What the OTAs don’t want to admit post-COVID and what it means for hotels
Hotels in Europe are starting to see the first rays of light and soon they will be able to open their doors to guests. Other parts of the world are unfortunately either going back in to total lock-down, or are unimaginably still in the early phases of infection.
Through this extended period, Internet Affected’s services have continued to adapt around these challenging times, allowing our Clients to react quickly to market changes, and deliver essential revenues for rooms bookings for quarantine hotel stays, take-out dining and virtual reality meetings services.
Even if the struggle for a hotels survival has been unprecedented, huge changes in the advertising space mean that OTAs have also been on the receiving end of extreme punishment. The methods OTAs made revenue pre-COVID are to be severely curbed, and that means more opportunities for hotels in the future.
For example, brand campaigns are being setup more and more, being managed directly by hotels, providing direct booking revenues that are commission free. At Internet Affected our unique know-how and campaign strategies makes OTAs ad-copy look dull by comparison, and this translates into more direct bookings for our Clients.
OTAs are not just losing brand revenues: with the future of web-tracking going cookie-less, all the top and middle of funnel campaigns (TOFU and MOFU) are under threat too. These were essential campaigns for new customer acquisition that have been impacted heavily by the latest industry changes.
But the fire doesn’t stop there! During COVID Google ramped up their own Hotel Ads product going so far as to offer ‘free traffic’ to grab the attention of the hospitality industry. That ball is now well and truly in motion, and it will only gain speed. OTAs have come out of COVID having to seriously reconsider their marketing approaches as some will simply not be on the table much longer. As if that wasn’t enough bad news, Facebook has OTA revenues in their sights too!
Looking to the future we see many opportunities for hotels, and this editorial we hope can provide a reassuring frame. We think that once we’ve got through the global vaccination programme, it’s going to be much better than it was before!
Framing the OTAs problems
Online Travel Agents (OTAs) have enjoyed nearly two-decades of unrestricted access to a hotel’s online revenues. While hotels set about making their websites look beautiful and applied care to creating a digital equivalent of their real-world hospitality experience, OTAs were less driven by the same goals, instead focusing on exponential digital exposure and the optimisation of the booking sales funnels.
While a hotel might physically retch from the general look and feel of their hotel’s page on an OTA, the OTA a/b tested these pages, so even if they were considered ugly by hotels, the OTAs had the data that said they delivered bookings. For the web visitor sent to one of these pages, they would find everything they needed to know about the hotel and find an easy way to book. A hotel emulating their OTA listing page using a similar page design, would most certainly devalue their own brand values, but that doesn’t mean there aren’t lessons that can’t be taken from these OTA pages, to enhance a hotels direct booking strategy.
Last, If a visitor to an OTA left without booking, the OTA had an arsenal of follow-up mechanisms to chase down that unconverted booker across the digital universe, in some cases incessantly - for example today ads follow non-bookers to their preferred social media networks.
The two main approaches used by OTAs in their digital marketing strategy
A solid foundation for the OTAs digital marketing strategy - when the world’s internet consisted exclusively of search engines - were the following two types of campaign:
Brand, bottom of funnel (a hotel’s name- BOFU): Best for revenue and conversion.
Generic, Top/Middle of funnel (a hotel type plus location TOFU/MODU): Best for new customer acquisition.
The brand campaign rewards can be made clearer using an example:
Using conservative estimates the UK has approximately 45,000 hotels. An OTA runs 45,000 campaigns on all the hotel’s names (Brand) knowing that people typing in the hotel’s name into a search engine will generally be close to booking. As a result, these Brand terms - ‘bottom of funnel’ (BOFU) search terms - tend to be low in cost and high in potential return on investment. For a good 15 years OTAs were quite happily capturing these revenues and creating a solid budget line-item of revenue for hotels which could be relied on year on year.
The second digital approach used by OTAs has been to go after ‘top-of-funnel’ (TOFU) keywords. An example of this might be “Hotels in London” or “5 Star hotels in Bangkok”. The searcher that types these keywords into a search engine is thinking about staying somewhere, but are unsure which hotel. These searchers are the ones that a hotel would want to attract, as they are people that have never heard of their hotel (they didn’t type a brand term) and so they are fresh leads.
As that person searches for “hotels in London” (TOFU), and learn more about the destination they may add refinements to their such as “family hotel in central London with parking”. In this case they pass from “top of funnel” (TOFU) to “middle of funnel” (MOFU) , and then ultimately pass to bottom of funnel (BOFU), where they type in the name of the hotel (perhaps having first read some reviews on an OTA reviews site.) And it is squarely here that OTAs sat for many years hoovering up those revenues simply because individual hotels were unaware, or perhaps unable to run these brand campaigns themselves.
