[Update]: There are changes coming within the OTAs but I doubt there will be much without
A few notes from the other side.
I wrote up a few details on the nature and character of the two scaled OTA’s earlier this year. I spent nearly 6 years working in the industry, and I had a few insights which are generally missed by those outside it:
The online travel market is much more prone to upheavals than most realise, and it looks as though we are in the early stages of yet another subtle transition. To be clear, in the recent past most turmoil in the wider travel market has worked in favour of the OTAs. This time around feels a little different, as the channels for both online advertising, and operator acquisition seem to be a little in flux. How this works out longer term is a question that seems to hinge on just how useful the chat interfaces are in the consumer space. My own opinions here are mixed, but my strong feeling is that the status quo will prevail.
I. The way things have been
Most will realise that a scaled OTA typically benefits from a network effect. I think what most people do not realise is that an OTA can not only reinforce its market position, but also make itself far less reliant on network dynamics, by acting as an advertising purchasing agent for its operators. Nick Sleep identified this competitive advantage some years ago. At first you scale, then you drive profits, and then you use your profits to invest in advertising at scale which limits competition and recursively makes your own market position better. What an OTA is, ultimately, is efficient guest acquisition for operators.
Booking is the ultimate example of this year. Immediately prior to the pandemic, they were spending about $1B annually on Google AdWords. Ironically, paying these tolls to the Alphabet advertising monster also made them less likely to try and compete directly at the point of the transaction. Although there are plenty of other reasons why this was true (optimising the search experience for travel would make you an OTA and not a search engine for one). For Booking, their advertising advantage is yet another explanation for their sometimes contentious relationship with the hotels that they “serve”: they are able to outcompete boutique and independent hotels for AdWords.
Airbnb, in stark contrast, scaled by having virtually no significant sales & marketing spend. They had inventory people wanted. They had a novel customer experience. Their name became a verb. They had a lot of things going for them - including having excellent product, design, and software development in an industry where typically none of those things are true. During the pandemic they massively pulled back on “performance” marketing, in favour of “brand” marketing. This has more or less been their strategy up until today. They sell the idea of a Airbnb, not any specific Airbnb. Booking, by contrast, sells room nights. They aren’t selling an experience, they’re selling on behalf of their customers.
II. The operator perspective
The emergence of the LLM chatbot has posed a number of questions about how the traditional pipeline of traffic will flow in the internet to come. I’m a little sceptical of arguments that claim that chatbots (or god forbid agents) will be a determining factor in apportioning eye balls in exactly the same way that search was. At this point, it’s basically too expensive for agents to play a outsized role in ecommerce - no one is going to pay $20-$140/mo + usage fees to optimise their personal travel itineraries. Agentic commerce may well be for the world to come, but it’s not quite a reality for the world as it is. Agents have broad, and frankly stunning, B2B applications but their proposition to the consumer at this point is a little less clear. So much relies on how expensive tokens will be on a longer term basis, and I’m not sure anyone has a great insight to how this will pan out.
What is becoming imminently apparent, however, is how the incumbent players are using some of these applications to change the discovery process during the entire booking process. If you’re not super familiar about what inventory the scaled OTAs typically sell, it skews to the smaller end of their respective markets. Most of Booking’s earnings are attributable to the “long tail” of boutique and independent hotels. The same is true of AirBnb, who naturally over-index on a cottage industry of mum-and-pop single (or small multi) operators. For the last decade or longer, most large hotel chains and franchises have been moving to “direct” bookings, and typically they in-house their own reservation systems which typically don’t even have the ability to connect to third party OTAs. I remember trying to connect the Double Tree at Alice Springs (a Hilton sub-brand) to our OTA channel for a promotional campaign a few years ago. They quite literally had to go out and buy separate channel management software that didn’t even connect to their central PMS. Pretty bizarre stuff - but the strong impulse of these outfits is to keep everything in-house.
In any event, the new narrative that is being whispered around only the most ridiculous parts of LinkedIn, is that LLMs will push more and more around the OTAs, and go direct to the operators. This is a tale I have heard a million times before and it is, in fact, one I have spun myself as a way to illicit operator interest in my own projects. The lifecycle of an Airbnb listing is pretty illustrative in this respect. A retiree with a few investment properties decides they are going to take them out of the rental market, and put them into the short term rental market. Typically, they can offer a nightly rate which is competitive compared to hotel/motel accommodation, give them a competitive yield versus what they could get renting the place longer term, and enjoy flexibility not compatible with renting the place out. The first thing these people do is set up on Airbnb. They do not purchase property management software before this. They do not set up their own website before this. In truth, most of these people will do neither over the lifetime of their property being on the short term rental market.