Study: Shift To Electronic Hotel Distribution Will Be Massive, Swift

Hotel distribution costs will increase significantly during the next few years, with several players now barely a blip on the hotel distribution radar poised to dominate quickly, according to a massive study of distribution channels released last month by the American Hotel & Lodging Association and STR.

Examining data from more than 25,000 hotels, the study showed that slightly more than one-third of all 2010 U.S. hotel room stays were booked through digital channels, including global distribution systems, online travel agencies and hotel websites. Within the next three to five years, that number should reach 50 percent, said NewBrandAnalytics executive board member Mark Lomanno, one of the report's principal authors and a former STR president. Most of those bookings will be through mobile devices, he said.

"This is the critical finding--not a surprising one, but one that will change the evolutionary process of the business," Lomanno said at the recent Americas Lodging Investment Conference here.

From the hotelier's perspective, the cost implications are large. While the average rates hotels pay for electronic distribution channels likely will decrease over time, those channels' increasing share means that hotels will have to pay about double what they do now, said The Estis Group's Cindy Estis Green, another principal author of the study.

Even hotel brand websites, which carry much lower distribution costs than third-party sites, will be a part of that expense because they will not be most travelers' first point of entry, Estis Green said.

"With the proliferation of points of entry for consumers, and the fact that there are going to be gatekeepers like Google and Facebook and Apple, chances are those will have some contact with the customer even if they end up booking at," she said. "This is a serious cost that could affect the hotel's profit picture but could also create opportunities for the hotel industry to better compete against one another."

Upper tier properties, not surprisingly, already get significantly more bookings from electronic channels than lower tier properties. While OTAs in 2010 counted for a slightly larger share of total revenues for midprice and economy hotels compared with upscale and luxury hotels, more than three-quarters of economy hotel room revenue still came from property direct bookings--a motorist pulling over on the evening to an interstate-side motel, for example. More than 60 percent of midprice hotel revenue also came from property-direct bookings. GDSs accounted for little revenue for economy and midprice hotels, while they accounted for about 15 percent of revenue for upscale, upper upscale and luxury hotels.

Estis Green said such metasearch sites as Kayak, Room 77 or the recently launched Roomkey will become dominant in the coming years, particularly as new players enter the field. She noted potential for Apple's iTravel patent--which the company has not used to launch a product--and such voice assistants as Apple's Siri, Google's Majel and Microsoft's Tellme.

Google's metasearch tool, Hotel Finder, also remains a work in progress, with recent tweaks that allow travelers to search hotels by distance, said Rob Torres, Google's managing director of travel.

"Speed and transparency are the big things with us," Torres said. "Google's definitely got the engineering power and the brain power, and we're now tapping into some of those people for travel, so stay tuned. You'll see a lot more innovation in what's happening."

Social networking sites, including TripAdvisor and Facebook, also are increasingly becoming launching pads for bookings, Estis Green said.

This means hotels will need to invest more in managing these channels and decide which ones provide the best return for their dollars. Several brands have worked on "attribution models" to figure out exactly which channels influence travelers, Estis Green said. During that time, the "revenue manager" role at a hotel is likely to evolve more into a "profit manager" role, Lomanno said.

Meanwhile, the bane of many travel buyers is the tendency for travelers to continuously hunt for hotel rates that are cheaper than negotiated rates. Research has indicated that many travelers visit at least 10 sites before making a booking decision, Estis Green said.

But metasearch players seek to change that mindset.

"We do not want people searching 15 to 18 times," Google's Torres said. "We want them searching once or twice, and we're going to continue to try to solve that problem at Google."

GDSs in coming years might see their slice of the distribution pie shrink, but that's only as the overall pie gets bigger, Lomanno said. GDSs increasingly will seek content deals with non-GDS sources--Amadeus' recent deal with the Germany-based Hotel Reservation service, for example, or Travelport's partnership with Hotelzon--as a "defensive tactic" against emerging content providers, Estis Green said.

She does not expect the GDSs to be supplanted as the dominant supplier of managed travel bookings.

"To the extent that there are still travel management companies, that business is going to stay, because they need expense tracking and other kinds of services," Estis Green said.