With revenues arriving off brand campaigns aplenty, OTAs were able to purchase all the top and middle of funnel keywords as well and so owned all the advertising spots in the search engines. Competition increased between the leading OTAs to hold the highest advertising slots and capture the new leads, and the cost of each click soared as a result. The leading OTAs were able to pay more and more for each click, because even if getting a conversion on each visitor was the primary goal, if the visitor didn’t convert the OTA could chase down the visitor with follow up mechanisms. The most important thing for an OTA became purchasing the visitor doing the search, because that person was clearly considering a hotel stay.
For hotels that wanted to buy that same visitor OTA competition had already inflated the cost-per-click to stratospheric levels making it impossible for a hotel participate in the ad-space. In the collision between different goals - OTAs for new customer acquisition and lifetime value vs Hotels simply looking for people that wanted to book their hotel - the deeper pockets won, and it was the OTAs that came out on top.
But it’s finally changing!
More accessible technology in a less exclusive set of hands
As time has marched on the initial pie owned by OTAs has plateaued and saturated. Hotels can rely on OTA revenues, but whereas the OTA used to be the larger African Elephant in the room, they will over the next 10 years start to head in the direction of becoming the smaller Borneo Pygmy Elephant and here’s why:
First, hotels have started running their own brand campaigns, a bread-and-butter staple to converting business for the OTAs. Search engines would ideally prefer to deal with brands (hotels) over affiliates (OTAs) so they give hotels a little bonus in terms of ranking and lower cost when they are advertising on their brand. For example, today, if a hotel and an OTA went head-to-head on the hotel’s brand term in Google, the hotel would spend less than an OTA to secure the first place in Google. In other words, if your hotel is not running a brand campaign your hotel is literally handing over 18% - 24% in commissionable bookings to an OTA. Internet Affected has been running successful brand campaigns for hotels for more than a decade, to stop OTAs from owning what is essentially the hotel customer.
Second, search engines are very interested in having a piece of the travel market too. COVID saw OTA advertising budgets drop off a cliff and this gave Google the opportunity to ramp up their own Google Hotels Ads product, most recently offering hotels free traffic (join our free hotel marketing club to watch this video) as a way to get eyeballs on their product, Judging by the questions we received, we think that the strategy worked! It’s a terrifying prospect for an OTA when the channel you have been relying on historically for new customer acquisition is suddenly threatened, and make no mistake about it, Google’s move into the OTA space, is a major cause for concern for them.
Third, as user concerns about privacy and being tracked around the web escalate, the big tech companies (Google, Facebook, Microsoft, Apple et al) are battling it out between each other to satisfy their own specific business goals while addressing these user concerns. The recent release of Apple’s IOS 14.5 privacy update shortening the length of a session cookie will likely put a short-medium term hole in Facebook’s revenue projections, while Browser manufacturers are implementing anti-tracking measures that makes revenue attribution to digital marketing campaigns more difficult. For the OTAs this power-struggle between the tech giants means that right now the campaigns OTAs manage in Social Media Networks lose attribution much faster, making it harder for OTAs to say which ones delivered the revenue or subscription. If you think OTAs are pushing mobile app installs because everyone is now booking on mobile, we suggest you first verify this on your own booking engine and see what the shift to mobile has been for revenue during COVID. Consider instead that if a person installs a mobile app they can be sent a push-notification and can be tracked. At Internet Affected we see this mobile channel incentivization as nothing more than a last-ditch attempt by OTAs to capture customers in a tracking universe where campaign attribution for TOFU and MOFU are becoming less reliable.
All these points will be creating a complete and utter nightmare for OTAs at the moment.
Changes to the top and middle of funnel (TOFU & MOFU) campaign measurement
Both Brand and top/middle of funnel campaign types were the best friends of OTA digital marketing teams because they captured people close to converting (brand) as well as new leads (top/middle) for their customer growth.
Even if the visitors that arrived on the top/middle of funnel campaigns would not convert as quickly as those at the bottom of funnel, it didn’t really matter, because an OTA could track these visitors pretty much forever. That meant that an OTA could see the revenue these campaigns brought even if it was 6-months after the initial click. User privacy concerns have led to tracker blocking and this makes it much harder to measure the top/middle of funnel campaigns with the same degree of accuracy. A booking that happens due to a marketing campaign needs to happen in a much shorter time frame in order for it to be attributable to that campaign. The same will also be true for third-party performance cookie based technology providers. If your hotel uses a piece of technology that relies on it’s 3rd party cookies, ask your provider what these industry changes mean for its functionality.
For example, in the case of Facebook, the current cookie length for visitors using an IOS 14.5 device, with privacy options enabled is now just 7 days. That means that unless an advert from the point of being clicked through to sale does not convert in that time frame, it may not be possible to say conclusively that it came from that specific campaign. It can still be possible to track revenues from these campaigns, but it requires a change in the way these campaigns are setup and measured, and unless you are using a specialized agency like Internet Affected, you will probably just be seeing a drop in revenue performance. We have already put these measures in place for our clients to mitigate this.
