online travel agencies (OTAs)
the middlemen have outgrown their usefulness
When online travel agencies appeared on the scene in the 1990's it seemed like a great idea; everyone benefitted from selling surplus rooms at discounted prices when it seemed as though they would otherwise go empty. Consumers got cheap holidays, hosts got bums in beds, and the OTAs earned a modest commission. There was even an Australian startup in the bunch; Australians could own shares in Wotif (rejoicing under the ticker WTF) and all the money stayed in Australia.
Over time, the opportunity became a convenient habit; the OTAs got bigger and greedier, the small ones were swallowed up, and sectors of the tourism industry found themselves at the mercy of these outfits for a majority of their bookings. Nowadays some illusion of competition is created by multiple brands, most of which are owned by only two US-based companies, Booking Holdings (NASDAQ: BKNG) and Expedia (NASDAQ: EXPE). Booking Holdings (formerly US Priceline Group, no relation to the Aussie discount pharmacy) owns Booking.com, Agoda.com, Hotelscombined.com and Kayak.com (amongst others) and had revenue of about US$15 billion in 2018. Expedia owns Expedia.com, Homeaway.com (now Vrbo), Hotels.com, Wotif.com, Stayz.com.au, Lastminute.com and Trivago.com (amongst others) and had revenue of about US$10 billion in 2018.
five good reasons why you shouldn't use OTAs
- They won't save you a brass razoo, in fact they are likely to cost you plenty. Anyone running a tourism business needs a minimum tariff to break even and a profit to make it worthwhile (called capitalism, folks). A typical OTA commission rate of 16% is a huge impost on the industry and is going to be added on to the tariff, either by the host or the OTA. Do the sums: if a host needs $100 to break even and can live with $50 profit, then the tariff is going to be $150. If Expedia gets into the mix and wants a 16% cut then that takes out $24, or almost half of the profit. Your beleaguered host needs to jack up the tariff to nearly $180 to make it worthwhile, increasing the consumer's cost by 20% by the time GST is factored in.
- Your money goes straight out of the country, mostly into the coffers of billionaire founders and institutional shareholders of two of the World's largest companies. You can assume they pay little or no tax in Australia.
- It may not be what you expect. Most OTAs will filter content on their sites to prevent hosts from exaggerating their facilities or otherwise representing them unfairly. This can work both ways, as it may be difficult for a host to change a listing to represent an improvement, or make a distinction between say, a tiny spa bath, a "blow-up" spa, a full sized Jacuzzi-style hot tub or even an indoor pool (or whether it is shared or private). Is an ocean view across 5km of rooftops, poles and wires the same as it is from a beach shack on the high tide mark?
- It may not be where you expect. OTAs group their listings by towns, whether or not they are in a town or even close to one. Hosts have to nominate a town or get grouped by the OTA into a town which may be some distance away, or even difficult to get to or from. Thus Mumbles gets shoved under "Balingup" on Trip Advisor, although Collie is closer but evidently not touristy enough. We had guests once find us on Trip Advisor but book direct; they drove to Balingup before they started looking for Mumbles and arrived 40 minutes later, tired and cranky. No-one looks under "Mumballup" because no-one has ever heard of it; that's one of the reasons they come here.
- They play dirty. (i) A host attempting to offer a cheaper, commission-free tariff is likely to get kicked off the OTA platform or down-ranked to the point of invisibility, because of anti-competitive clauses in their contracts requiring that no tariffs lower than those offered through the OTA are offered anywhere else. (ii) A consumer Googling "Mumbles Boutique Stays" or "Mumbles Stays" will typically see ads from Agoda, Trivago, HotelsCombined etc. purporting to offer great deals on our accommodation. If you click on these ads (please do, it costs them), you'll find that we aren't listed there at all, and you will be offered alternative accommodation. This amounts to brand hijacking; Google let them get away with it because OTAs have the clout and tiny outfits like ours have to advertise our own brand as a countermeasure. What do you suppose Google would say if we wanted to advertise there as Expedia.com or Booking.com? For further insight, read this.
what you could do instead
- Choose where you'd like to go and find a likely looking place to stay; you can use an OTA if you have to, but better establishments will be on Google or Bing Maps.
- If you can't find the establishment's website, contact the local Visitor Centre and ask for contact details.
- Book direct through the host website or ring them up.
what we do instead
While the business was being established, Mumbles was listed on Booking.com, Stayz and other OTAs now defunct. We found that we didn't get a lot of bookings through them, but we did get a lot of humbug, including most of our cancellations (from people who had made multiple bookings). We gave most of the OTAs the flick because we got more business from advertising; it was less stressful, and it cost a lot less. Nowadays we are only listed on two OTAs; these listings are almost obligatory in the industry because some people don't look anywhere else. Both listings, however, are on an "inquiry" basis; it seems to encourage people to look us up.
- Trip Advisor has been the "go to" site for reviews for as long as anyone can remember; we have a wealth of reviews there which are valuable to our business. Unfortunately Trip Advisor's review credibility has evaporated since they quietly stopped verifying them in 2017; hosts that we know of have had issues with fake reviews since. TA charges the consumer a 14% commission which is added on top of the host's nominated tariff, plus a smaller amount which is deducted from the host's payment. Note that a TA "Certificate of Excellence" is based primarily on their commission earnings; in spite of 65 almost entirely five star reviews on TA, Mumbles will never have a TA certificate because we have never had a booking from that source. They're currently threatening to remove our listing because we have a zero acceptance rate!
- Airbnb is the disruptor in the Tourism business, set up to allow homeowners to earn some money from the spare room or granny flat without the inconvenience of ASIC registration, Planning permission, Council permitting, Health and Safety compliance, public risk insurance or any of those little extras that you really don't need (until something goes wrong). Airbnb charge a total commission rate of about 17.5%; like the TA model, most of this is paid by the consumer in addition to the host-nominated tariff. The popularity of the platform has, however, resulted in adoption by legitimate tourism businesses as well; unfortunately its limitations make it near impossible to have flexibility around tariffs, minimum stays or long-stay discounts, or to include upsell packages. Consumers end up paying too much for the basics without knowing what little extras they might be missing out on.
The last words on the subject rightfully belong to people for whom I have the utmost respect.
ABC's "The Checkout" crew did a great job on OTAs in a 2016 segment which is as relevant as ever. Clever visual puns and Pythonesque humour make it well worth another watch!
Dick Smith is a great Australian; a man who speaks his mind and makes a lot of sense. I used to stop by his shop at St Leonards on the way home from school, and chuckle when I saw his yellow truck in the Sydney traffic with "The Electronic Dick" emblazoned on the side. It's great to see a bloke in his 70's with so much passion.
A few months before he died of lung cancer Yul Brynner said in an interview: "Don't smoke. Whatever you do, just don't smoke". OTAs are like a cancer choking the Tourism Industry; we can all help by kicking the habit and consigning them to history.