Can niche OTAs compete with the big guys?

GLOBAL REPORT—Two new online travel agencies, one in beta, the other imminent, will lower costs for hoteliers and consumers, say spokesmen for www.mybesthotelrate.com and www.globalhotelexchange.com.

My Best Hotel Rate is a collaboration between the Asian-American Hotel Owners Association and Innlink, a long-time player in the hotel reservations space. Global Hotel Exchange is the latest project of Tom and Melissa Magnuson, owners of Magnuson Hotels. The first runs on commissions, like conventional OTAs. The second runs on fees. Both are designed to restore pricing control to hotels and make booking easier for the consumer.

While their spokesmen are expectedly upbeat, others say it’s too expensive to establish a new OTA, and persuading brands to load inventory onto one and getting consumers to use it are prohibitive challenges.

Bruno Perez
VP of RevPAR Guru

Meanwhile, 500 AAHOA members already have loaded rooms onto mybesthotelrate.com, said Fred Schwartz, president of AAHOA. The largest hotel lobby in the United States, AAHOA, with 10,000 members, represents 40% of all U.S. hotels. “The goal is to leverage the size of our association,” Schwartz said. “With 20,000 hotels, we’ve got immediate inventory to put on the site and we’ve got an opportunity to put heads in beds for our members who are in trying economic times.” The commission is 8% to 10%, significantly lower than the common OTA commission of 25%, he said.

“Hotels have kind of felt like they’re struggling to make their margins,” said Kristin Intress, CEO of Innlink. “OTAs are going to have to be more creative in how we make a win-win for everybody.”

Tom Magnuson said Global Hotel Exchange would roll out in the U.S. and the U.K. in January, providing no-cost distribution to high-volume channels, such as Google. Consumer fees of $3 to $4—the only cost involved—will finance GHE, he said. How will he get consumers to the site? Citing the “competitive nature” of the field, Magnuson refused to go into detail, saying only that GHE will “focus very highly on search engines, we will focus very highly on social (media), and on our concept of market-based pricing.” The Magnuson OTA will feature a comparison component providing a 52-week cost range. Magnuson said he has been in conversations with “the top 10 or 15 U.S. chains” regarding inventory, and “the responses are pending.”

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“Because we’re privately held, I’m not able to disclose that,” he said of the rollout cost. “However, we are fully capitalized; there’s a good amount of support behind this effort.” His chain is on board (Magnuson Hotels represents about 2,000 independent hotel owners). “As a hotel owner, I cannot think of any hotel that would not want to take back control of the margins and pricing in this unstable economic environment,” he said.

Clues to the new direction
Some observers who track hotel distribution have doubts about these new entries, though one suggests they’re the first wave of smaller, more focused OTAs. Bruno Perez, VP of RevPAR Guru, said the big gorilla is Google Hotel Finder, a “platform” in beta that links to OTAs and sports a rate-comparison component. Also joining the OTA fray: niche players like Hipmunk.com and Benefitinn.com. The first stresses simplicity. The second promises especially deep discounts to employees of independent hotels.

Max Starkov
Chief eBusiness strategist at Hospitality eBusiness Strategies

Perez predicted more specialized OTAs and more travel agents migrating online. “If the consumer is going to pay for it, I don’t know if it’s going to succeed,” he added.

Max Starkov, chief eBusiness strategist at Hospitality eBusiness Strategies, doesn’t think new OTAs will succeed. “At the end of 2011, it is very naïve to believe that you can establish a new travel consumer brand on the web,” he said. “The main reason is it is extremely expensive to establish a new online travel consumer brand.” He said Orbitz, which in 2003 was the last major OTA to launch, spent some US$300 million over three years—and, like Travelocity, is fading, in contrast to Expedia and Priceline. Magnuson and My Best Hotel Rate don’t have a chance, he said.

“Magnuson will create the hotel exchange but nobody will go there. Why would it be a better deal than people would find on Expedia?” Operating on fees alone dooms it, he suggested. “How will it survive? Who will pay for the hosting, website maintenance, advertising if you’re not charging the suppliers on this website?”

As for My Best Hotel Rate, “nobody except us in the industry knows who AAHOA is,” Starkov said. “How are you going to convince somebody who’s already using Expedia, Orbitz, whatever, to go to AAHOA’s website? You have to spend millions and millions of dollars in advertising—in this economy? Come on. That’s why I say both of these noble initiatives, unfortunately, are naïve, impractical and unrealistic in today’s market.”

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