Even if Google might be doing better compared to Facebook at the moment, they too have also been on the receiving end of bad news - recently their Federated Learning of Cohorts (FloC), a move towards a cookieless tracking environment that allows them to continue to offer advertising services through de-personalizing the user data they collect while addressing privacy concerns, was vocally rebuffed by significant operators in the industry. Their latest iteration of tracking, Google Analytics 4 is by no means a perfect tracking solution with most experts recommending the continuance of Universal Analytics in the medium-term. In other words, all the big tech providers are suffering at the moment.
The OTA data scrambles
Hotel Revenue Managers will have noticed these past years how OTAs are raising the drawbridges on their customer data. No longer does a hotel get the email address of the guest that is coming to stay at the hotel on their booking receipt – instead the hotel will now simply ask the guest at check-in to circumvent this loss– while for those OTAs that work as connectors to an OTA where a booking process is available, they have now started offering their own commission based models – TripAdvisor’s Instant Booking. Google Hotel Ads, even if not strictly an OTA, also now offers a full-commission model (no media click-spend) directly competing with OTAs on their own terms (we think that Google won’t keep this product around for too long as more familiar cost-per-click model is far tidier way to collect advertising fees). And if you think Facebook doesn’t want a piece of the OTAs travel market think again, they are coming for them too.
Mobile is not the new desktop, but it’s cheaper!
Throughout COVID our industry reported on seismic shifts towards mobile as a preferred booking device, but in reality, is that what actually happened? We saw visits from mobile devices go up by a good amount during the pandemic (logically people were away from their workstation), but actually booking patterns remained more or less the same. Undeniable is the fact that a hotel that did not have a fully responsive website and booking engine would have lost business during the pandemic, that’s if they were even allowed to stay open. But for the most part today, all hotel websites are responsive as are their booking engines.
OTAs are currently pushing mobile as a channel that is gaining a lot of traction for bookings and are asking hotels to offer discounts for these types of devices. Looking at the booking trends during COVID we know that mobile bookings have not actually changed that much, but we do know that if someone has an app installed on their phone it is far easier and cheaper for an OTA to send notifications to that user!
In the tracking landscape described above, where top and middle of funnel campaigns are getting harder to track, and therefore new customer acquisition is being limited, mobile app installs is the new customer acquisition frontier. But it’s worth underlining that even a big push to mobile is not going to save the OTAs from the search engine and other operators encroachment on their top/middle of funnel ad space – and that is where the new customers are.
Take Aways
This post sets to reassure our bruised hospitality industry that while there has been suffering, it has also been a catalyst for change which will benefit hotels as the travel markets open up again.
This is how we see the changes:
Once upon a time an OTA was able to dictate “price parity clauses” due to their market position, nowadays such clauses are something you read in a history book.
It used to be that OTAs were skimming revenue off the top of hotel’s brands. They can no longer do so because hotels run those brand campaigns themselves and Search Engines give them a bonus for doing so in terms of positioning making it more expensive for an OTA to compete with a hotel directly.
It used to be that OTAs could run top and middle of funnel search campaigns without fearing the loss of attribution. That is something changing right now and will have a major impact on revenue attribution, most likely leading to those campaigns being less commercially attractive for OTAs and maybe (and it’s a big maybe) giving hotels the opportunity to compete in those advertising spaces.
OTAs will still continue to own the lion’s share of revenue for a hotel online for some years to come, however the latest privacy and cookie-less tracking browser changes will become yet another thorn in the side of ‘easy-pickings-revenues’ for OTAs. As they crystal gaze their future revenue opportunities, it has become infinitely more cloudy post COVID.
Although most hoteliers still have revenue chasms that need to be filled because of the last 14 months of the global health pandemic, it’s important to note that COVID increased internet usage and know-how on a global scale. This means that there are far more people searching online for a hotel, particularly in regions where people traditionally booked a hotel through a travel agency. We expect direct bookings to lift significantly from a range of countries.
All of the above translates as more opportunity for your hotel. Let Internet Affected help your hotel feature prominently ahead of the OTAs, and help you convert more web visitors into direct bookers.
Even if we expect OTA revenue to always be an important part of a hotel’s revenue strategy due to their convenience and ability to fill rooms at short-notice, with our web-marketing strategies we can guarantee that your hotel takes back ownership of the revenues that OTAs have been able to divert away from your brand, due to their adept digital know-how. This is accomplished using tried and tested marketing mechanisms that leverage all the digital channels appropriate for your hotel’s marketing and revenue goals.
If your hotel is looking for a change in approach to digital marketing, or you simply feel that a fresh set of eyes on your hotel’s online business could be helpful as you plan your exit from the global health crisis, please get in touch so we can share how our unique service proposition and the results we deliver.
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About the Author
Glyn Spencer Hopkins is the owner of Internet Affected and has been working exclusively with hotels for over a decade.
Internet Affected provides web marketing services tailored to the individual personalities of hotels; a complete range of digital services designed to help them take back ownership of their hotel brand from the OTAs. Specialized marketing solutions to increase guest loyalty, food & beverage bookings, events and wedding inquiries, clearly reported in straightforward language.
