of the location, neighborhood, and transportation options.” We expect that Google will leverage this, not just to respond to users’ searches, but increasingly to play a proactive role in recommending activities. Overall, we see a significant opportunity for Google in travel through its Maps app and expect to see future products and partnerships in this space.
Google Map of San Francisco before and after the launch of ‘Areas of Interest’
The “explore around you” feature suggesting drinks near the Skift HQ on mobile
When Google acquired YouTube for $1.65 billion in 2006, the price tag raised eyebrows, but the business has grown to become a crown jewel of the company. YouTube has at least one and a half billion unique users who engage with the platform across a variety of devices. That’s almost a third of all internet users who now collectively watch over one billion hours on YouTube daily. Users spend an average of 60 minutes a day watching mobile videos and, increasingly, on actual watching actual televisions — the platform now streams 100 million hours a day through smart TVs and connected apps like Chromecast.
The aspirational nature of many videos leaves YouTube well positioned to play a role in the discovery phase of the trip planning process. A 2014 study by Google and Ipsos MediaCT found that two-thirds of U.S. consumers watched travel videos when planning a trip. According to analytics from the same time, 71 percent of video travel searches were for destination names. This contrasts with just 26 percent of text searches for destinations, further reinforcing YouTube’s importance in the early stage of trip planning.
The initial use case for video may be destination discovery, but we also see a large role for video to move further up the value chain and capture consumer intent during the research and planning phase of a trip. Torres said, “YouTube is a great way to experience hotel amenities before booking, for example. By combining partner CRM data with our intent signals, we can help partners better connect with new and existing audiences at the right time.” To that end, just over a year ago, Google added new tools to its Adwords platform to capture those customers in the moment by embedding clickable call-to-action ads within YouTube videos. These TrueView for Action ads are bid on a cost-per-acquisition basis which should further help suppliers optimize ad spend.
YouTube is a unique travel asset for Google and one that no other travel platform can replicate. As interest in online travel videos continues to grow, Google finds itself at an even earlier stage of the customer acquisition funnel. We expect that this will create knock-on effects such as making consumers who begin their travel search on YouTube more likely to use Google’s meta flight and hotel search products. The large and growing YouTube platform will also serve to increase travel ad inventory that is of high value to hotels, airlines, OTAs, and metasearch alike.
Google Trips is a mobile travel planning app launched in September 2016. The first feature of the app that most users will notice is that it automatically scans users’ Gmail accounts to pull in hotel, flight, train, and bus reservations. Once it detects a reservation, the app will automatically create a destination landing page for users’ past and upcoming trips. The Trips app builds upon Google Maps’ extensive local business and destination data to recommend “things to do” and “food & drink.” Trips app can suggest restaurants by cuisine or time of day as well as activities grouped by categories like “top spots,” “local favorites,” “outdoors,” and others. Perhaps most impressive is that the Trips app can generate full-day destination itineraries that highlight popular attractions and walking tours. These itineraries are mostly built by algorithm, with light human curation. The app pairs anonymized user location data on the most visited attractions with information about average visit length as well as Maps walking directions and hours of operation data to build step-by-step day plans for a full or half day. The one drawback is that an algorithm based on popularity implicitly will overlook rarely visited “hidden gems.” Google Trips also has a download offline function that allows users to access maps and reservation info without a data connection. We note that many of these mobile app features are replicated in Google’s desktop search through the “Destinations” landing page (i.e. search for [Location] + Destination on your desktop).
Trips represents one of Google’s biggest moves to date into the tours and activities space, estimated to be an $85 billion market. Google is already a large player in both hotels and flights; we would not be surprised to see further inroads into activities.
One of the biggest players currently in this area is TripAdvisor which lists 875,000 attractions, both directly and through its subsidiary Viator. TripAdvisor doesn’t disclose exact revenue figures, but as a proxy, the company generated $348 million in non-hotel sales, 22 percent of the overall business. Non-hotel sales include TripAdvisor’s attractions, restaurants and vacation rental businesses. We believe that Google Trips is growing nicely and currently being installed at a pace of ~400,000 a month, but still lags behind the TripAdvisor app, which is installed at a rate of ~900,000 new downloads a month and is ranked higher in the app store.
While Trips is lightly monetized to date, we expect further efforts to follow and can imagine several partnership and advertising opportunities built around the Trips framework. As an early example, Google has already started to partner with local tour operators to offer activity discounts in select destinations within the app. The discounts come from direct partnerships arranged between Google and the booking platforms or companies providing them, said some of the participating companies. BeMyGuest, GetYourGuide, EatWith, Expedia, Klook, Musement, Peek, Tiqets, TripAdvisor, TripUniq, and Urban Adventures are among the companies involved.Google Trips has impact beyond just being a small but strong offering in the world of mobile travel apps. In our view, Trips is an excellent case study in why Travel industry leaders should not underestimate the powerful ecosystem and network effects that Google can marshal. Flight and hotel reservations come directly from GMail with its over one billion users. The Maps teams’ multi-year effort to collect local place data — through its 50 million local guides — pays dividends here in the form of suggested activities and restaurants. Google’s deep trove of location and other user data has also played a large role here in algorithmically suggesting activities and creating itineraries. On desktop, the Destination search landing page ties into Google’s hotel and flight booking services. As we noted earlier, Google is a growing player in the travel industry and Trips offers instructive insights into these dynamics in miniature. The app showcases many of Google’s strengths — in this case its big data analytics and platform synergies — as well its weaknesses — here uncovering local “hidden gems.”
Finally, as part of this initiative, Skift asked Google representatives to respond to some of the more pressing questions we had about their future initiatives in travel. Below are their responses:
Answers from Rob Torres, Industry Director, Travel
Skift: As driving traffic becomes more competitive for OTAs and lodging, air, and other travel providers, they need to compete more aggressively to drive traffic and drive brand awareness. Clearly, this helps drive revenue growth at Google for the travel business, but at the same time, the return on investment of ad spend could be under pressure for some of your clients. At a high level, what are some of things that advertisers should do on Google to make sure they get the highest ROI possible for every dollar they are spending?
There are three key things we recommend for all of our customers, regardless of whether they are OTAs or travel suppliers. They are:
1. Use your CRM data to reach high value travelers: Use insights from your CRM data to bid differently for Google users. People who travel often and are searching for an accommodation might be more likely to purchase a hotel room.
2. Leverage Google’s intent signals: From our early days as a company, people have turned to Google for travel information. We see signals of intent across our products – for example, travelers turn to Search for new trip ideas and research, to Maps for local information, and to YouTube to be immersed through sight, sound and motion – YouTube is a great way to experience hotel amenities before booking, for example. By combining partner CRM data with our intent signals, we can help partners better connect with new and existing audiences at the right time.
3. Combine human and machine intelligence: Machine learning is already creating new opportunities for marketers to uncover better insights and more fully realize personalization and relevance at scale. Leading companies will incorporate machine learning into their marketing toolkit in terms of analysis, optimization and task completion, helping free up human time to focus on strategy.
Skift: Management at the OTAs have consistently stated the intent to diversify away from spending on Google, but likely still spend around 75% of their digital ad budgets with you. Metas also drive traffic from Google. Ad spending from these clients is meaningful as a whole and continues to grow at over 20% per year despite their wishes to diversify ad spend and despite a more competitive environment, Google is still the best way to drive traffic. How concerned are you that spend will move to other channels like Facebook or even back to TV pushing brand advertising over search?
We believe that Google offers the best way for travel brands to reach new and existing customers at precisely the right moment. These are people who are in the midst of planning their travel on Google – they may be searching for a hotel room, or watching videos on YouTube to identify a new vacation destination, for example. Tools like YouTube Director or Fenced Rates on Hotel Ads are just a couple of products that enable advertisers to target the right person, with the right message, at just the right time.
Skift: The formatting for Google travel search results has changed in the past years – how have advertisers reacted to the changes between organic and paid units?
We’re all facing the same drastic changes in user expectations: when users come to Google today, they do it on smaller screens, with less time, and expecting faster answers. For years now, we’ve been addressing these expectations — displaying maps when you search for a location, or weather cards when you type weather queries. Travel is no different, and quick answers are the best way to meet users’ needs.
Organic and paid search each serve their own purpose for users and partners. We’ve evolved Search over time, but focus is still on connecting users to partners in the most transparent way possible. Search remains a strong channel to acquire and retain customers, for all of our partners, regardless of whether you are a supplier or OTA.
Answers from Jen Wesley, Industry Director, Travel
Skift: Often times, hotels tend to believe that marketing on Google outside of protecting branded keywords is a losing battle versus the OTAs. What are some things hotels can do to optimize their use of Google?
Brand keywords are no doubt important – but the best marketers see real success when they focus on user intent and capturing interest from travelers early on in their travel journey. La Quinta employed a very clever strategy that demonstrates this. They strategically bid for upper funnel keywords that were previously flagged as underperforming. Using this strategy, they saw a 27% increase in conversion rate and 83% increase in conversion volume compared to typical seasonal conversion volumes.
Skift: Optimizing for mobile is crucial, but difficult for advertisers. What are the best practices you see and what are issues for some suppliers?
As travel inspiration, research and booking increasingly shifts to mobile, consumers expect to find relevant information faster than ever before. Having a fast, easy-to-use mobile experience is critical – we still see many travel brands, across categories, struggling here. 79% of mobile travelers say that when they’re researching on their smartphones, they look for the most relevant information available, regardless of where it comes from. If travel brands are not thinking about consumer needs and what they might be looking for in the moment, they may miss out.
Reducing the number of steps to complete a booking is also important. OTAs have done a good job of making it really easy to book a hotel, for example, in just a few steps.
Lastly, I’d recommend that advertisers think about how to deliver innovative, user-first experiences on mobile. Hilton has done a great job of re-imagining their mobile experiences with features such as digital check-in and Digital Key, which allows guests to unlock rooms through their devices.
Skift: Other ad platforms cannot match the commercial intent of a Google search, but can Google add more on the motivational/inspirational and visual side whether it be on YouTube or even on the traditional search engine to attract some of the branding ad dollars to complement the core search and meta revenue?
We think Google can help advertisers connect with travelers during any stage of the travel journey – whether they’re in the dreaming, planning, booking, or in-destination phase. YouTube is a powerful inspiration-driving tool for travel marketers. For example, Kayak leveraged YouTube by using TrueView for action and target CPA bidding, turning viewers into customers while lowering their advertising spend by 80%.
Answers from Oliver Heckmann, VP, Engineering, Travel
Skift: What are some of the recent improvements to Google that have improved the user experience for travel search? What are some things that can be better or are in the works?
Today’s travelers want information faster and expect better, more personalized experiences across devices and channels. This is especially true on mobile, where people are likely doing their research in shorter sessions and it can be harder for them to absorb all the information at their disposal.
Based on these increasing expectations, I’ve really been pushing the teams this year to build more insight and assistance into our products. For example, three out of five people who have planned a vacation in the last year said they’d be open to changing travel dates if it would save them money. This presented us a clear opportunity to build more insights into the interface in Google Flights. (more on this here) We’re also putting a lot of focus in both the user experience in hotel search and the partner experience with Hotel Ads. Our leads to partners grew 84% YoY (as of Sept. 2017) . We’re looking forward to continuing to evolve the Hotels consumer experience — especially on mobile — as well in the next year.
Skift: How far along are we on Google’s Book on Google Instant Booking model?
Consumers are increasingly expecting transaction — especially on mobile — to be seamless. We launched Book on Google to help our partners address this expectation in March of 2016. We currently offer Book on Google as an alternative for fast, seamless check out on Google Flights and Hotels. We’ve seen that it helps deliver strong conversion rates for our partners, especially on mobile.
As people increasingly turn to their mobile devices to book their trips, we’re working with our partners to improve that experience by enabling booking through Book on Google. Partners can allow travelers to book through a Google-hosted site designed to minimize friction by using the credit card already on file in the user’s Google account, which is then sent to the advertiser for processing. The advertiser completely owns the transaction. This includes all facets of the transaction – including obtaining the customer email and other important data.
Skift: We believe the traditional ad platform is still much larger than Google’s meta and instant booking platform, how do you see the split evolving over time?
Our goal has and continues to be to make the travel dreaming, planning and buying experience on Google the most seamless it can be for our users — whether they’re at the dreaming stage and just want to see what hotels are available, or if they want to input dates and book a stay. We view this holistically — focusing on the best interest for our users while creating an environment for advertisers of all shapes and sizes to succeed.
Skift: We consistently hear the debate that Google could become an OTA. Our view remains that it is better to have the ad platform and meta without building out an internal OTA. What is your vision for Google’s role in travel in next decade?
We absolutely do not intend to become an OTA! We continue to view our role in the travel industry as a connector between users and partners, like suppliers and OTAs. Travel is a very competitive industry, with start-ups and larger players alike, that all have a significant impact on the industry – and we love that this competition pushes us as in industry to make travel better for consumers around the world.
Skift: In a mobile first world, how has Google been able to be so effective at transitioning from desktop to mobile while some travel companies have struggled?
On Google, we saw mobile queries grow faster than desktop queries for a while, until they finally surpassed desktop in May 2015 .
In the years before that we changed the culture in our engineering teams to think, plan and develop for mobile first and desktop second.
This was a significant culture shift for us and something top management regularly reinforced throughout the company — as I know it is for many of our partners as well. Many of the engineers who have joined us in the last years have not developed for desktop at Google and never will.
If we look at travel queries in particular, we’ve continued this focus as we’ve seen that mobile activity across travel sites continues to rise — 71% of travelers have conducted travel research on a smartphone, which is significantly higher than the 56% we saw in 2016 . Some categories such as hotels, luxury and family travel see higher search interest on mobile than on desktop.
Skift: How widely used do you see voice and chat becoming for the travel industry? Do you envision it being more for customer services and then growing in usage as bots as a whole improve? What parts of the travel journey will messaging and bots be prevalent (planning, booking, in-destination)?
The goal of the Google Assistant is to help you get things done — no matter where you are, what device you’re using or what question you’re asking. So whether you want to know about the weather, your commute to work or even your upcoming trip, your Assistant should be able to help. For us, voice is a great way to exactly what you’re looking for – you just ask your Assistant and you get an answer. It should be that simple. At this point, almost 70 percent of requests to the Google Assistant are expressed in conversational language. You can use natural language and have a conversation.
Skift: How far along is voice search from being more widely used? How is Google positioning for this?
Voice search and speech recognition have both been a focus at Google for many years. Today, the main way that people use their voice to talk to Google is via the Google Assistant.
The stated goal for the Google Assistant is to help users get things done in their world. And the Assistant is much more than just voice. Not only can you also have a conversation by typing on your phone, but the Assistant also works across devices, including eligible Android phones, iPhones, Android TV, Android Wear, Pixelbook, Google Allo, Headphones, like Bose and Pixel Buds, Pixel Pen, and voice activated speakers like Google Home. It’s more than just voice and answers to queries, it’s built to help facilitate a natural conversation between consumers and Google to get more done in your day. And almost 70% of requests to the Google Assistant are expressed in conversational language.
Across our Travel products, we’re also working on building our own use cases that take advantage of this technology. We’ve launched features such as flight price tracking and soon we’re looking forward to launching more features that help people with the process of traveling. Here’s more on interesting travel functionality that works in the Google Assistant today.
Skift: Broadly speaking, how do you see the evolution of messaging and bots impacting the travel industry? What time frame do you see for wider customer use and acceptance? Is the hurdle right now technology and AI or more training customers to use messaging for certain use cases?
Messaging and virtual assistants are really about bringing the power of AI and machine learning to everyday consumer applications. Its technology helps you accomplish what you’re trying to do, without you being aware of the hard work in the background. We’re very excited about the potential of AI and travel use cases, but at the end of the day it’s all about making people’s lives easier. We’ve seen over and over again that keeping this in mind is what drives consumer behavior. Today, we use machine learning to support speech recognition and natural language understanding with the Google Assistant. I see tremendous potential to make travel planning and traveling better – with better recommendations, better user interfaces, better processing of the tremendous amount of available information.
We are working hard to make sure our industry partners can take advantage of this evolving consumer behavior.
Skift: Can you discuss Google Assistant and how Allo is being deployed in the travel the industry currently? What are the key differentiating factors for Allo versus other platforms out there?
Today, your Google Assistant makes it easy to find the travel information you need — from planning an upcoming trip to checking the status of your current reservations. You can look for things to do in a destination, find and track flight prices, check your flight status and more — across the Google Assistant on voice activated speakers like Google Home, eligible Android phones, iPhones, Google Allo and more. For example, if you’re planning a trip with friends in Allo, you can make travel plans by asking the Assistant to show you hotels in Santa Monica, then refine your question to focus on price or hotel amenities. The Assistant can also provide popular suggestions like parks, events, things to do at night or nearby attractions.
Since the Google Assistant let’s you have a conversation with Google, you can ask questions in a natural way, like “When’s the best time to fly to Sydney?” followed by “How much would it cost to fly there in January?” And you can imagine in the future, it would be helpful if you could take it a step further and ask about hotels on the beach or rental umbrellas. You may also be able to ask about booking a hotel on the beach or renting a car. There is a tremendous amount of knowledge and data that goes into not only understanding what you’re referring to, but fulfilling that request seamlessly and having all of the details be accurate. And this is something we’ve been working on for many years, understanding context and being assistive to users.
Skift: When we think about Google Maps, how do you see that evolving in importance as an advertising platform?
We’ve had versions of ads in Google Maps for some time and strive to make them as relevant as possible. We’re continuing to invest time and resources into building a local experience that benefits merchants, advertisers, and users.
When it comes to travel, we see many travelers come to Maps before booking a hotel to get a sense of the location, neighborhood, and transportation options. We want to help connect them with the best hotel for their trip by partnering with hotel partners to surface their available inventory.
Skift: Do you expect Blockchain technology to have an impact on travel? How would you see that playing out?
Travel is often at the forefront of payment technology, from traveler’s checks (Thomas Cook, Amex) in the 19th century through the magnetic stripe in the 20th. If there’s a way for blockchain technology to help people travel, it’ll be there. International travel seems like an obvious place for blockchain innovation, but we haven’t seen anything yet. Heading both our Travel and Shopping products, I’ve observed that for those big purchases like flights and hotels, there are special requirements and work beyond what’s needed for buying simple merchandise. Blockchain technology represents both a challenge and an opportunity.
Skift: How do you see meta for vacation rentals growing?
In the summer, we began testing out offering vacation rentals in our Hotel Ads product with a small set of partners, and we look forward to integrating other partners as the product expands.
Vacation rentals are clearly a huge area of interest for consumers, and we’re looking forward to growing and evolving our offering with partners in the space.